Village life

For many Australians retirement is an opportunity to down-size their homes and simplify their lives. For more than 138,000 retirees*, that means opting for life in a retirement village.

Village living offers an appealing lifestyle, especially for those looking for a sense of community and to spend their new-found free time on recreation rather than maintaining a property. But the process of taking up a spot in a retirement complex is very different to buying your own home. Haven takes a look at some of the pros and cons of shifting to a retirement village.

Retirees need to consider a retirement complex to be a lifestyle choice, not an investment decision. Rather than buying a physical appreciating asset, you are entering a contract to occupy a place in the village for an entry fee.

There are usually three types of contracts:

Strata title: You pay an agreed amount to a former resident or the operator, and then own the unit. You also usually need to enter into a service agreement with the operator.

Loan and licence: May be offered by not-for-profit organisations, such as churches. You usually pay a contribution in the form of an interest-free loan.

Leasehold: The lease is usually registered on the title deed, which protects you if the village is sold. You pay a lump sum for the leasehold.

Entry, ongoing and exit fees usually apply to all three contract types.

Rather than a sale price, you pay an entry fee, which varies greatly depending on the location of the complex and the amenities and services offered. On average, the entry fee for a two-bedroom unit is about 90 per cent of the median property price for the location.

You will also be charged ongoing service fees to cover the upkeep of amenities in the village, such as swimming pools, gardens, recreation areas and communal transport.

Don’t enter into any agreement without the advice of a specialist retirement lawyer. They can help you understand the fine print and guide you through the system based on your state laws.

Your retirement advisor will also help you navigate your age pension eligibility. The amount you pay as an entry fee to a retirement village can affect whether you are classified as a homeowner for pension purposes or a non-homeowner. It depends whether the entry contribution is higher than the extra allowable amount (EAA), as determined by Centrelink. The EAA is the difference between the non-homeowner and homeowner assets test threshold for the age pension at the time the entry contribution is paid. The extra allowable amount is currently $146,500. Whether you are considered a homeowner affects the amount of assets you can own without impacting your pension entitlement.

If you are not considered a homeowner, your entry contribution is included as an asset, but it is not classed as a financial investment and won’t be considered as a source of income. You may also be eligible for rental assistance.

Just like when you buy a property, you should do your homework before settling on a retirement village. Take a tour and talk to residents about what they like and dislike about the place. Think about what you want out of your retirement and whether the complex caters to those needs. If you want to entertain, do you have space in your unit or is there a communal area you can use? Is there a gym or swimming pool where you can exercise? Can you have guests stay over and, if so, for how long? This can be a key consideration for grandparents who may take care of grandchildren. You should also ask about transport help. Many complexes provide a private bus service to shops and clubs for residents who don’t wish to drive. Generally, the more comprehensive the services the more you pay in body corporate fees, so make sure you understand the fee structure and what’s included before signing on the dotted line.

One of the biggest attractions of retirement living is the instant community. Many villages provide social opportunities ranging from outings to quiz nights, dinners and interest clubs. Participation is entirely optional but there is usually no shortage of opportunities to get to know and socialise with your neighbours.

Many retirees plan ahead and scout out a village with an on-site aged care facility to avoid another relocation in their latter years. Just be mindful the level of care someone needs is determined by an Aged Care Assessment Team and that not all facilities offer high care should you or your partner require it. A place in aged care may also require separate payments, or entry fee, and many facilities will have waiting lists. It’s also common for one partner to have greater needs than another, so couples with health or mobility issues need to ensure the complex they settle on caters to their needs.

When a resident moves out, it is generally because they have passed away or relocated to an aged care facility. Financially, it is usually the beneficiaries of the resident’s estate who are most impacted. When a resident sells up they, or their estate, are generally charged an exit fee, or a deferred management fee, which is usually charged annually at 2.5 to 3.5% of the original sale price, capped at 10 years. Some complexes may also require a percentage of any capital gains made. Make sure you read the fine print of the original sale contract and seek advice from a specialist retirement lawyer.