Our clients often ask us about the likely additional costs and expenses that come with living in a retirement villages. In fact, the cost of day to day living and the potential loss of capital when they leave the village, are frequently the next biggest concerns for retirement village residents beyond the headline figure of the Ingoing Contribution.
The starting point when looking at the additional costs and expenses of retirement villages are the Village Comparison Document and the Prospective Costs Document. these documents do a good job of covering the costs of buying into a particular retirement village. However, they do not cover all costs, so let’s dig a little deeper……..
Entry Costs – Your Legal and Financial Advice, Relocation Costs
The personal costs that you will incur in getting into a position to buy and move into a retirement village unit are generally not listed or disclosed in the Prospective Costs Document but should be included in your calculations. These include the costs of your own legal and financial advice and the cost of selling and relocating from your existing dwelling. These personal relocating costs can include removalists, real estate agent’s fees, legal costs of selling or vacating your existing dwelling and, possibly storage of furniture or equipment that will not fit in your new unit. These expenses obviously won’t add to any additional costs and expenses of day to day living in the retirement village but they will impact your starting bank balance.
Pension Considerations and Other Living Expenses
It is especially important to speak to a qualified financial advisor about how to structure your assets and capital. Depending on how you structure your assets your pension may be adversely affected due to the reduction in the value of exempted assets. Ensure you get qualified financial advice so you can anticipate any reductions in your income so that you can properly provide for your ongoing costs and expenses of the retirement village.
You may also find that your spending increases due to increased access to and use of allied medical services, as well as clubs and social events.
There will be a number of household and domestic costs associated with living in a retirement village. The expenses you are likely to incur may include contents insurance for your property in your unit, public liability insurance (for people entering your unit), electricity, gas, water, telephone, internet, Pay TV etc. There will also likely be costs associated with any additional services you receive as well as the costs of maintaining and repairing items in your unit such as unit fixtures, unit fittings and unit appliances. These items will be listed in the Prospective Costs Document but the actual dollar amounts may not be so it is important to ask for an estimate of these additional costs and expenses can be included in your fortnightly budget.
Exit Fees, Reinstatement Costs and Other Expenses On Leaving the Village
On termination of your residence contract, you will be entitled to receive the Exit Entitlement. This is typically the Ingoing Contribution (of the current resident or the purchase price paid by the new incoming resident) adjusted to take account of the Exit Fee, Capital Loss, Reinstatement Costs, Renovation Costs, Sales Costs and possibly the General Services Charge (for a period after vacating the unit). While it will be clear from the Prospective Costs Document as to who will have responsibility for these payments, not all of the amounts will be ascertainable at the beginning of the contract so it is worth asking for estimates based on previous sales.
It is also worth noting that there may be an obligation to pay ongoing costs after the residence contract is terminated until the right to reside in the unit is sold. This obligation may continue for a period of up to nine (9) months after the residence contract is terminated. The requirement to continue paying certain ongoing costs after leaving the retirement village and terminating the residence contract often comes as a surprise to many people.
By law, a retirement village must provide a potential resident with all parts of the retirement village residence contract, the Village Comparison Document, a Prospective Costs Document for the residence contract and, if relevant, any by-laws for the village, at least 21 days before the potential resident signs the contract. It is a minimum of 21 days and a potential resident can take more than 21 days to consider their decision to sign the contract. These documents will set out most of the costs and expenses associated with the retirement village and who is responsible to pay them, but the actual amount will not always be ascertainable at the start of the residence contract.
Take the time to work through the actual cost of your unit in the village beyond the headline ‘Ingoing Contribution’ that most people focus on. If necessary, ask the village owner/operator for examples from previous sales to help give you an idea of the total cost of the unit at the start of the contract, while you are in residence and when you leave.
The Exit Entitlement will typically be paid on the earlier of, the sale of the right to reside to a new resident, and 18 months after the termination of your right to reside. You should budget for this eventuality and notify your family (and possibly the Executor under your Will) of this possibility. In the event that you move from the retirement village into aged care, the delay in receiving your Exit Entitlement (which may be significantly smaller than your Ingoing Contribution) may mean that family will need to cover the costs of your aged care until your Exit Entitlement becomes available.
Finally, given the ongoing nature of many of the costs, it would be prudent to seek advice from an independent financial advisor/accountant and a legal practitioner before entering into a residence contact.