How do the finances of villages operate?
Let’s have a conversation about buying into a retirement village and the ongoing fees – how does it all work and will you be able to afford to live in a retirement village until the end of your days?
Put simply, when people join a retirement village, they sell the family home and downsize. Most buy into a home with 2 bedrooms, 1 and half bathrooms and a study. As a benchmark, the cost is around 80% of a similar home outside the village so you normally end up with a nest egg for a rainy day.
For instance, if you sell your home for $400,000 and buy into a retirement village for 80% of that amount, you'll only pay $320,000. There's no stamp duty so you end up with $80,000 in cash.
All the residents join together to share the cost of operating the village. The weekly fee covers things like maintenance and staff wages, village managers and gardeners.
The village operator is required by law to manage the village at cost – meaning they can’t make a profit from day to day operations.
Depending on the size of the village and the scope of its facilities, the weekly fee can be anywhere from $50 to $150 per week.
The only other costs you have to cover are your own day to day expenses plus utilities like electricity or gas, telephone and internet, and content insurance.
But if you're on your own and living on the pension – can you get by?
Let's say your electricity is $250 per quarter, phone is $150 and insurance is $75. With a weekly village fee of around $100, that works out about $135 a week. Take that from a single pension and you're left with $220 each week. Will that be enough?
One of the great things about village life is that you can plan ahead. The law states that village fees can only increase by the CPI, in step with the pension. So you can be pretty confident these figures are not going to change a lot.
In fact, the only time fees can rise by more than the CPI is when 75% or more of residents agree to a change.
And don't forget that you still have $80,000 cash from the sale of your previous home. What's more, you won't have to pay ongoing maintenance or upgrades as you would if you were still in the old place.
It is essential that you have a conversation with someone from the village residents committee before you join so you are clear on these fees and any plans for future costs or upgrades.
There is no doubt that you have more financial certainty when you join a village versus staying in the family home.
It's another way retirement villages let you plan to age well.