Should you consider living in a retirement village?
- Financial Planning
Retirement villages have an inherent appeal for those who are considering re-organising their accommodation and lifestyle options when they retire. They offer the advantages of independent living in your own space, without all of the time-consuming maintenance you have when you own your own home.
But the recent spate of bad press about some of the financial aspects of entering a retirement village has highlighted the importance of knowing what aspects to consider when moving into a unit. So how do you weigh up the pros and cons and make a balanced decision on whether it’s the right move for you? Here are some pointers to get you started.
Decide on your lifestyle priorities first
It’s important to look at the retirement village option primarily as a lifestyle decision. It’s certainly not something you should view as an investment choice because there are a few financial sacrifices you’ll make in order to obtain the lifestyle benefits villages can offer.
The appeal of village life stems from some key factors including a higher level of security, more social engagement and hassle-free living. With so many communal facilities on your doorstep, such as dining rooms, swimming pools and other organised social activities, you’ll find you can spend your time enjoying this aspect of village life.
You can create a social hub within the community of a village
Many residents are attracted by the idea of the village operator taking care of any property maintenance issues such as repairing or replacing appliances, gardening and the payment of rates and insurance. This means you can enjoy hassle-free living in your advancing years, giving you the time to do want you choose to do.
Making life easier
Another major advantage of retirement village living is that your health concerns are catered for. You’ll have far more peace of mind with registered nurses available at certain times and an emergency help alarm button installed within each residence.
If you’re less able to prepare meals or do other household chores, the village can often help you link up with home care service providers who can assist with these tasks. All of these lifestyle attractions, however, must be weighed up against the costs involved.
So how do the finances work?
When it comes to the financial aspects, the first thing you need to understand is that moving into a retirement village has some fundamental differences to owning your own home. When you buy a home, the normal process is to simply pay the purchase cost and sign a contract which gives you freehold title. When you buy into a retirement village, it’s usually based on a lease or licence contract, with a more complex cost structure, involving a combination of an entry fee, an exit fee and an ongoing service fee.
The entry fee is usually set at a level which may seem appealing when compared to homes of a similar standard in the same area. In many cases, the entry fee may be lower than the sale price of your home, giving you the opportunity to free up some capital for other lifestyle purposes.
This initial attraction must be tempered, however, by looking at the long term picture and the impact of the exit fee which will be charged when you leave the village. Exit fees, (sometimes referred to as a deferred management fee or DMF), usually involves a complex calculation which reflect a sharing of capital gains between the resident and the village. The amount of the exit fee is usually also heavily dependent on the length of time you’ve been a resident at the village. This allows the village operator to retain some of the capital they’ve foregone when setting the entry fee.
Before signing any contract, have a lawyer review it and make sure you understand all fees and how they'll be applied
The monthly service or maintenance fees can also be quite substantial, so this must also be taken into account when assessing the overall financial viability of village life for your circumstances.
These fees do cover a broad range of items including the village’s staff wages, council rates, maintenance of your home internally and externally, building insurance, rubbish removal and your emergency call button if you have one.
While these fees can seem high, if you do the sums, it usually works out very similar when comparing the cost of living in your own home compared to the cost of living in a retirement village. However, be aware you can sometimes miss out on some of the capital gain your retirement village unit may have made over the years, when you go to sell it or move out. This is all up to the type of contract you’ve signed and the terms of that contract, so make sure you look into this aspect in thorough detail.
Going in with eyes wide open
A failure to fully appreciate and understand the fee structure of retirement village living can result in dissatisfaction, as recent media reports have suggested. On the other side of the coin, the peak body for retirement village operators, Retirement Living, cites research which suggests the vast majority of village residents are happy with the move. This survey, conducted in 2013 reported:
- 91 per cent of the more than 5,000 respondents were happy with their decision to move into their village;
- 90 per cent said their decision to move was a good financial decision;
- 91 per cent said their social life has either improved or stayed the same;
- The ability to stay independent, live in a safe environment and use on-site facilities were the biggest factors behind people’s decision to downsize to a village.
The bottom line is you should always get expert legal advice on the contract before you enter a village and this way, you’ll know what the responsibilities and financial ramifications will be. Speaking to a financial planner will also enable you to look at the retirement village option in the wider context of your overall financial planning, so don’t hesitate to seek professional advice.
What are your experiences of moving to a retirement village? Share your thoughts below.
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This information was provided to the readers of WYZA® courtesy of Bridges Financial Services Pty Ltd (Bridges). ABN 60 003 474 977. ASX Participant. AFSL No 240837. This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this information, you should assess your own circumstances or seek advice from a financial planner and seek tax advice from a registered tax agent. Information is current at the date of issue and may change. Bridges is part of the IOOF group.