Buying into seniors paradise, but at what price?
Signing up for your dream home in a retirement lifestyle community village means agreeing to buy a bundle of services in exchange for a package of fees and charges.
You maybe enthralled by the offer of fully maintained recreational facilities: your own gym and swimming pool, a private library and gracious community lounges. You are attracted by the beautiful manicured gardens to enjoy without the responsibilities of planting, weeding and mowing.
Signing up for your dream home in a retirement lifestyle community village means agreeing to buy a bundle of services in exchange for a package of fees and charges. Before you sign, you need to be clear about what is included in the package of services and what items are excluded, that is, which items remain as your person responsibility.
Also, you need to understand the components of the bundle of fees and charges including the exit fee calculation. The details are all in the contract for your chosen retirement lifestyle community village.
Now the package of fees and charges generally includes a regular service fee and an exit fee. For marketing purposes the amount of the ‘service fee’ is pitched at a level intended not to frighten potential residents. But the service fees in total must be sufficient to ensure that the village facility operator has adequate income to cover the cash outgo relating to the level of services provided. The exit fee is then set at a level expected to cover the remainder of costs and a little ‘profit’ for the village facility sponsor.
How much is the service fee in real money?
Service fee scales vary significantly depending on the location, style and level of communal facilities and services. Near Melbourne, the lower end of the service fee range is about 30% of the Age Pension for an independent living villa in a modest outer suburban retirement village. The upper end is about 50% of the Age Pension for an independent living apartment in a prestige location.
Please note carefully that ‘independent living’ residents are usually responsible for their own utility bills and possibly Council rates and water rates in addition to their service fees. Thus, as residents of an ‘independent living’ villa or apartment, your regular expenditure would comprise the ‘service fee’ plus continuing regular living costs similar to the costs of living in your own home, except for the garden maintenance costs.
You could expect the dollar amount of the service fee to increase each year. Service fee increases could be similar to a CPI adjustment if the service levels are unchanged.
You are advised to read the contract carefully to be aware of the service fee conditions for your chosen retirement lifestyle community village facility.
When does the service fee stop?
You must pay the regular service fee as long as you are the registered occupant of the apartment/villa. Most retirement lifestyle community village operators require the service fee to be paid monthly via a direct debit to your bank account. If you are going travelling for, say, 6 months then you could just lock your apartment/villa and go, knowing that the facility manager would care for your home and while you are away your service fee would continue to be debited each month.
Usually, you or your estate, remain responsible for paying the service fee until a new occupant takes over your former apartment/villa and becomes liable for the service fee. Many retirement lifestyle community village operators cease charging the service fee after, say, 6 months from the date that your former apartment/villa was cleared of your possessions, cleaned and refurbished to look ‘as new’ ready for a new occupant.
You are advised to read the contract carefully to be aware of the service fee conditions for your chosen lifestyle community village.
So what are the other components of the fee package?
On leaving a retirement lifestyle community village, an ‘exit’ fee is levied. Typical components of the exit fee are
• Deferred service fee and/or deferred management fee of up to 30% of the exit price
• Resale fee, 2.5% of the exit price is not unusual as the ‘cost’ for finding a replacement resident
• Refurbishment fee and/or cost of repainting and recarpeting your apartment/villa and possibly upgrading the wet areas to the standard of a new apartment/villa within that facility.
The ‘exit price’ is defined in the contract for your chosen lifestyle community village facility. Many facilities define the ‘exit price’ as the entry price or ‘buy in’ price that the next resident pays to occupy your former apartment /villa but with a minimum amount of your ‘buy in’ price.
Can I afford to live in my retirement lifestyle dream home?
Before you sign the contract for your dream home in your chosen retirement lifestyle community village you are advised to read the contract carefully. The numbers and other conditions in the schedules are important too.
Then check your financial position.
If the ‘buy in’ price is less than what you expect to realise from the sale of your current home then you might have some ‘additional cash’ to pay the service fees. Please be aware that any ‘additional cash’ released on changing homes could reduce the amount of means tested Disability Support or Age Pension you receive from Centrelink. Service Pensions and Income Support Supplements from DVA are also means tested.
Help is available to estimate the financial impact of a move into you dream home. Christine at Financial Care Services can show you how your DVA and/or Centrelink Pension would change as you sell one home and buy another. You could ask Christine to illustrate how your projected new expenditure pattern as a retirement lifestyle community village resident, compares with your projected income from pensions and sensible financial investments.
Finally your extended family may want to be assured that your assets are not tied up in retirement lifestyle community village apartment or villa, such that funds are not available should you need expensive nursing home care later on. Similarly they want to be assured that you are not spending all of your (their) inheritance.
An illustration of the timing and amount to be paid to you, or your estate, after you leave the retirement lifestyle community village can give you and your family peace of mind, just ask Christine at Financial Care Services to help with this.
If you would like further confidential, independent and professional advice about Centrelink, lifestyle or financial issues please contact Christine Hopper (03) 9808 0338.
Disclaimer: The information contained in this website is of a general nature only and does not constitute “financial advice”. You should obtain your own personal financial advice before investing any money or moving in to any retirement village, lifestyle community or aged care facility. Financial Care Services is licensed to provide financial advice to individual clients based on their personal situations. © 2012 Financial Care Services Pty Ltd. All rights reserved.