Busting the retirement village aged care myth

Many people who are considering buying a home in a retirement village want a community that has an aged care facility on-site, so that if they need higher care at a later date they can simply move a few doors down into the nursing wing.

This assumption about care is a common misconception among people considering retirement villages and I’ll tell you why…

Firstly, 95% of the Australian population aged over 65 years choose to age in their own homes and the bulk of the care industry is set up to cater to this market. There are any number of care services that can be brought into your home to help you stay there as long as possible, so unless you need constant care or supervision you can stay in your own home. The same applies to retirement villages – if you need care you can arrange this with an external provider and have the care brought into your home in the retirement village (this typically applies whether the village provides care or not). This means you don’t have to find a retirement village that has an aged care facility on site.

Secondly, many people assume that if they live in a retirement village that provides aged care, once they need the aged care they simply move into the aged care facility. Not so. Retirement village operators that offer aged care typically only do so in a limited way, because they make their money from the sale of independent living units, not running aged care beds. Therefore the ratio of aged care beds to independent living units in a retirement village is low. There is no guarantee that when you need higher care that a bed in the on-site facility will be available for you.

Finally, the move from your independent living unit into the on-site aged care facility, whether it is within the same retirement village or not, typically requires you as the resident to execute a sale of your independent living unit and the purchase of a bond to move into the aged care facility. The nature of retirement village purchase contracts position the bulk of the fees and charges associated with your retirement village lifestyle into the exit and resale of your unit. The high fees that can sometimes be charged mean that you may not have enough money remaining to fund your entry into the on-site aged care facility.

So unless you need a level of care right now, or have a debilitating illness that destines you to requiring care in the medium term, I think there is no need to restrict your retirement village search to only those facilities that provide aged care.

PS. If you do need aged care, make sure you check out my post on supported living HERE. Also, check out Rachel Lane & Noel Whittaker’s new book Aged Care, Who Cares? to help you navigate the complexities of Australia’s aged care system.

When thinking about buying a retirement home you need to consider how much you can spend on your new home, as well as what you can afford to pay for the on-going fees and charges associated with living in a retirement community.

First and foremast of these fees is the Village Fee, or Weekly Fee charged to residents of deferred management fee schemes. This is an ongoing charge to the resident and covers the costs associated with running the village, including security, maintenance, management and grounds-keeping. It is similar to the Body Corporate or Owners Corporation fee paid by the residents of strata-titled communities such as apartment buildings. It is levied on the residents on either a weekly, fortnightly or monthly basis.

The Village Fee is the portion of the annual operating budget for the village that is paid by the occupant of an identified “lot”, or unit. Lots that are owned by the village operator, such as sales offices, also have an allocated levy and this is paid by the village operator. For new complexes, the levy on any units which have yet to be sold are also covered by the village operator.

Residents or resident’s committees have varying levels of input into the budget of final approval of the budget, and this is outlined in the state’s retirement village legislation, the village rules and the purchase contract. By law, there should be no profit component for the village operator included in the budget, although this gets messy when the larger villages have centralised, head office costs, such as management, legal bills or group insurance contracts, that are on-charged to individual communities within the group.

The benchmark I have found for Village Fees is around $100 per month, although this would be higher if the community had extensive facilities such as bowling greens, pools or a clubhouse. It is also higher in leasehold villages because there is a component of rent for the plot of land incorporated into the fee, although the lease amount itself may be off-set by a resident’s eligibility for the Centrelink Rent Assistance Allowance.

The ability of a retirement village resident to fund ongoing Village Fees is limited, because many rely on a pension for their daily living costs, or are perhaps self-funded from investments. Either way, there is usually not an excess of cash available for them to fund the Village Fee. Consequently, some village operators have off-set a lower Village Fee by having a higher Exit Fee. So for example a village might have a justifiable levy on a unit of $135 per week, but instead make it $90 per week and add 10% to the Exit Fee calculation. This is a perfectly reasonable way of providing access to potential residents who may have limited incomes, but are perhaps asset-rich from the sale of their home.

However as a result, you need to take the amount of the Village Fee into account when you compare the purchase arrangements of more than one retirement community. We have a piece of software on our Access Program website called the Contract Comparison Calculator which does exactly this. In addition to the costs associated with the purchase of a unit, the calculator also takes into account ongoing fees such as the Village Fee and Body Corporate or Owner’s Corporation fees. This allows you to see the total expense associated with a purchase over the time of occupancy.

So in addition to thinking about how much you can afford to spend on your new retirement home, put some time into setting a budget to find out how much you can afford to pay on the on-going village fees and charges, or speak to a qualified financial advisor.