Before you sign on the dotted line: the retirement community questions that could save you a fortune

The idea has been floating around for a while. Somewhere smaller, easier to manage, surrounded by people at the same stage of life. A pool, perhaps, or a bowling green. Lock-up-and-leave when you want to travel. Less lawn. Less worry.

Retirement communities have genuine appeal – and more Australians than ever are moving into them. But the financial structures that underpin them are complex, the contracts are long, and the decisions you make on the way in will determine how much money you walk out with on the way out. Getting it right matters enormously. Getting it wrong can cost you tens of thousands of dollars.

Here is what you need to understand before you sign anything.

Two structures, one important difference

There are two main types of retirement community in Australia, and understanding the difference between them is the starting point for everything else.

In a retirement village, you pay a Refundable Accommodation Deposit – known as a RAD – which gives you a leasehold over your unit. You then pay an ongoing general service charge that covers the running of the shared village facilities. You do not own your home outright. When you leave, you receive your deposit back – minus an exit fee, which we will come to shortly.

In a land lease community, you buy your home outright but lease the land it sits on, paying ongoing site fees. You do own your home, which means you keep the capital gain when you sell and retain 100 per cent of the sale proceeds, less renovation and selling costs. Exit fees are uncommon in land lease communities.

The ongoing site fees in land lease communities are typically set at market rates, which can make them higher than the general service charge in a retirement village. But the key advantage is that you keep your capital.

What Centrelink needs to know

For anyone on the age pension, how Centrelink treats your new home is one of the most important financial factors to consider – and it differs significantly between the two structures.

In a retirement village, you may be eligible for rent assistance if your purchase price is $258,000 or less. In a land lease community, you can be eligible for rent assistance on the site fee regardless of what you paid to buy the house. For pensioners, that distinction can mean a meaningful difference in weekly income.

The exit fee – where most of the surprises hide

When you leave a retirement village, the largest cost you will face is typically the Deferred Management Fee, commonly known as the exit fee or DMF. This is usually between 25 and 40 per cent of either your purchase price or your resale price. You may also be sharing any capital gain – or capital loss – with the operator.

On a $500,000 unit, an exit fee at the higher end of that range could mean $200,000 leaving your estate.

Some communities offer alternative payment structures. The general rule of thumb is straightforward: the more you pay going in, the less you pay going out. If, for example, an exit fee could be negotiated down from $300,000 to $200,000 in return for paying more upfront, your assessable assets for pension purposes would fall by $100,000 – because you would be converting an assessable asset (cash) into a non-assessable one (your home). That could increase your age pension income by as much as $7,800 a year for as long as you lived there. That is a very meaningful outcome.

Buybacks – and why they matter if aged care is next

An important feature of most retirement village contracts is the guaranteed buyback. This means that when you leave, you may not have to wait until your home is sold before you receive your money. State legislation across Australia sets minimum timeframes – usually between six and 18 months – but some operators offer much faster buybacks of three months or less. It is worth asking specifically about buyback terms when comparing villages, as they vary significantly from operator to operator.

This matters particularly if your next move is into residential aged care. The current interest rate on any unpaid RAD is 7.65 per cent per annum. If you are owed $500,000, receiving it in six months rather than 18 months could save you around $38,000 in interest. That is not a small sum.

Buybacks are far less common in land lease communities – something worth factoring in if you think aged care may be a consideration in the years ahead.

The access to equity problem

Many people assume that moving into a retirement community is simply exchanging one form of property ownership for another – and that if they ever need to access equity, options will be available. In most cases, they will not be.

In retirement villages, borrowing against your accommodation is generally not possible because your title is leasehold rather than freehold. Even strata units often have caveats in place to ensure exit fees are paid before any proceeds are released. Government schemes such as the Home Equity Access Scheme also require a property interest that a lender will accept as security – a condition that leasehold arrangements typically cannot meet.

For most people moving into retirement communities, using their accommodation as a source of capital later in life is simply not an option. It is worth understanding that before you move in, not after.

Think about tomorrow, not just today

The design of your home matters more than you might think at the time of purchase. Steps, narrow doorways and inaccessible bathrooms that seem inconsequential today can become genuine obstacles in a few years. If you plan to age in place – and most people do – look carefully at how a home is designed for the long term.

It is also worth thinking carefully about what care will cost if you eventually need more than a little help, and how you will fund it. The cost of home care has risen sharply since the government’s Support at Home reforms came into effect in late 2024, and the options for drawing on equity in a retirement community are limited.

Before you sign: the non-negotiables

You must be given a copy of the proposed contract at least 14 days before signing – in some states the required period is longer – and you are entitled to seek independent legal and financial advice before committing to anything. Take both opportunities seriously. Retirement village contracts are long, complex documents, and the details that matter most are often not the ones the sales team will walk you through.

Ask every community you are considering to provide a clear, plain-English breakdown of what it will cost to move in, live there and eventually move out. Tools such as the Village Guru report – developed by financial adviser Rachel Lane – are designed to do exactly that, including estimates of age pension entitlements, rent assistance and likely home care costs, allowing you to compare options side by side before making a decision.

Retirement communities can offer genuine lifestyle, security and connection. Many people are deeply happy in them. But they are not all created equal financially, and the differences are often buried in documents that take considerable experience to interpret. A little clarity upfront – and the right professional advice – can save a great deal of money and stress down the track.

This article is general in nature and does not constitute financial advice. Before making any decision about retirement living, seek independent legal and financial advice from a qualified professional.