Retirement Living versus Aged Care – the financial facts

As Australia’s population ages, more and more Australians are going to move into aged care or retirement homes. However, when it comes to Retirement Living versus Aged Care, both offer different levels of support and peace of mind. So, which one is best?

The two are very different, and the costs vary significantly.

Both require analysis and the reading of much paperwork. For example, many contracts for retirement villages run to 100+ pages and include clauses enabling the operator to force people to move out if they are deemed no longer to be able to live independently. Contracts for aged-care facilities can be equally onerous.

What about refunds?

While the price paid for a room in residential aged-care is fully refundable and guaranteed by the government, the fees and costs deducted from the amount originally paid for accommodation at retirement villages can be significant.

Many owners of retirement villages have rejigged exit costs in recent times. Whereas several years ago exit fees were typically 3% of the value of the unit per year of residence, capped at 30%, some owners of retirement villages today charge a flat fee of 15% of the value of the unit if a person leaves within the first year, 25% if the person leaves between one and two years, and 40% if the person leaves after two years.

What do I get at sale time?

Needless to say, these figures have caused a lot of angst for many thousands of people, especially when the amount they receive on the sale of a unit in a retirement village may be less than they paid for it several years earlier. It grates even more if the value of a unit has risen significantly in the interim, usually because of a property boom.

There have been accusations that retirement home operators ‘churn’ customers to attract these high exit fees. People have to take all this into account when making their decisions.

Here’s a useful example.

Take this example: Mary is an 83-year-old widow who has lived at home independently for many years. Her home was sold at auction, generating net proceeds of $1.1 million after she repaid a mortgage of $420,000. She has a bank account with $5,000 and is on a full age pension (currently $888.30 per fortnight).

Mary is a social person but her health has deteriorated to a position where she struggles with her mobility. She believes she is not yet ready to move into residential aged care and thinks that an apartment in a retirement home would suit her better. An ACAS assessment approved her for both residential respite and low-care residential permanent aged-care.

She prefers a one-bedroom apartment in a large retirement village which has just undergone a major refurbishment.

The retirement village option.

The advertised upfront payment to enter the retirement village was $650,000. Under a typical retirement village contract, this amount would be subject to a deferred management fee during the period of Mary’s occupancy (3% deducted for each six-month period in the first 18 months, then 1% per each subsequent six months, up to a maximum of 30%). Mary would be responsible for all of her normal daily living expenses and utility costs, just like any other home-owner. When she left, the amount repaid would have the deferred management fee deducted as well as the costs of reinstatement and refurbishment, selling costs and legal costs.

The aged care facility option.

We prepared financial modelling to compare the retirement village option against a low-care aged-care facility. At the latter, the Refundable Accommodation Deposit (RAD, formerly known as the bond) was $750,000 with an extra services fee of $50 per day.

After starting with $1.1 million in assets, Mary would be left with $900,000 if she left the retirement village after five years (this does not include the home-care costs, which would probably go into thousands of dollars per year). By comparison, the aged-care option would leave her with $1.05 million in net assets over the same five-year period, which includes all the care services and nursing support that she would require.

Call (03) 9043-1717 for advice

Aged Care Weekly can connect you with reputable aged care service providers, facilities and carers Australia-wide. Call (03) 9043- 1717, email reception@agedcareweekly.com.au

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.