Tallying up the costs when leaving a retirement village

If you are thinking about moving to a retirement village you're probably not thinking about what happens after you leave.

While many people know about the exit fee, which can be a complex formula of management fees, sharing of capital gain or loss, renovation costs, sales commissions and marketing fees, another important element is how soon you will get your money back.

State-based legislation sets out the conditions and time frames for buybacks.

Broadly speaking the time frames vary from 18 months in South Australia and Queensland to no buyback (with the exception of people moving into aged care) in Victoria. NSW falls in between with 6 months in metro areas and 12 months in regional.

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While the legislation sets the time limit for buybacks it is not uncommon to find villages, particularly those run by large operators, that will offer you a buyback in a shorter period of time or when a buyback is not required so as to maintain uniformity.

Sometimes the time frame will depend on the contract you choose, in some cases it can be as short as three months in a state where no buyback is required.

Putting a dollar figure on a buyback can be tricky, it is a bit like insurance, it's not worth anything unless you need it. A buyback is not when you will receive your money, it is the latest time you will get it.

If your home in the village sells sooner then you will get your money when it sells. A buyback only applies if your home hasn't sold within the set amount of time.

In the last couple of years the property market has been booming and village occupancy is at 90 per cent but that is not always the case and may not be the case when you leave the village.

A big part of the value in a buyback is what I call the "pillow factor", which basically means how well you sleep at night knowing that you (or your estate) will receive the money within a certain amount of time.

Generally speaking, your home is your most valuable asset and the majority of people leave a village to move into residential aged care or because they pass away.

Aged Care Gurus Principal Rachel Lane says, "if your next move is to residential aged care then the cost of your new accommodation is a factor. Most people pay the market price for their accommodation which in most metropolitan areas starts around $550,000 but can go as high as $3 million.

Let's say you are moving from a retirement village into aged care where the accommodation costs $550,000. Your exit entitlement from the village is $400,000 and your unit isn't selling. If your buyback is 18 months then on the $400,000 you are waiting for you can pay a Daily Accommodation Payment (DAP) of $54.79 per day to the aged care facility which equates to $30,000 over 18 months. If your buyback is six months then the DAP will cost you $10,000 over that period, saving you $20,000 and 12 months of worry.

There is a lot to think about when you are moving to a retirement village, for most people what happens after they leave is furthest from their mind but it's definitely worth crunching the numbers on, or getting a retirement living and aged care specialist to crunch the numbers for you.

Question

My husband is 66 and is about to make an application for an age pension. I am 62 and work part time. I have $100,000 in a bank account which Centrelink say they will assess even though I am not claiming the pension.

Can I transfer some of that into my superannuation account using the three-year catch-up rule and claim a tax deduction in order to bring our total assets under $901,500. Would this be regarded as a deprived asset?

Answer

Members of a couple may transfer money to superannuation, or to and from each other, without facing any deprivation rules.

Therefore, you can put money into superannuation where it will not be counted by Centrelink until you reach pensionable age.

Whether or not you choose to make a tax-deductible contribution, or simply use after-tax money, will depend on your tax bracket. Make sure you take advice.

Question

I retired in June 2021 and have a self-managed super fund, with investments in shares and cash. I have a question regarding cash held in the fund.

You say to keep three to four years in cash, in case we have a downturn in the market, similar to what we are experiencing at the moment.

Does the amount of cash held include the dividends received in any given year, or are the dividends additional to this cash amount?

Answer

The purpose of keeping three to four years planned expenditure in cash is to protect you from a situation where you would need to cash in growth assets at a time when the market having one of this normal downturns.

Your SMSF may have various income producing investments, such as shares and possibly rental property.

Any income from these should be factored in when you are considering how much you need to keep in a low volatile area when you are doing cash flow forecasts.

Question

I am 63 and my wife is 60, we are in no rush to retire. We are both working, with a combined salary of $220,000 a year.

We hold a total of $850,000 in super, $950,000 in shares, plus an investment property in the mid north coast with a mortgage of $170,000. Any idea of where to go from here?

Answer

I suggest you keep the investment property on an interest only basis to maintain any tax benefits it may be giving you. This will enable you to maximise the amount you are salary sacrificing to super.

I think it's great you're in no rush to retire, because staying at work enables you to build up your super and also gives the compounding effect more time to work its magic as you won't be drawing down on your capital as early as you would be if you left work in the near future.

Question

My brother and I have been appointed executors in our mother's Will as well as beneficiaries of her estate, which is just her house. Mum passed away early this year, but we haven't applied for probate yet.

Does my pension get affected by this inheritance on my mum's passing when probate is granted or when the house is sold? That is, is the house considered an asset once probate is granted as executors or when the house is sold and I receive half the monies from the sale?

Answer

Human Services tell me that your share of your mother's estate won't be considered to be an asset until the estate is finalised and your share of the assets is received or is able to be received. Generally, they acknowledge that it can take up to 12 months for an estate to be finalised. You will need to let them know, as part of your normal notification obligations, when your share of your mother's estate is received or able to be received.