Financing your ageing in a retirement village
Let’s have a conversation about money. Do we have enough wealth to live out our life?
Most Australians over the age of 65 have little cash. In fact 50% of retirees have real wealth of less than $400,000. That includes capital from the family home, but 25% of retirees still have a mortgage.
So how are we going to pay for the next 20 years? Especially when many of us are going to live well into our eighties and nineties.
You know as well as I do that that the government won't pick up all your costs, especially when they tell us they can't afford to cover them now. And let's not forget the Baby Boomers who are all starting to retire....
So what to do? The answer is as old as time and it is called communal living – people moving closer together and sharing the overheads. Just like villages in ancient times, just like the Jewish pioneers who created kibitzes when they were building Israel. Just like churches and local groups who first built retirement villages here in Australia during the Depression years. This village in Brisbane's Chermside was built in 1922 by a Baptist congregation - and by the way, it's still there.
The basic financial proposition of a retirement village is just the same: you sell the family home and downsize to a smaller one in a village community. The benchmark is that most people buy a home for about 80% of the value of a house outside the village. It leaves about 20% in cash from the sale of your family home which you've then got for a rainy day. You don’t pay stamp duty for most village homes either – so there are no added surprises when making the move.
Once in the village you pay a fixed weekly or fortnightly fee to cover all the day to day costs of running the village. Depending on the facilities and the number of residents and so on, that fee may be somewhere between $50 or $150 per week. But that's it. The only other costs you have are personal, like electricity.
There are number of significant financial benefits about moving into a village, but these are the major ones. You have a well maintained house or apartment that doesn't have surprise maintenance bills - most are designed for minimum maintenance. You know what your expenses are going to be each week and each year, and fees are kept low because the village shares the costs amongst many residents.
Another significant advantage is that by law your weekly fee can't be increased during the year. And unless a majority of residents – usually 75% – agree to additional expenditure or a price increase, fees are not allowed to increase by more than inflation year on year.
In fact the village operator has to submit a budget each year to residents. You can vote to accept or reject all or part of it, which gives you a lot more certainty over your household budget than if you'd stayed in the family home.
One great benefit about your village home, one that is often overlooked, is that it's been carefully designed with age in mind. So you won't have to do any alterations as you get older: ramps, or changes to the garden to make it safe, are already there. This means there are no surprise costs – often expensive ones – that will come with the family home.
I recently asked a resident on the Gold Coast what she liked about the financial arrangement of her village home. She immediately said that “when a light globe blows I pick up the phone and the village staff are here within 30 minutes to replace it. In my old home I couldn’t afford to get someone in and had to live in the dark for up to a month until for my son to dropped around. Here there is no charge – it’s just done!”
Many retirement village residents live on the pension, which is now indexed to the CPI. It makes the low weekly fees and laws limiting increases an attractive match. The whole idea is to allow you to plan to age well.