Many people are not aware of the full costs of buying a retirement village unit, particularly some of the extraordinary costs that only come into play when you try to exit or sell a retirement village unit. These were well highlighted in the ABC Four Corners programme dedicated to this topic that aired in June 2017.
It’s something our advisers are regularly asked about, but often after contracts have already been signed and it is left to us to explain the full extent of the deferred fees and exit fees. This may not be until an owner moves from a retirement village into aged care or sadly dies. By then families are dealing with their grief as well as ongoing unexpected costs and the realisation that their inheritance is being eaten away.
Retirement villages are not good investments
Most people rightly focus on the lifestyle gains of moving to a retirement village when they make the decision to purchase a unit. Making friends, having meals provided and access to a range of services and facilities are naturally appealing and are well promoted in the glossy brochures - and some of the facilities do deliver all this and more, but it comes at a cost.
That’s why our advisers always stress to families is that it is purely a lifestyle decision, because retirement villages are not good investments. They typically charge both monthly maintenance fees and exit fees that can be as much as 40% of the purchase price and as the Four Corners program revealed, the contracts are often very favorable to the operators meaning that if they can’t resell a property immediately, the bills can keep coming for months after an owner has passed away or moved out.
Financial and legal advice are crucial
So what can you do to avoid the downside? When you realise it is becoming more difficult to maintain the family home or live independently– or you realise this about your parents – it’s important to have a frank conversation about what the future holds and the options for navigating this stage of life. For instance, is getting support to stay in the family home a better way to meet the required lifestyle, health and care needs?
Financial and legal advice are crucial as part of this process because you may inadvertently set up a financial chain of events that will impact you, your family and any beneficiaries of your estate for years to come. It’s amazing to think that when people purchase their family home, they generally seek help from advisers, mortgage brokers and lawyers to ensure they get a good deal and avoid being ripped off, but at the other end of life, the same caution and due diligence is often lacking.
We’d like to see an end to that, so FMD has established up an aged care advisory service. For $500 you can meet with a qualified financial adviser and lawyer together [with no vested interest in any aged care product] to help you navigate and cost your options. We’ve advised many clients on these issues and can explain contract pitfalls, advise on optimal funding strategies and estate planning impacts. Clients often say our objective advice was a real support when faced with difficult decisions about their own futures or the future of their parents.
It’s a small price to pay for peace of mind and confidence in your course of action, when you consider the considerable amounts of money that can be lost.