Tips for deciding about retirement village living

A sparkling swimming pool surrounded by manicured gardens. A social calendar packed with activities like yoga and art classes. Perhaps even an onsite bar with happy hour each day at 5pm.

These are just some of the luxury inclusions that might impress you when researching retirement villages.

For many people, moving to a retirement village is an ideal next step in life. You might need to downsize from a larger property and want less house and garden maintenance. You’re excited by the lifestyle opportunities and see it as a safe environment where you can meet new people.

However, moving to a retirement village isn’t just a lifestyle decision – it’s also a financial one. Entry fees, ongoing maintenance costs and exit fees (sometimes called ‘deferred management’ or ‘departure’ fees) can vary widely depending on what you choose and where you live.

It’s important to take your time to make your decision. In this article, we look at what you should know when you’re researching retirement villages.

What is a retirement village?

A retirement village is a community of people aged 55 and older who live in serviced homes or units in one residential facility. Unlike aged care, where people can receive 24/7 support and care, retirement villages are designed for independent living.

Retirees share common facilities or amenities, and sometimes they can access additional support services such as fitness classes, social group activities or medical support (for a fee).

Retirement villages may be owned by commercial operators or not-for-profit organisations. Some people may rent their accommodation, and others may buy their property through different ownership models. As well as up-front purchase costs, residents may incur ongoing charges that cover things like services and maintenance.

Although the general concept of how retirement villages is the same Australia-wide, according to Fiona York, Executive Officer from Housing for the Aged Action Group Inc. in Victoria, each state and territory has its own laws governing retirement villages. This can impact everything from contracts to exit fees.

‘Some of them have standalone pieces of legislation for lifestyle villages – they're the type of housing where you own the dwelling, but you lease the land. Other states have that within their Residential Tenancies Act. So it really depends on what state you're in,’ Fiona said.

In Victoria, for example, retirement villages fall under the Retirement Villages Act. However, there are also retirement residential parks, which fall under the Residential Tenancies Act.

‘The village itself may look very similar from the outside,’ said Fiona, ‘but they'll have different terms in their contracts, or they may have different lengths of tenure, or they may have different fees. It makes it quite complicated.’

Tour the villages and ask questions

To help you understand exactly what you’re signing up for, Fiona advised that you tour several retirement villages and have a list of questions ready to ask.

‘Ask about how the fees are calculated, and what the arrangements are for [settling] disputes,’ she said.

Will you need to pay stamp duty, an entry fee, ongoing service fees and/or an exit fee? Are you entitled to all the capital gain when you leave?

It’s not just about the financial side of things. You should also ask about how they run the village and what your rights are.

‘What do they do about maintenance? Are you allowed to have your grandkids stay over? Is there a resident committee?’ Fiona continued.

These resources include some examples of questions to ask a retirement village. Even if they aren’t published for your state or territory, they will help you compile your own list.

• Housing for the Aged Action Group checklist (PDF leaflet)

• New South Wales Fair Trading – Prospective Resident Checklist (webpage)

• Queensland Government – Steps to buying a unit in a retirement village (webpage)

• Government of South Australia – Retirement villages information (booklet)

• Tasmanian Retirement Villages Act 2004, schedule 3 (checklist)

• Western Australia Consumer Protection – Choosing a retirement village (webpage)

• Consumer Affairs Victoria – Choosing a retirement village (webpage)

While you’re visiting the village, you could also talk to some residents about what it’s like to live there and ask how management looks after them.

‘You can get people on both extremes, from terrible rogue operators to people who actually know how to deal with older people with respect,’ said Fiona. ‘It's a good idea to speak to other residents if you can.’

Get advice on your retirement village contract

Once you’ve decided on a retirement village that you like, they’ll send you a contract. The vice-president of The Retirement Village Residents Association in New South Wales, Roger Pallant, always tells people to get legal advice before signing.

‘But there's legal advice and there’s legal advice,’ he added. ‘We say, get some legal advice from somebody that's experienced in retirement villages, because of the difference between a retirement village contract and a contract in the open market.’

In New South Wales, you will receive a general inquiry document with information about the village and a disclosure statement that highlights the financial arrangements. New South Wales has also introduced a standardised contract to help simplify the process for residents.

However, other states and territories don’t have standardised contracts, so it can be confusing.

Make sure you understand the exit fees

Exit fees – sometimes called ‘deferred management’ or ‘departure’ fees – are paid when you leave a retirement village. Confusingly, the way they are calculated can vary depending on the type of village and your state or territory, and one factor may be how long you’ve lived in the village.

Retirement villages may charge exit fees to cover costs associated with the changeover in ownership of your unit when you leave or the management and maintenance of the village.

They may also be offered as a way of subsidising your initial purchase cost, so that choosing retirement village living can be a more affordable option up-front than buying in the open market.

You may also be required to pay other fees, such as part of any capital gain on the sale of your unit, or some or all of the cost of refurbishing it for the next occupant.

If you’re interested in a retirement village, make sure you understand what the fees – going in or leaving – will be in any possible scenario. Get legal and financial advice, because the calculations can be complicated.

Example: Mischa’s exit fees

Mischa pays $700,000 to enter a retirement village that has an exit fee of 5% of that price per year up to 5 years. Depending on when Mischa leaves the retirement village, the exit fees will be calculated like this:

• Exit fee in the first year = $35,000 (5% of $700,000)

• Exit fee in the second year = $70,000 (10% of $700,000)

• Exit fee in the third year = $105,000 (15% of $700,000)

• Exit fee in the fourth year = $140,000 (20% of $700,000)

• Exit fee in the fifth year or later = $175,000 (25% of $700,000)

Mischa would receive $525,000 on leaving the village ($700,000 minus $175,000).

There are many different ways that retirement villages may calculate their fees and charges, but they are always based on the contract that you sign before you move in.

Always read the contract before signing. If you don’t understand the fees, charges and calculations in the contract, get legal and financial advice – don’t sign the contract until you do.

Most people, wisely, do get advice. According to a Retirement Village Residents Association (RVRA) survey of over 4000 retirement village residents, only 13% of respondents didn’t seek advice from family and friends, solicitors, financial advisers, accountants, village managers or other residents.

However, despite that, 45% felt they didn’t really understand the fees that may be charged to prepare their villa for sale. Fiona York explained it’s at this point that most problems occur.

‘Things like deferred management fees and how fees are calculated only really become important when they're actually about to leave. So you may not realise this until you're 15 years in,’ she said.

Roger Pallant agreed. ‘People didn't go into the retirement village arrangement with their eyes closed, but fast forward 10 or 15 years, when we're getting older, we've forgotten what we actually signed. Cost of living is going up. House prices have gone down. CPI increases. The landscape changes.

‘People often don't remember what they signed for, or they’ve got mental health issues. We see this all the time,’ he said.

According to the RVRA survey, a substantial number of respondents said that they were concerned about the extra charges that they’d face when leaving the village – such as refurbishment fees – and 45% of respondents were particularly worried about the impact of exit fees.

To work out exit fees before you move into a retirement village, there are some online calculators to help you, including:

• NSW Fair Trading calculator

• Macquarie University calculator

Tell your children about your decision

It’s not just the residents who get confused. Sometimes their adult children also are unaware of exit fees.

‘For most of us, this is our last home, and the money and estate is left to the kids. We've had kids call us and say, “We're not paying that exit fee.” And we have to say, “Yes you are, because your parents signed that contract,”’ Roger said.

‘So the message is – talk to your kids, let them know the conditions of your contract.’

Is a retirement village for you?

According to the RVRA survey, 84% of people felt satisfied or very satisfied living in their village and 90% would recommend it to others.

‘Living in a retirement village is perfect, privacy, security, make friends, community involvements, entertainment, and still enjoy family and friends outside the village,’ one resident of a New South Wales village wrote.

However, it’s a very personal decision. Not only are there the financial implications, but it’s also important to weigh up what future care you’ll need and whether you can access home care help in your village.

Fiona York’s advice is to do your research and go in with your eyes wide open.

‘It is a desirable place for a lot of older people to downsize into or to live if they want lower maintenance, or if they want that lifestyle and that sense of safety and community. A lot of people are attracted to all of those things, but sometimes the marketing doesn't match the reality.’ 

Where to get more advice about retirement villages

• Housing for the Aged Action Group