Is a retirement village better than aged care?
Supported retirement village living and residential aged care are often seen as alternatives, but the fact is they are not true substitutes. The style of living, the services provided, as well as what the government will subsidise (and regulate) are different.
Residential aged care combines accommodation and full-time daily living support. The costs are split between the resident and government through a complex set of subsidies and means-testing. Care standards and fees are regulated by the Federal Government, with uniform rules across Australia.
In comparison, retirement villages are generally independent-living communities but for an extra fee, you may be able to buy additional care services. Retirement villages are regulated under state legislation, so the rules vary from state to state. The costs of a retirement village are private commercial contracts, and each village operator can set their own fee levels and structure. It is important to read and understand the contract and ensure you have sufficient financial resources.
How is your Age Pension affected?
Eligibility for an age pension is means-tested. If you own your home, it is an exempt asset, but in a retirement village, your name is usually not on the title deed. Instead, the rules for determining whether you are a homeowner or not depend on how much you pay as an entry contribution.
If you pay more than a threshold amount as your entry contribution, you will be classified as a homeowner and the amount paid is an exempt asset. If you pay less than this amount, you are a non-homeowner and the amount paid is an assessable asset but is counted against a higher threshold level.
One trap to look out for is the difference between a retirement village and a land-lease community where you do own the building and lease the land it sits on. For Centrelink this is an important distinction as you are always classified as a homeowner in a land lease community regardless of the entry cost.
Check your affordability
The decision on whether to move into a retirement village or residential aged care should be based on suitability to meet your day-to-day needs as well as financial affordability. It is important to consider not only the entry (purchase) costs, but also ongoing fees and the financial implications upon exit.
The amount you pay for your room in residential aged care is fully refundable (unless you agree to have other fees deducted), with payment guaranteed by the government. But in a retirement village, you may not get back all the purchase price and there are no government guarantees. If you judge your finances incorrectly and run out of money, you may not be able to dip into the equity you have invested without leaving the retirement village.
Ultimately, whether supported retirement living or residential aged care is best for someone considering their care options will depend on their financial situation as well as their current and future lifestyle and care needs.
Having a financial adviser to assist in this process, can help you review the financial aspects of either decision to ensure you consider the impacts both at the start and over time. An FMD adviser can also give you tips and suggest matters to consider when assessing which option will best meet your lifestyle and care needs. Speak to your FMD adviser for further information.
If you have a friend or colleague who needs help planning for elder care, they can make an appointment with me or any of our aged care specialists to get expert advice.
General advice disclaimer: This article has been prepared by FMD Financial and is intended to be a general overview of the subject matter. The information in this article is not intended to be comprehensive and should not be relied upon as such. In preparing this article we have not taken into account the individual objectives or circumstances of any person. Legal, financial and other professional advice should be sought prior to applying the information contained on this article to particular circumstances. FMD Financial, its officers and employees will not be liable for any loss or damage sustained by any person acting in reliance on the information contained on this article. FMD Group Pty Ltd ABN 99 103 115 591 trading as FMD Financial is a Corporate Authorised Representative of FMD Advisory Services Pty Ltd AFSL 232977. The FMD advisers are Authorised Representatives of FMD Advisory Services Pty Ltd AFSL 232977. Rev Invest Pty Ltd is a Corporate Authorised Representative of FMD Advisory Services Pty Ltd AFSL 232977.