Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 130

Don’t have retirement village regrets

The stories of people moving into a retirement community and suffering buyer regret years later when they realise what they get back have been well told. The ABC’s 7.30 programme highlighted the issue again recently with a story about children who had seemingly done the right thing and read the agreement yet were shocked at the actual cost when their mother’s unit was sold six years later and the retirement village operator received circa $76,000.

Such stories also contribute to the other type of buyer regret – people who wish they had made the move sooner.

Understand the arrangements before you move

No matter which type of regret, it is too late to do anything about it now. You can’t wind back the clock and move into the village sooner and if you are at the point of leaving the village it is too late to negotiate a different financial arrangement. What they needed was to identify the village or villages that would meet their lifestyle needs and have the legal and financial aspects explained to them well before they moved in.

Of course, that’s easier said than done as many of the legal and financial arrangements are complicated.

Let’s start at the start.

Retirement communities can be broadly grouped into Retirement Villages and Over 55 Communities (sometimes called Manufactured Home Parks). Retirement Villages operate under the relevant state or territory legislation, often The Retirement Villages Act, which sets age requirements and deals with some but not all financial arrangements. A small number operate under residential tenancy laws. Over 55’s, on the other hand, operate under caravan park or residential tenancies arrangements or a combination of the two.

The legal contract for a Retirement Village unit can take a number of forms, from strata title to the more common leasehold and licence arrangements. In some cases, company share and unit trust arrangements give the right to occupy a unit in exchange for the purchase of shares in a company or units in a trust. In an Over 55’s community, the contract is over the land rather than the unit - the purchaser owns the unit and has a leasehold or lease over the land. Of course, there is a big difference between having a 12 month lease and having a 99 year leasehold arrangement. It also creates the interesting situation of being a homeowner and a tenant at exactly the same time.

Costs associated with different structures

Whether the person lives in a Retirement Village or an Over 55’s community, the form of legal ownership will dictate their rights and responsibilities in relation to their unit and the costs associated with it while they live in the community and after they leave - so it’s important to understand.

The costs can be broken down into the ingoing, the ongoing and the outgoing.

The ingoing is the amount the person pays for their right to occupy their unit together with other costs such as contract preparation fees or stamp duty.

The ongoing costs will include the expenses associated with the facilities and management of the community. In a Retirement Village, these are often called general service charges or recurrent charges and in Over 55 communities they are known as site fees as well as the resident’s own personal expenses. In many retirement communities the operator delivers (or engages with external providers to deliver) extra services, such as domestic help, meals and in some cases, care. These services are normally offered on a user pays basis and are in addition to the other costs. Residents are normally responsible for their own utilities as well. Making a budget that incorporates all the costs including pension entitlements, rent assistance and other income is a good idea.

The cost of leaving a retirement community normally causes the greatest confusion. There are many different exit fee models, most based on either the purchase price or the sale price and are for a percentage multiplied by the number of years the resident stays in the village. A common model historically has been 3% per year for 10 years based on the sale price. In more recent times, exit fee models have tended to be higher, and anywhere between 35% and 45% is not uncommon.

What many people fail to appreciate is that there is more to the exit fee calculation than just the percentage-based cost, often referred to as the Deferred Management Fee or DMF. There can be sales commissions to the village or to an agent and refurbishment costs to bring the unit up to the current standard within the village. Understanding all of the fees and charges and putting them into dollar terms is important, although it often involves the imperfect science of predicting how long the resident will live in the village and what their unit will be worth when they sell.

The Retirement Living Handbook

To help people navigate the maze and avoid some of the traps, Noel Whittaker and I have teamed up again to write The Retirement Living Handbook. It covers the important aspects of moving to a retirement community from finding the right retirement community to the different forms of legal contract and financial arrangements through to the impacts on pension entitlement and eligibility for rent assistance. There’s more than a dozen case studies from Australian retirement communities so you can see how the theory plays out in practice.

We will be hosting a book launch in Sydney on Monday 19 October 2015 and would like to extend a personal invitation to Cuffelinks readers to attend. The event will be held at 2pm at Club Central, 2 Crofts Ave in Hurstville. Noel and I will be sharing our top tips and you can have your copy of the book signed. To rsvp call 1300 855 770.


Rachel Lane is the Principal of Aged Care Gurus and oversees a national network of financial advisers specialising in aged care. This article is for general educational purposes and does not address anyone’s specific needs.


Leave a Comment:



Retirement communities come in different shapes and sizes

What the RC, Budget and Keating mean for aged care

Royal Commission must remove aged care anomalies


Most viewed in recent weeks

10 little-known pension traps prove the value of advice

Most people entering retirement do not see a financial adviser, mainly due to cost. It's a major problem because there are small mistakes a retiree can make which are expensive and avoidable if a few tips were known.

Check eligibility for the Commonwealth Seniors Health Card

Eligibility for the Commonwealth Seniors Health Card has no asset test and a relatively high income test. It's worth checking eligibility and the benefits of qualifying to save on the cost of medications.

Hamish Douglass on why the movie hasn’t ended yet

The focus is on Magellan for its investment performance and departure of the CEO, but Douglass says the pandemic, inflation, rising rates and Middle East tensions have not played out. Vindication is always long term.

Start the year right with the 2022 Retiree Checklist

This is our annual checklist of what retirees need to be aware of in 2022. It is a long list of 25 items and not everything will apply to your situation. Run your eye over the benefits and entitlements.

At 98-years-old, Charlie Munger still delivers the one-liners

The Warren Buffett/Charlie Munger partnership is the stuff of legends, but even Charlie admits it is coming to an end ("I'm nearly dead"). He is one of the few people in investing prepared to say what he thinks.

Should I pay off the mortgage or top up my superannuation?

Depending on personal circumstances, it may be time to rethink the bias to paying down housing debt over wealth accumulation in super. Do the sums and ask these four questions to plan for your future.

Latest Updates

Investment strategies

Three ways index investing masks extra risk

There are thousands of different indexes, and they are not all diversified and broadly-based. Watch for concentration risk in sectors and companies, and know the underlying assets in case liquidity is needed.

Investment strategies

Will 2022 be the year for quality companies?

It is easy to feel like an investing genius over the last 10 years, with most asset classes making wonderful gains. But if there's a setback, companies like Reece, ARB, Cochlear, REA Group and CSL will recover best.


2022 outlook: buy a raincoat but don't put it on yet

In the 11th year of a bull market, near the end of the cycle, some type of correction is likely. Underneath is solid, healthy and underpinned by strong earnings growth, but there's less room for mistakes.


Time to give up on gold?

In 2021, the gold price failed to sustain its strong rise since 2018, although it recovered after early losses. But where does gold sit in a world of inflation, rising rates and a competitor like Bitcoin?

Investment strategies

Global leaders reveal surprises of 2021, challenges for 2022

In a sentence or two, global experts across many fields are asked to summarise the biggest surprise of 2021, and enduring challenges into 2022. It's a short and sweet view of the changes we are all facing.


2021 was a standout year for stockmarket listings

In 2021, sharemarket gains supported record levels of capital raisings and IPOs in Australia. The range of deals listed here shows the maturity of the local market in providing equity capital.


Let 'er rip: how high can debt-to-GDP ratios soar?

Governments and investors have been complacent about the build up of debt, but at some level, a ceiling exists. Are we near yet? Trouble is brewing, especially in the eurozone and emerging countries.



© 2022 Morningstar, Inc. All rights reserved.

The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.