What are the costs of living in a retirement community?
Are you considering moving to a retirement community? It’s an option many retirees are attracted to because of the lifestyle benefits of community living and freedom from home maintenance.
You’ll no doubt have many questions around the costs associated with living in a retirement community, so we have answered the most common ones here.
The contributions making up the costs
The costs retirees are required to pay are regulated by legislation, and these vary from state to state. However, the three common costs are:
Ingoing Contribution (entry fee)
This is the purchase price of a retirement community home. The 2019 PWC/Property Council Census found the average 2-bedroom retirement village unit was 64% of the median house price in the area. The two most common types of retirement village contracts are leasehold and loan licence which set out the purchase price and conditions of occupancy. Stamp duty is not usually payable. Due to different contract types it is important you seek legal advice from a lawyer familiar with retirement villages before making a purchase.
This is sometimes referred to as the general service charge. It is like a strata levy and it pays for the maintenance of the village common areas, community centre, pools or other recreation areas, council rates as well as the salaries of the village staff. However, unlike strata costs the village operator is responsible for items of capital maintenance in the village.
Outgoing Contribution (exit fee)
When leaving the village, the resident could be required to pay an outgoing contribution or exit fee. This is set out in the village contract and it is typically a percentage of the ingoing contribution based on the time the resident stays in the village. Most exit fees are capped after five to seven years at 30-35% of the ingoing contribution. Under a leasehold agreement the village operator sometimes bases the exit fee on the initial purchase price plus any capital gain. Sometimes unit refurbishment and sales commission can be payable in addition to the exit fee. The exit fee compensates the operator for development of the retirement village as the entry fee is generally lower than the price of comparable real estate in the area.
When considering affordability, it is also important to consider any daily living costs that need to be factored in. For example, food, transport, utilities, contents insurance, medical and pharmaceuticals as well as travel and entertainment. Consideration should be given to home care costs if a resident needs care. It is a good time to make or review a Will due to a change in living arrangements.
Moving to a retirement village can impact age pension, concession card entitlements and cash flow. In land lease villages it may entitle the resident to rent assistance. We can explain your options and how they apply to your circumstances so that you can make the right decision with confidence.
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