After writing my earlier post on Seniors Living I realised there is actually quite a bit more to talk about in regards to the financial considerations of Retirement Village living.
Although not a financial advisor, (see my recommendations at the base of this article) allow me to share some realistic observations and considerations anyone should take before deciding to move into a Retirement Village or Independent Living Unit.
The differing forms of Seniors Living have various forms of occupation- and these ownership rights are referred to as ‘Tenure’.
The Legal forms of tenure include Strata Title Ownership, Leasehold Estates; Licences to occupy, freehold or company share arrangement with related residency entitlements.
Regardless of the type of tenure, Residents are consulted regarding the ongoing management of the village
[This ensure the village you choose cannot be changed without the approval of the Residents]
Deposit or Entry Contribution?
Before moving into a village, you will need to pay an entry contribution which is ‘refunded’ if you move out of the village.
However, a Deferred Management Fee (DMF) usually applies and is deducted from the money you receive back.
The good news is this must be specified in the contract.
The bad news is the contract can be confusing and open to interpretation, often leading families to believe they’ll be ‘getting their money back’ at the end of the contract.
The cost of entering a village depends on the facilities and services offered.
There will be monthly services and maintenance charges for these services – such as personal laundry, grounds maintenance, etc
To start the process and reserve a villa, a nominal deposit will be required and the village will have a policy on how long it can be held for you.
If you change your mind during this time frame – the deposit will be refunded to you.
If you enter into a binding agreement with the village, the deposit will be included as part of the purchase price.
(Some states and Territories a ‘cooling off’ period exists after signing the residency contract – but read it carefully, especially if you are moving interstate…)
Lastly, be sure to check whether there will be an ‘administration charge’ for refunding your deposit.
Fees and Charges
Another area to take into consideration before signing are the ongoing fees and costs associated with living in the village.
Ensure you are provided with full details of all applicable charges and what they cover.
Examples include: upkeep of facilities, staff, council and water rates regarding the common areas, security, insurances – such as workers compensation and public liability, contents insurance for the common areas and building insurance.
Also keep in mind the village may start a ‘sinking fund’ to anticipate future repairs and improvements.
Departure / Exit fee
If you need to sell your villa, the village should assist you in making this a smooth process.
While the resale value will be determined by the market, the village’s good management, attractiveness and services and amenities will set it in good stead.
The village will deduct a ‘deferred’, ‘departure’ or ‘exit’ fee at the time of settlement of sale – or the re-occupancy of your villa.
This fee forms part of the purchase price, yet its payment is deferred until the end of the occupancy.
This is the part of the contract that takes many families by surprise.
The amount is calculated using a formula that generally involves a percentage of your/your successor’s entry cost, multiplied by the number of years of your occupancy- and may include a proportion of capital appreciation.
Before signing on the dotted line…!
The idea of downsizing and living in a retirement living community may be appealing for many wonderful reasons; but there are certain factors to be considered prior to making the transformation from your home to ‘the village’.
Retirement Village Contracts are complex legal documents that can be hard to comprehend.
It’s important to understand your rights – as well as obligations and responsibilities under the contract – before you sign.
With all the different services, maintenance and village-related fees; it’s important to really know what you want – and what you’re paying for collectively.
Don’t rush into making a commitment.
Seek expert advice and request answers to every single one of your questions.
When you are ready, consider these final checklist points:
- Have you discussed your decision to move into a retirement village with family, friends and advisors?
- Have you looked at a sufficient number of villages to be able to compare services and fees as well as facilities and inclusions?
- Have you gone through all the applicable charges and/or upfront costs – and what they cover?
- What type of contractual agreement will you be entering? – is the village strata-titled; long-term lease or licence; Company Title, Unit Trust, Periodic Tenancy, etc
- Is Healthcare provided?
- How safe and secure is the village?
- How respectful are the staff to you, to each other and of the Resident’s privacy?
- Have you received a copy of the village rules?
- Are pets and guests allowed?
- How are disputes settled in the village?
- What happens if you wish to re-sell or re-lease the unit/villa?
Before signing a retirement living contract, take all of the documents and any questions you may have about the village to a legal practitioner and/ or a financial advisor who understands the legal and financial implications of the document.
Living in a retirement village can offer a supportive environment and encourage great independence, as well as the opportunity to establish new social circles of interest, and involve yourself in new interests if you choose.
Many retirement village residents declare they have become more active, confident and social from moving to a retirement village, and some go as far as to say they wish they had done it sooner.
A major appeal of moving to a retirement village is there is help at hand of an emergency situation arises.
Management and staff can help organise additional support services such as home maintenance, domestic care and laundry and dry-cleaning.
If you need some assistance to remain living independently, you can arrange for home support services such as meal delivery or personal care.
You can choose to pay for these services yourself, or you may be eligible to receive Government subsidy in the form of the Commonwealth Home Services Program or the Home Care Package Program.
Read more about these programs here in my post on ACAT assessments or via the myagedcare.gov.au website