Thinking of moving to a retirement village?

Here’s what you need to know

Making the decision to move to a retirement village is a significant life change. It’s not just about finding a new place to live; it’s about a lifestyle that will shape your next chapter. Whether you’re drawn to the social events, the sense of community, or the promise of less maintenance, it’s essential to make an informed decision. 

This guide from finance expert Rachel Lane is designed to help you navigate the process. Read on to learn how to:

• tackle the emotional and financial issues, 
• understand the typical costs (and what you get for your money) and 
• be aware of the traps to avoid.

Emotional considerations

Downsizing to a retirement village is as much an emotional journey as it is a logistical one. For many, the idea of leaving a family home filled with memories can be overwhelming. It’s natural to feel a sense of loss or nostalgia, especially if you’ve lived in your home for decades. It’s easy to think that possessions keep your memories alive – the dining table reminds you of all the Christmas’s enjoyed with family. A good idea is to take photos – of the house, the furniture, anything that’s not coming with you which has fond memories – and create a coffee-table book. It keeps your stories and with them the memories can remain alive.

The other great antidote to nostalgia is to focus on the benefits of your new home: 

• a simpler lifestyle, 
• reduced home maintenance and 
• a like-minded community. 

Retirement villages often provide a vibrant social environment, with clubs, activities, and opportunities to make new friends. Before you commit to any village, why not request a copy of the calendar, circle the activities you’re interested in and speak to the village manager about joining in. It’s great research to work out whether the village, and the residents, are the right fit for you. And if they are, then when you move in, you will already have some friends.

Financial considerations

The financial side of moving to a retirement village can be complex. Unlike traditional property purchases, retirement villages often operate on different contracts and financial models. When it comes to the contract you will find that most are either leasehold or a licence arrangement which give you the right to occupy your home and use the community facilities. 

It’s important that you look at ALL the village costs: 

• what you will pay upfront, 
• while you live there and 
• when you leave.

 It’s what I call the ‘ingoing, ongoing and outgoing’. Your contract may give you a guaranteed buyback if your unit doesn’t sell in the future, so it’s worth paying close attention as it ensures you will receive your money within a certain amount of time. 

Age Pension ramifications

If you receive an Age Pension, or similar entitlement, understanding how the move will affect your payments is critical. The amount you pay for your home will be used to determine if you are a homeowner and whether you can qualify for rent assistance. Generally speaking, if you pay $252,000 (or less) for your home then you can qualify for Commonwealth Rent Assistance (CRA), but if you pay more you won’t qualify. Rent assistance can provide up to $211 per fortnight on top of your pension entitlement if you are single and $200 per fortnight if you are a couple.

While many downsizers are keen to free up equity from their current home, releasing too much can negatively affect your Age Pension. Under the assets test, single homeowners can have $314,000 before their pension reduces, couples can have $470,000. Once your assets go over the threshold your Age Pension payment reduces by $7,800 per year for each $100,000 of assets. This income can be tough to replace. If you lose your Age Pension entirely, then you will lose any rent assistance and the Pension Concession Card (PCC), which can be worth thousands of dollars a year.

Seeking specific financial advice is a wise move to make sure you understand all the implications.

Retirement village prices: What’s typical in the city or the regions? 

The cost of moving into a retirement village varies significantly depending on the location, the type of accommodation and the amenities.

• City areas: In major cities, prices for a two-bedroom unit typically range from $500,000 to $1 million. As with other property, those with premium facilities or locations command higher prices – there are some with price tags above $3 million. Likewise, you can find properties below $500,000, I recently saw a one-bedroom apartment for $80,000!
• Regional Areas: In regional towns, prices are generally more affordable, with two-bedroom units priced around $300,000. Of course this is just an average, you can find properties above and below this price. In regional areas you are more likely to find rental villages with low or no upfront payment required and the rent might include utilities, and in some cases meals and or even care.

Keep in mind also that these prices are just related to the ‘ingoing amount’. You will need to factor in your ongoing fees (around $600 per month is average, but it will depend on the size of the village and the amenities) and the exit fee – which might be anything from 0 – 100%.

What you get for your money

You can find two types of accommodation in retirement villages: independent living units and serviced apartments. Some villages have one, while others have both. The amount you pay to the village typically gives you access to:

• Shared facilities: Pools, gyms, libraries, community halls, and gardens.
• Social activities: Clubs, classes, and organised outings.
• Support services: Some villages offer additional services like meals, housekeeping, and transport.

Some activities or services may be offered on a user pays basis, because including it in the ongoing service fee would mean that everyone is paying for these amenities, but many are not using some or all. 

Pitfalls to avoid

Moving to a retirement village is a decision which most people regret not making sooner. But that’s not to say that it is utopia for everyone. Here are some of the common pitfalls:

• Lack of research: No one wants to live in a village where they feel like a square peg in a round hole. Finding the right one for you is about more than the location or the accommodation. It’s about the vibe and finding your tribe, so make sure you do your research thoroughly.
• Contract confusion: Retirement village contracts can be confusing, but you must understand it before you sign on the dotted line. Your contract is a balance of rights, responsibilities and costs. Consider it from each angle and seek advice from a lawyer who specializes in such contracts.
• Lack of Planning: Rules of thumb such as ‘it’s cheaper than my current home so I can afford it’ or comparing villages based on purchase prices or exit fees are dangerous. You need to calculate what it is going to cost you to downsize, make sure you are clear on all the village costs and factor in the impact on your investments, pension entitlements (and other benefits) and cash flow. Last, but not least, make sure you consider any impact on your estate planning.

Final thoughts

Just like most big life decisions, moving to a retirement village needs careful consideration. Take your time to research, ask questions, and consult experts to ensure that this next chapter of your life is as fulfilling and enjoyable as possible.
Rachel Lane is co-author of “Downsizing Made Simple” with Noel Whittaker and the creator of Village Guru, software that takes the financial confusion out of downsizing to retirement village.