Is a retirement village better than aged care?

Retirement village living and residential care are often seen as alternatives, but the fact is they are not true substitutes. The style of living, the services provided, and what the government will subsidise (and regulate) are different.

Residential care combines accommodation and full-time daily living support. The costs are split between the resident and the 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 its own fee levels and structure. It is important to read and understand the contract and ensure you have sufficient financial resources.

How is your pension affected?

Eligibility for an age pension is means-tested. If you own your home, it is an exempt asset, but your name is usually not on the title deed in a retirement village. 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 assessable but 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 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 is based on suitability to meet your day-to-day needs and financial affordability. It is important to consider the entry (purchase) costs, ongoing fees, and the financial implications upon exit. 

The amount you pay for your room in residential care is fully refundable (unless you agree to have other fees deducted), with payment guaranteed by the government. But in a retirement village, you might not get back all of the purchase price you paid, 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.

We can help you review the financial aspects of either decision to ensure you consider the impacts both at the start and over time. Contact the Direct Advisers team to arrange an appointment to discuss your care needs here.

The information is of a general nature only and has been prepared without consideration of your individual objectives, financial situation or needs. Before making any decisions, you should consider the appropriateness for your personal investment objectives, financial situation or individual needs.