Avoid surprises
Key Points
Moving to a retirement village means new financial complexity - and it must be managed.
Unlike residential aged care, which has uniform rules Australia-wide, retirement village contracts come in many forms.
While there is clear disclosure from operators (by law), there is more work to be done for individuals to clearly understand their financial outcomes - which is essential given the financial demands of residential aged care, which is the likely outcome for 60% of residents.
We help you take the contract information and understand its impact on your financial situation now and and in the future - a necessity at a crucial time.
Introduction
The “retirement living sector” houses over 260,000 Australians, and can broadly be described as offering housing at more affordable prices than comparable properties in the same area.
Increasingly, home care services are being provided to residents, and Australians entering retirement villages at an average age of about 75.
There is no doubt about the popularity and suitability of this style of living for Australians as the sector continues to thrive. (See here for data).
State and territory governments have their specific retirement villages laws, and there has been much effort to improve the process of informing residents of their situation, and protecting them in vulnerable situations.
The reality is that the contracts are complex, they are varied, and residents themselves need to do more work to understand exactly what they are signing up for.
In this article we focus on NSW.
60% of retirement village residents move to full time residential aged care
The need for liquid assets to fund aged care costs means the exit strategy from a retirement village needs to be carefully considered.
In NSW there are provisions to free funds from Retirement Village operators to fund aged care accomodation payments for certain residents, and while helpful, this is only a stop gap measure.
It is also important to acknowledge retirement village residents do not have title of their property and will be unable to borrow using reverse mortgage schemes or the government Home Equity Access Scheme, meaning that careful planning for costs over time are planned for and understood.
Know ALL the parts of the story: Entry Costs, Exit Costs and everything in between
There are many different pricing structures and comparing them is challenging
NSW Fair Trading has a calculator to help NSW retirement village residents assess their financial outcomes. This should be a first step for any resident.
Retirement Village operators must also disclose an “Average Resident Comparison Figure” - or ARCF, which attempts to capture all retirement village related costs (including annual costs) and wrap it us in a monthly figure based on a stay of 7 years. It’s well meaning but difficult to understand without seeing the calculations. As a standalone number on a disclosure statement it is not enough.
An example of projected outcomes from an example provided by NSW Fair Trading: $650k entry, $2,500 per month, Departure Fee Profile based on next resident entry price (5% x 3 years then, 3% years 4 to 7), 505/50 share in capital appreciation, 4.85% growth rate on unit.
We prefer to consider the expected capital return as a separate issue to cashflows required while living in a Retirement Village.
Being able to see how the pricing structure may impact exit proceeds in any year makes more sense. We can also vary expectations of price growth.
The annual costs can be considered as a cashflow issue separate to exit entitlements - an important cost, but with separate considerations - such as how cashflows are managed relative to savings, age pension eligibility and cost of living in retirement.
Retirement Village Residents must be clear on their exit strategy, not just for their aged care planning, but to understand the pricing offered by the Village operator.
Review your exit
In NSW, Retirement Village residents are able to meet with their village operator once a year to discuss their contract and get a better understanding of the process involved when leaving the village, including any fees and charges payable.
These annual contract “check-up” meetings are an excellent way to introduce a specialist advisor or family member to help understand potential next steps.
There is a very clear set of guidelines on the information provided in the meeting that will prove essential for planning.
Better tools from NSW Government
In early 2024 the NSW Government setup a public register allowing access to important information about retirement villages, such as cost, compliance and complaint information, as well as information on how long Village Units are taking to sell, which is very important for residents considering their exit.
We have taken this information and prepared a map, making it easier to search Retirement Village providers in your area.
While location information and some cost information is available, specific contract information is needed for us to help our clients get a realistic understanding of the financial implications of a move to a Retirement Village Unit.
All operators must provide a copy of the contract to prospective residents 14 days before signing - this is the time to review your financial strategy and call us.
For more information about what the Village Operators must provide to you, see here.
Conclusion
Access to Retirement Village pricing information is easy, however the devil is in the detail.
Whether you are considering your retirement village choices, or you are a long standing resident looking at a refresh of where your are at, we can help.