Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 336

The role of retirement villages in retiree housing

In retirement, many Australians need to determine the most appropriate housing option from both an emotional and financial perspective. And the housing options of retirees cannot be ignored by the financial services industry as it works towards delivering sufficient retirement income.

While the vast majority of Australians choose to ‘age in place’ by remaining in their own home, retirement villages’ popularity is increasing faster than any other age-specific housing option (Productivity Commission Research Paper). Prima facie, retirement villages provide a good solution, but currently the offer is complex and requires specialist advice.

Three reasons to move to a retirement village

Retirement villages house around 5% of Australians over 65 years old (approximately 184,000 people) and this housing segment has a number of advantages.

Firstly, transitioning to a retirement village can provide an opportunity to downsize and unlock home equity, and unlocking home equity can be key to sufficient retirement income. Yet according to the Producivity Commission, unlocking home equity is rarely the main driver of moving to a village and the majority of older Australians believe that their current home will not help fund their retirement.

Secondly, retirement villages meet retirees’ needs to feel safe, offer a range of activities and provide the necessary building features, such as non-slip surfaces and handrails.

Thirdly, retirement villages can serve as a gateway to further care such as an aged care facility.

However, there are a number of emotional barriers to moving into age-specific accommodation. A study by the National Seniors Productive Ageing Centre in 2013 cites a 'loss of independence' and 'lack of privacy' as the two most likely factors to discourage relocation to a retirement village. Atul Gawande’s book, Being Mortal, openly details the 'controlled and supervised institutional existence' that can result by moving the elderly into assisted living and aged care facilities in particular.

Financial arrangements are complex

From a financial perspective, the fee structures of retirement villages are complex and vary substantially across villages, making comparisons difficult. Further, the cost of getting it wrong can be high due to significant exit costs in some structures. A Macquarie University economist, Tim Kyng, developed the Retirement Village Cost Calculator after trying to select a retirement village for his mother. The calculator simplifies the various fees down to a single monthly cost, to help compare different options. However, when working through the calculator and the various fee structures, what appears to be a housing decision for retirement looks a lot like purchasing a complex end of life insurance product.

Despite this, legislation remains state based, standardised and comparable fee disclosure principles (think RG97) do not yet exist, and retirement villages are not ‘in-scope’ at the current Royal Commission into Aged Care Quality and Safety. On top of the complex contract, individuals also should consider how a transition (and possible downsizing) can affect pension entitlements and their future income stream.

In the absence of better regulation in this area, seeking professional advice is necessary. As advisers consider their value proposition, this is one area that could make a significant difference to the retirement outcomes of their clients. Examples of providers of specialist education and ongoing training are Aged Care Steps and Aged Care Gurus.

Superannuation funds should also consider the role they play as they grapple with designing appropriate post-retirement products, such as Comprehensive Income Products for Retirement (CIPRs). One concept floated was super funds owning residential aged care accommodation options, providing quality social infrastructure, while generating a return for their members. It would be age-specific accommodation provided for the member and owned by the member. The concept might prove an important pillar in unlocking home equity and underpin Australians’ income streams in retirement.

The Australian Bureau of Statistics projects that by 2050, there will be over eight million Australians over 70 years old. The challenges associated with age-specific housing options, the complexity of the contracts, and unlocking home equity are not going away. As we work towards providing Australians with an income stream in retirement and embark on the upcoming independent review into retirement income, we cannot ignore this housing segment.


Annika Bradley, CIMA® is an independent member of a number of investment committees and she provides advice to other financial businesses. This article is general information and does not consider the circumstances of any person.



Leave a Comment:


Most viewed in recent weeks

Three steps to planning your spending in retirement

What happens when a superannuation expert sets up his own retirement portfolio using decades of knowledge? He finds he can afford much more investment risk in his portfolio than conventional thinking suggests.

Finding sustainable dividend stocks on the ASX

There is a small universe of companies on the ASX which are reliable dividend payers over five years, are fairly valued and are classified as ‘negligible’ or ‘low’ on both ESG risk and carbon risk.

Among key trends in Australian banks, one factor stands out

The Big Four banks look similar but they are at fundamentally different stages as they move to simpler business models. Amid challenges from operating systems, loan growth and neobank threats, one factor stands tall.

Why mega-tech growth are the best ‘value’ stocks in the market

They are six of the greatest businesses ever and should form part of the global portfolios of all investors. The market sees risk in inflation and valuations but the companies are positioned for outstanding growth.

How inflation impacts different types of investments

A comprehensive study of the impact of inflation on returns from different assets over the past 120 years. The high returns in recent years are due to low inflation and falling rates but this ‘sweet spot’ is ending.

How to manage the run down in your income in retirement

The first of five articles on modern retirement income products that aim for an increasing pension that lasts for life and on average should not decline in real terms. They are not silver bullets but worth a look.

Latest Updates


Retirement income promise relies on spending capital

The Government has taken the next step towards encouraging retirees to live off their capital, and from 1 July 2022 will require super funds - even SMSFs - to address retirement income and protect longevity risk.


How retirees might find a retirement solution in future

Superannuation funds need to establish a framework that offers retirees a retirement income solution that lasts a lifetime. It will challenge trustees to find a way to engage that their members understand and trust.

Investment strategies

Dividend investors, your turn is coming

Dividend payments from listed companies, depended on by many in retirement, have lagged the rebound in share prices over the past year. Better times are ahead but sources of dividends will differ from previous years.

Investment strategies

Four tips to catch the next 10-bagger in early-stage growth

Small cap investors face less mature companies with zero profit that need significant capital for growth. Without years of financial data to rely on, investors must employ creative ways to value companies.

Investment strategies

Investing in Japan: ready for an Olympic revival?

All eyes are on Japan and the opportunity to win for competing athletes. After disappointing investors for many years, Japan is also in focus for its value, diversification and the safe haven status of its currency.

Fixed interest

Five lessons for bond investors from the Virgin collapse

The collapse of Virgin Australia not only hit shareholders, but their bond investors received between 9 and 13 cents in the $1. A widely-diversified portfolio can tolerate losses better than a concentrated one.

Investment strategies

The 60:40 portfolio ... if no longer appropriate, then what is?

The traditional 60/40 portfolio might deliver only 1.5% above inflation in future without diversification benefits. Knowing an asset’s attributes rather than arbitrary definitions is better for investors.


Two factors that can transform retirement investing

Retirees want better returns but they have limited appetite to dial up their risk exposure in order to achieve it. Financial advice and protection strategies in portfolios can enhance investment outcomes.



© 2021 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.