1 Aug 2015
The retirement dilemma
With improved mortality and an ageing population, retirees are living longer and in doing so are placing a premium on their retirement lifestyles. Typically at the time of retirement the kids have moved on and the family home is proving harder and harder to maintain and manage, with the preference to spend time with grandchildren and friends rather than mowing the lawns and climbing ladders.
That’s why more and more Australians are electing to move to a retirement village. The notion of having access to a ready-made community that is secure, and in many cases offers ‘club med’ style facilities, is increasingly attractive. In many villages, you can also participate in numerous planned activities and meet other like-minded residents who are looking to enjoy themselves.
Much of the marketing material produced by operators focus on lifestyle advantages and not on home ownership or bricks and mortar. These advantages resonate with a lot of older Australians, who after years of working hard, realise it is time to turn the chapter and embrace community living in a village.
A resident’s view
President of the Retirement Villages Residents Association (RVRA) of NSW, Tom Gait, makes this point well: “For many retirees, the pace of the outside world has become a lot faster than what it used to be. Living in suburbia in a standard home where the kids were brought up – it is not the same anymore. Networks have changed too… Village life, in contrast, does seem to drive a more traditional sense of belonging.”
The emphasis on quality of life is an overriding goal for the 30,000 residents in NSW who chose the retirement village style of living, and as Tom maintains: “It can also help take the sense of obligation off the kids to some degree, when they know that mum and dad are well settled in a village where the usual maintenance chores are taken care of.”
In addition, Tom is acutely aware of the fact that retirees are getting younger as they enter a village. “Yes – they have all largely retired from the workforce, but they have not retired from life! Snuggling up to an open fire with the cardigan on is increasingly being replaced with a ski suit and an action-packed day, as younger and active retirees are embracing this second option.”
The legal considerations
Despite the long list of benefits of retirement villages, retirees need to understand the financial and legal consequences. To begin with, contracts can be complex with rather high exit fees at the end, and sometimes no (or only shared) capital gain. Retirement village law expert Peter Hill from Hill & Co Lawyers maintains that for residents who are not properly advised at the front end about the financial arrangements, this creates a real problem.
“Residents usually pay a departure fee on exit to the operator. After several years, this can be as high as 30-35% of the sale price of their dwelling, which is often not well understood. Also, the operators usually control the sale process in the future, and there have been some instances where operators have required quite extensive refurbishment to dwellings, at an extra cost”, says Peter.
In some villages, monthly recurrent charges paid by residents for village maintenance and the like are not fixed and can rise appreciably, particularly where the building or infrastructure is ageing and needs a lot of ongoing work. Peter explains that whilst NSW have moved to standardise the contracts, there still exists a lot of complexity in the terms and many differences between villages, with some residents currently in villages on heritage contracts that are quite difficult to interpret.
“Often when the time comes to move to higher levels of care like a nursing home, the family has not been involved and have little understanding of how mum or dad could get their money back. This becomes an intergenerational issue.” The bottom line is that prospective residents need to do the math, because in a village, you are paying monthly charges for facilities that you may not use. For the savvy retiree, access can be facilitated at a reasonable cost as and when required.
One of the most significant challenges with village living is understanding what finances will be required in the future to fund the next level of assisted care. Many residents have a good swag of their life savings tied up in a village.
Knowing what money you are going to be left with after you leave, and what the ongoing costs are for assisted care, is a key challenge for many older Australians. Planning these steps has traditionally been undertaken poorly and naturally enough, there are a lot of uncertainties, with most people tending to be assisted by their family only when absolutely necessary. At that stage, everyone is scrambling to make a decision in a hurry, because mum or dad can no longer live independently. The value of financial advice is often indispensable when exploring all options.
PSK Financial Services is organising seminars on the financial and legal implications of living in a retirement village. Please contact us on email@example.com or 02 9324 8888 to register your interest to attend a seminar (to be held in the city, Parramatta, Central Coast, Hornsby and Northern Beaches).