Moving to a retirement village– benefits and traps

Moving to a retirement village– benefits and traps

Moving to a retirement village is a major life-changing decision. I have had so many emails from viewers of my YouTube channel, asking me to go over the move and what to watch out for.

And I am not surprised, with our ageing population, more and more Australians opt for a life of quality and security in a retirement village. While all the marketing is pitching to all over 55s, the average age of entry to a retirement village is 75 and the average age of residents is 81.

You should view the decision of moving into a retirement village as a lifestyle change, so to improve your quality of life, but this is not a money-making, growth-earning machine.

Retirement village is to provide you with enjoyment, serenity security and social interaction with other residents, having great activities in which you can participate if you wish, but you don’t have to. This should be life of little care but filled with fun, enjoyment, tranquillity, and security.

But before you make your decision to move to a retirement village, there are number of steps you should take to make the best choice. And that’s our topic for today: Moving to a retirement village – benefits and traps and what you should watch out for.

Let’s make the very first thing straight, retirement villages as I said before, are to provide you with a better lifestyle, this is not a money-making scheme for you. As a matter of fact, the property you will buy will most likely never make any profit for you, but you do not go to a retirement village to become a millionaire, this is for your lifestyle, your enjoyment plus often to improve your social life.

Some retirement villages are extremally beautiful, with all the maintenance provided for you, often with a golf course, swimming pool or gym facilities or both, cafeterias, restaurant, library. outside of the village trips and social activities, personal care assistance and more.

So what steps should you take before you sign on a dotted line to buy into your new place in a retirement village:

Make two lists:

1. first one of everything that you absolutely must have in a retirement village
2. Second of the thing that would be nice to have but are negotiable.

This will give you an indication of which retirement villages fit into your requirements, but also within your budget.

Seek advice from a specialist lawyer

– who can assist you with understanding of the retirement village contract. Some contracts are very complicated, and you really need to understand your responsibilities and your costs on the way in, ongoing and on the way out, should you decide to move out, or need to sell down again and move to an Aged Care.

Seed advice from a specialist financial planner

– who should assist you with the cashflow analysis to ensure you know you can afford the place, the best use of your savings – often moving to a retirement village means selling the original family home, and that might have a huge impact on your finances. This is the time people downsize, therefore the downsizer contribution could be of benefit. I have already prepared two videos fully explaining this strategy: Downsizer Contributions to Super for better retirement and Downsizer Contribution to Super – who can benefit

Financial planner should assist you with calculations of impact of selling home on your Age Pension and what can be done to keep your Age Pension, well that’s at least what I do when speaking with clients.

And then of course you need to know how to invest those extra funds you have from the sale of your home to provide an extra income for the remainder of your life.

Shop around

– visit several villages, compare them – what they provide for the cost spent, speak with providers and residents as well. Are they happy, do they have issues with the management, what is the quality of services provided, what about the properties, are they well looked after,

Never let the salesman trap you or push you into buying

– and don’t make your decisions based on a glossy marketing. You need to find the place that the quality meets your affordability. and please remember that retirement villages are regulated by each state and territory, therefore can vary between states. So if you live in Victoria and your idea is to move to QLD to escape the Victorian cold climate, then my suggestion is to take some time off, book a flight to QLD and spend some time there, not once, but few times at different time of the year, to actually assess, if the climate is right for you, if the place is just as suitable in summer time as in winter time, especially in wet seasons.

Understand the purchase contract:

– there are 3 main types of contracts used by retirement villages:

1. outright ownership, where you purchase the unit and you own the property title
2. The loan licence model, where a loan is being set up to a village operator in return for a licence to occupy the unit
3. and the leasehold

In each case there is an ingoing or the upfront contribution, often very similar to the cost of buying the retirement unit.

Then you have ongoing fees, which are to cover maintenance of the property for you

And then you have departure or exit fees, which you should fully understand even before you make a decision to buy into the village, as this is the fee that gives retirement villages a bad mane, but often it is because people decide to move and buy into a retirement village with their eyes shut.

The calculation of the exit fee is most commonly a percentage paid per year of residency and is usually kept between 30 – 40%. Generally, you reach a cap after 10 years, but in some villages, it could be 5 years and in others could be indefinitely.

So as you can see, understanding of purchase contracts of units in a retirement village is necessary, as they tend to be so much more complex than buying your family home.

By: Katherine Isbrandt CFP®
Money Strategist & Retirement Planner
Principal of About Retirement