Bina Brown is a financial journalist with a long track record of writing for leading publications including The Financial Review, The Australian, CNN.com and respected websites such as SuperGuide and UNSW Business Think. After writing about aged care for more than two decades she established her business Third Age Matters which focuses on navigating the aged care system.
They are marketed as being the optimum lifestyle choice for recent retirees, often in ideal locations with all the facilities for a stress-free lifestyle. But with complex fee structures and State based regulation, retirement village living isn’t for everyone.
Before becoming emotionally attached to the idea of living next to a golf course or an ocean, or the prospect of no more home maintenance, consider how long you are going to be able to enjoy all the lifestyle options and whether you can afford them.
Affordability is particularly relevant because of the way operators build into a contract the cost of living within a village, by way of the recurrent charges and the cost when it comes time to sell.
The retirement village sector is complicated further by each State and Territory having its own legislation.
It makes reading and understanding any retirement village contract – which may be 100 pages or more – a must.
There are three main contract and finance models used by the country’s estimated 2000 retirement villages: outright ownership which gives the villa or unit owner a title over the unit; the loan licence model, where the bulk of the ingoing contribution is set up as a loan to a village operator in return for a licence to occupy the unit, and the leasehold or sublease model.
In each case there is an ingoing contribution, often similar to the cost of buying the property (if this was possible). A departure or exit fee will be applied, based on the length of time someone lives in the property.
Operators also charge weekly, fortnightly or monthly fees, called recurrent charges, which cover the day-to-day operating costs of the village and may or may not include rates, water, electricity, maintenance of common areas and staffing costs.
Depending on the legal structure, residents may or may not share in any capital gain in the value of the unit when they leave the property. A resident can also be asked to contribute towards the refurbishment of their unit before it is sold.
Departure or exit fees are unique to the retirement village sector.
The calculation of how much is deducted from the original buy-in price when someone moves out, is commonly a percentage paid per year of residency. It is usually capped at about 30 per cent and reached after 10 years of living in the village.
The departure fee may be calculated on the ingoing cost that the resident paid, or the amount the unit is sold for when the resident leaves. The calculation method can vary between providers and within a village.
According to the Retirement Living Council, the departure fee helps to compensate the village owner for the cost of building the village and allows the resident to part-pay for this at the end of their residency rather than the start.
It can also be designed to give prospective residents a choice of whether they pay a full market price for the unit when they move in, or defer some of the payment until they leave.
Generally, the greatest benefit someone can get from retirement village living is being part of a community, enjoying social activities and interaction – living independently, but with some additional support.
The primary reason for entering a retirement village is often lifestyle choice, so it is important to know what lifestyle options are available and whether they are – or could be – your thing.
Bina Brown is a journalist and director of aged care solutions company Third Age Matters
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