The real cost of a retirement community

Just how much will it cost to move into a retirement village? Our resident finance expert crunches the numbers for you.

The most common question I get asked is, “How can I crunch the numbers on moving to a retirement community?”

The simple answer is to get a Village Guru report from the community you’re looking at moving into – that way the numbers are crunched for you. But if your chosen village won’t give you one, then you’re going to need to crunch the numbers for yourself or get someone who knows how (like a specialist adviser) to do it for you.

It’s important to know that using rules of thumb such as, “If I sell this house for more than I pay for my new home, it’s affordable” are dangerous. Likewise, comparing villages based on purchase prices or the exit fee percentage can be just as misleading, because you’re only looking at one part of the transaction. You need to make sure you’re clear about what you’re going to pay to the village upfront, while you live there and when you leave.

Downsizing to a retirement community can have much wider financial implications than what you pay to live there. You also need to make sure you understand the implications

Case Study: Helen and Tom

Helen and Tom are full pensioners who are looking to downsize into a retirement village. Their current home is worth $850,000, they have $300,000 in investments and $50,000 of personal assets, including a caravan. The village has given them two payment options: pay their deferred management fee at the end or upfront for a discount. Here’s what their finances will look like…

Source: Village Guru Essentials Report on your pension (if you receive one); whether or not you will be eligible for rent assistance; how much money you’ll have left over to spend or invest; your cash flow; how it will affect your home care package fees; and your longer-term financial position if you need to move into aged care or when you pass away (how much you are going to get back and how soon after you leave).

My simple methodology for crunching the numbers is called “Ingoing, Ongoing and Outgoing”. Take a piece of paper and divide it into three sections called “Ingoing”,

Finances A Finances

“Ongoing” and “Outgoing”. Breaking down the transaction like this makes it much easier to see what you’re going to pay and when. If you’re comparing one payment option with another or perhaps two different villages, then you can draw a line down the middle of the page and look at them side by side.

So what goes in each box?

The Ingoing

This is the price you pay for your home and to use the common facilities – in a retirement village, your contract is often a leasehold or licence arrangement. In a land-lease community, your contract has two parts – you buy the home and have a lease over the land. If your new home is in a strata-title village, then the amount you are paying is to own the home and have use of the common facilities (often through an owner’s corporation).

All transaction costs should go into this column. For example, there may be legal or administration costs associated with having your contract drawn up or having your leasehold registered on the operator’s title. If it’s a strata-title village, then you may need to factor stamp duty into the ingoing costs (which doesn’t normally apply in land-lease communities or retirement villages that are not strata title).

In some communities, you’ll be given options for caravan or boat parking, additional car parks or storage cages. These should be added to the purchase price.

The Ongoing

Retirement village residents pay a weekly or monthly fee to cover the running of the village, often called a “general service charge”. This charge is similar to the costs of an owner’s corporation, where a budget of expenses is prepared, residents are able to have input, and the fees are levied on a cost recovery basis.

In a land-lease community, the ongoing fee is called a “site fee”, which is the price you pay to lease the land on which your home sits. Unlike in a retirement village, land-lease communities charge market prices, so they tend to be higher, but this is often offset by a lower or no deferred management fee (DMF) at the end.

In addition to the cost of the community you live in, you will still have your own personal expenses: groceries, clothing, utilities and ad hoc expenses like travel. If you get a homecare package, then you need to factor in those costs, too.

It’s a good idea, as a separate exercise, to create a budget. In your budget, include your personal expenses as well as the village costs together with your income. Make sure you adjust your investment income for any change to your investments (most people free up equity from their home when they downsize) and make sure you include any age pension and rent assistance entitlements based on your new financial position and how your contract is treated by Centrelink – these may be quite different to what you currently receive.

The Outgoing

The greatest confusion of retirement community costs is around the exit fee, the biggest part of which is normally called the “deferred management fee” or DMF.

The DMF is typically a percentage of either your purchase price or the next sale price: anything between 25 per cent and 40 per cent is common but anything between 0 per cent and 100 per cent is possible.

To calculate your exit fee, you may also need to factor in your share of any capital gain or capital loss with the operator and, like other property transactions, there can be costs associated with selling your home, such as renovations and marketing expenses as well as sales commissions.

Unlike most other property transactions, the amount you get back may be paid to you before your home sells under what is known as a “buyback”. This can be as short a period as three months or as long as 18 months. (Of course is there’s no buyback, you’ll receive your money when your home sells.)

Making it simpler

Working out these figures can be complicated, especially if you are trying to compare different contract options, different homes or different communities. At Aged Care Gurus, we have created a software program to help take the financial confusion out of crunching all the numbers: it’s called Village Guru. It enables the village to provide you with a report showing the ingoing, ongoing and outgoing village costs, together with an estimate of your Age Pension and Rent Assistance entitlements and Home Care Package costs. It’s great information to have and can save you a lot of time and worry, but it is not financial advice. You should seek advice from a retirement living and agedcare specialist adviser to ensure you get the best outcome for you.

ACG

Rachel Lane is the principal of Aged Care Gurus, where she oversees a national network of specialist advisers. She writes regular columns on retirement living and aged care for The Sydney Morning Herald, The Age and The Brisbane Times, and makes frequent appearances on television and radio. Rachel has co-authored a number of

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International Day of People with Disability 2022

very year on 3 December, people around the world take part in International Day of People with Disability (IDPwD). It is a day to celebrate the contributions and achievements of people with disability and promote awareness, understanding and inclusion in our community.

Carers Queensland, as the largest NDIS Local Area Coordination Partner in Australia, plays a key role in helping to raise the profile of people with disability in our communities – their achievements, their voice, their needs and their aspirations.

Our 2022 IDPwD campaign theme, ‘Celebrating Inclusion. Creating Opportunities.’, highlighted and celebrated the changes already taking shape in our communities.

At the same time, it challenged misconceptions and explored opportunities to work with and learn from people with disability to understand what inclusion looks like to them.

As part of the celebrations, Carers Queensland hosted a special event in Brisbane, shining the spotlight on innovators, creators and storytellers living with disability.

Attendees enjoyed a special screening of short films ‘We’ll Always Have Dance’ and ‘Sunshine’ (from Bus Stop Films) and heard from two of the films’ stars, Allycia Staples and Olivia Hargroder.

A panel of people with disability – including advocates, academics, athletes and business people – shared their stories and challenged the way in which we think about disability.

We also developed a range of downloadable resources to support schools, workplaces, and the broader community in helping raise community awareness among all Australians about disability inclusion.

You can access these resources at: carersqld.com.au/idpwd/resources/

The campaign encouraged people to take action throughout the month of December, and all year round, to help make Australia a more inclusive society for people with disability.

Our sincere thanks to all those who helped make this event such a success!