Later-life accommodation options: Retirement living and aged care explained

Nov 26, 2020
This guide helps direct retirees into the lifestyle that will best suit them. Source: Getty.

People are living longer, which means more and more of them – and their families – are having to look at options for retirement living and aged care.

In the past, retirement villages and residential aged care facilities (which we used to call ‘nursing homes’) were two very separate types of accommodation. Retirement villages were aimed at older Australians who wanted a low-maintenance home and access to lifestyle facilities and a ready-made community, while residential aged care facilities were designed for more elderly people for whom living independently was no longer possible, usually for health or mobility reasons.

While retirement villages more often offered standalone residences, residential aged care facilities offered suites or rooms or even simply a bed in a ward.

Increasingly, however, retirement village operators are building facilities that offer different types of accommodation and accompanying levels of care, so residents can move between them as their needs increase. There is also a trend in new property developments that embrace older people by building apartments with no steps, wide doors for wheelchairs and walking frames, separate apartments for carers and common areas for socialising. Again, residents can live independently or with increasing assistance as they get older.

Although we all wish to remain in own homes, in good health, until well into old age, for most people some form of assisted living will be required at some stage.

But with options increasing, the aged care and retirement industries have also become more complicated and decisions often involve large sums of money. No one should be too hard on themselves because they don’t understand the options. Thankfully, there are people around who can help assist with making the move into retirement villages and aged care.

The aged-care funding issue

Decisions around later-life accommodation can also be complex because such decisions should take into account the government subsidies available for older Australians who require some level of care.

The problem for the government is that the more people who move into residential aged care facilities, the greater the amount of subsidy that the government must pay. The federal government pays close to $20 billion a year to support Australians in aged care. It has indicated, via the Aged Care Roadmap, that it wants people live at home longer, reducing this outlay. For the government, retirement villages represent a good half-way house because they require less government funding.

As an example, for each aged-care resident who is judged to be high care in the three key areas – activities of daily living, behaviour and complex health care – the government must stump up $223.14 per day or $81,446 per year. For residents judged to be low care in each of these areas, the amount drops to $64.01 per day, or $23,364 per year. It is a massive difference.

A person who needs to be approved for government funded services – including aged care, home care, residential aged care, transition care or respite care – must complete an aged care assessment (ACAS) by an Aged Care Assessment Team (ACAT), usually via the government’s aged-care portal My Aged Care. The assessment is used to make a recommendation for the type and level of care that will best meet a person’s needs.

Retirement villages

Deciding to move into a retirement village may seem a sensible option in a person’s senior years but the retirement living industry requires many documents to be read and absorbed and decisions to be made involving large sums of money. Many contracts for retirement villages run to more than 100 pages, and include clauses enabling the operator to force people to move out if they are deemed no longer to be able to live independently.

While the price paid for a room in residential aged care is fully refundable and guaranteed by the government (you’ll find more information on this topic below), the fees and costs deducted from the amount originally paid for accommodation at retirement villages, which as mentioned above, may or may not have aged care services available within the village or aligned with the village, can be significant.

Ultimately residents (and their families) must understand that they are making a lifestyle decision and not a financial investment when they enter a retirement village. Some retirement village operators have come under criticism because of deferred management fees, also known as  exit fees, that were charged on units. For example, in a worst-case scenario, when a person sells the unit, or leaves, a large percentage of the value of the unit can end up with the operator.

In recent years big retirement home operators have introduced new payment options for management fees and while these have meant more choice for consumers, the changes have further complicated what some complain is an already obscure industry.

Depending on which operator you are dealing with, people generally have four types of agreements to choose from when trying to select a retirement village:

  • a long-term lease/licence
  • a strata title
  • a company title scheme or
  • a rental agreement.

When you commence discussions with a village operator, they are required to provide you with five pieces of information:

  • a copy of the residence contract
  • a copy of the management contract
  • the disclosure statement
  • the village factsheet and
  • the village rules and by-laws.

Whereas several years ago exit fees were typically 3 per cent of the value of the unit per year of residence, capped at 30 per cent, some owners of retirement villages today charge a flat fee of 15 per cent of the value of the unit if a person leaves within the first year, 25 per cent if the person leaves between one and two years and 40 per cent if the person leaves after two years. As such, people considering purchasing in a retirement have to take the length of time they expect to live in the accommodation into account when making their decisions.

Ownership in the retirement village sector is widespread, with the top five operators controlling only 28 per cent of the market. The balance is controlled by community and church-run not-for-profit operators and smaller owner-operators.

Vertical retirement villages

‘Vertical retirement living’ is the latest buzz phrase in retirement living and aged care. The term refers to high-rise buildings, often upwards of 10 storeys, into which retirees can move from the family home. They offer independent apartment living with communal areas and many are linked to aged care developments, either in the same building or next door, where retirees can transition as they get older and require greater levels of care.

Couples can remain close to each other if one needs to move sooner than the other. Clearly, having one parent in an retirement village apartment and the other in nearby residential aged care is not a cheap arrangement, and may be out of reach of many families. It also depends on bed availability.

Typically, vertical retirement living offers retirees urban living, which is not something they tend not to get in standard retirement villages that are typically situated in outer suburbs. Many people who have lived in or near the middle of a city want to stay in the area, near their friends and families and near the vibrancy and the culture of city centres.

If you’re getting into the retirement village system or are looking into it for an older loved one, there are ten must-ask questions you should pose to the retirement village operator if you wish to ensure the property is suitable for long-term accommodation:

  1. Each move is distressing for an older person, and ideally we want our parents to move only once. Can our parents move to a higher-care area in your complex as they age?
  2. Can you match your services to our parents’ requirements and will you continue to be able to do so as they age and their health declines?
  3. Will their financial commitment increase over time?
  4. Can my parents be forced to move out of your facility if their health deteriorates?
  5. Who determines this and how much time will they be given to move?
  6. We may need our exit fee in order to move a parent into aged care. We have heard that this can sometimes take up to two years. How long will repayment of the sale price minus the exit fee take at your complex? Can I appoint a real estate agent to sell my unit?
  7. If one of my parents dies or moves into aged care, can the other stay in the same retirement unit?
  8. Does your complex have facilities to cope with people who develop dementia?
  9. If you have an aligned or attached residential aged care facility, does it have a dementia ward?
  10. If it does have a dementia ward, is this a secure ward?

Aged care facilities

Moving from a private dwelling into a residential aged care facility, skipping any retirement living option such as a retirement village (even those with aligned aged care facilities), typically occurs when health issues dictate that the person needs more care than can be provided by family carers or subsidised home care services.

Different families look for different things at residential aged-care facilities, however the core features should include:

  • meeting the needs of the resident, including number and quality of nursing staff, therapy services offered and assistance with personal care
  • basic services such as beds, bathroom/en-suite facilities, mattresses, linen and bedroom furniture
  • the ability to provide a range of care needs if a resident’s health declines
  • ongoing daily programs and activities to engage and stimulate the residents and
  • close proximity to family.

The aged care industry is predominantly ruled by federal law, although some aged care facilities known as ‘supported residential services’ are governed by state law and so are registered with and monitored by state governments. These supported residential services facilities are generally private businesses and there is no government guarantee on any bonds paid by residents.

There are several types of costs that can be attached to residential aged care:

  • Refundable accomodation deposits (RADs)
  • Standard daily care fees
  • Means-tested fees and
  • Extra services fees.

A RAD, formerly known as a bond, must be paid to gain a spot at an aged care facility, and comes with three options – pay in full, part-pay the RAD and pay interest on the balance (set at 4.1 per cent per annum), or pay interest-only on the whole amount. A RAD can be as high as $2 million to secure a bed in an aged care facility, but in many cases these RADs are negotiable. Willingness to negotiate on RADs depends very much on the demand for beds – and the supply of beds – in a particular aged care facility.

It is important to note that the RAD is a fully refundable deposit, not an investment. Essentially, it works like an interest-free loan to the aged care facility. These deposits form an important part of aged care facilities’ financial operating models, enabling them to renovate and upgrade their facilities and build and acquire new facilities. In a government-accredited aged care facility, the accommodation deposit is fully government guaranteed.

Federal laws set down daily fees that can be charged by aged care facilities and the interest rates that they can charge on unpaid proportion of the RAD.

The standard daily care fee for a resident in an aged care facility ($52.25 per day) is set at 85 per cent of the full Age Pension, and all residents must pay this fee. However, it does not cover the full care costs of the resident.

The government may ask the resident to pay an additional amount as a means-tested fee and then will pay a subsidy for each resident’s care needs to make up any shortfall. The means-tested fee is set by the government and collected by the aged care facility based on an individual assessment for each resident. It is an attempt by the government to ask residents with the financial capacity to contribute to the cost of care. This fee can range from nothing to a maximum $256.44 per day.

The extra services fee, which can be as much as $120 per day, provides for additional services like a choice of meals, alcohol at meals, expanded activities program, cable television etc.

IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.

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