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:

     
banner

Most viewed in recent weeks

Stop treating the family home as a retirement sacred cow

The way home ownership relates to retirement income is rated a 'D', as in Distortion, Decumulation and Denial. For many, their home is their largest asset but it's least likely to be used for retirement income.

Welcome to Firstlinks Edition 433 with weekend update

There’s this story about a group of US Air Force generals in World War II who try to figure out ways to protect fighter bombers (and their crew) by examining the location of bullet holes on returning planes. Mapping the location of these holes, the generals quickly come to the conclusion that the areas with the most holes should be prioritised for additional armour.

  • 11 November 2021

Welcome to Firstlinks Edition 431 with weekend update

House prices have risen at the fastest pace for 33 years, but what actually happened in 1988, and why is 2021 different? Here's a clue: the stockmarket crashed 50% between September and November 1987. Looking ahead, where did house prices head in the following years, 1989 to 1991?

  • 28 October 2021

Why has Australia slipped down the global super ranks?

Australia appears to be slipping from the pantheon of global superstar pension systems, with a recent report placing us sixth. A review of an earlier report, which had Australia in bronze position, points to some reasons why, and what might need to happen to regain our former glory.

How to help people with retirement spending decisions

Super funds will soon be required to offer retirement income strategies for members in decumulation. With uncertain returns, uncertain timelines, and different goals, it's possibly “the hardest, nastiest problem in finance".

Tips when taking large withdrawals from super

You want to take a lump sum from your super, but what's the best way? Should it come from you or your spouse, or the pension or accumulation account. There is a welcome flexibility to select the best outcome.

Latest Updates

Investment strategies

Charlie Munger and stock picks at the Sohn Conference

The Sohn Australia Conference brings together leading fund managers to chose their highest conviction stock in a 10-minute pitch. Here are their 2021 selections with Charlie Munger's wisdom as the star feature.

Interviews

John Woods on diversification using asset allocation

All fund managers now claim to take ESG factors into account, but a multi-asset ethical fund will look quite different from a mainstream fund. Faced with low fixed income returns, alternatives have a bigger role.

SMSF strategies

Don't believe the SMSF statistics on investment allocation

The ATO's data on SMSF asset allocation is as much as 27 months out-of-date and categories such as cash and global investments are reported incorrectly. We should question the motives of some who quote the numbers.

Investment strategies

Highlights of reader tips for young investors

In this second part on the reader responses with advice to younger people, we have selected a dozen highlights, but there are so many quality contributions that a full list of comments is also attached.

Investment strategies

Four climate themes offer investors the next big thing

Climate-related companies will experience exponential growth driven by consumer demand and government action. Investors who identify the right companies will benefit from four themes which will last decades.

Investment strategies

Inflation remains transitory due to strong long-term trends

There is momentum to stop calling inflation 'transitory' but this overlooks deep-seated trends. A longer-term view will see companies like ARB, Reece, Macquarie Telecom and CSL more valuable in a decade.

Infrastructure

Infrastructure and the road to recovery

Infrastructure assets experienced varying fortunes during the pandemic, from less travel at airports to strong activity in communications. On the road to recovery, what role does infrastructure play in a portfolio?

Economy

The three prices that everyone should worry about

Among the myriad of numbers that bombard us every day, three prices matter greatly to the world economy. Recent changes in these prices help to understand the potential for a global recovery and interest rates.

Sponsors

Alliances

© 2021 Morningstar, Inc. All rights reserved.

Disclaimer
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.