Retirement Village Financial Trap

Retirement Village Financial Trap - The deferred fee, inflation, rising property prices, rising nursing home entry costs plus village exit costs will devalue over time the refundable amount due to a resident on exit from a retirement village.

This impact of the deferred fee, loss of earnings, inflation etc. on the amount to be refunded to a resident on departure from a village is something many will have to deal
with. A change in circumstances without further financial resources could leave a person in a financial position they did not envisage on entry.

Additional capital resources may be needed to meet the cost of any change in circumstances – ie: choose or need to leave the retirement village, re-enter the property market,
meet the cost of a nursing home bond to enable entry into a nursing home of choice.

The following graph shows how quickly a no u-turn situation arises when there is a steadily rising property market, the ability to make a u-turn because of a change of
circumstances diminishes as each year passes. Many retirement village residents enter a financial trap they did not see on entry as a result of the ever decreasing value of the
amount to be refunded on exit from the village.

This and further issues are discussed at http://www.retvill.net/

Legal and Social Issues Committee Recommendation 10

The Victorian Parliament’s Legal and Social Issues Committee enquiry into Retirement Living has made 15 recommendations.

RECOMMENDATION 10: That the Victorian Government make provisions to allow retirement village operators to pay either the refundable accommodation deposit (RAD) or daily accommodation payment (DAP) for residents entering aged care until the resident’s unit is sold.

The State Government is yet to respond to the recommendations.

Issues and concepts around Retirement Villages are presented at http://www.retvill.net/

LSIC Recommendation 14

The Victorian Parliament’s Legal and Social Issues Committee enquiry into Retirement Living has made 15 recommendations.

RECOMMENDATION 14: That the Victorian Government require retirement villages to report on compliance with maintenance plans funded by maintenance charges paid by residents.

The State Government is yet to respond to the recommendations.

Issues and concepts around Retirement Villages are presented at http://www.retvill.net/

LSIC Recommendation 6

The Victorian Parliament’s Legal and Social Issues Committee enquiry into Retirement Living has made 15 recommendations.

RECOMMENDATION 6: That the Retirement Villages Act 1986 and related regulations define whose responsibility it is to pay for repairs and maintenance, both inside units and in the communal area and facilities. These amendments should further require all works to be undertaken within a reasonable and mutually acceptable timeframe.

The State Government is yet to respond to the recommendations.

Issues and concepts around Retirement Villages are presented at http://www.retvill.net/

Potential Poverty Trap in a Retirement Village

Retirement Village Poverty Trap

The so named 'retirement village poverty trap' is where the $ value or your refundable amount on departure is so diminished over time by inflation, rising property prices and rising nursing home entry costs that it places you at a point where:-

1. You do not have sufficient money to leave the village and re-enter the property market.


2. You do not have sufficient money to enter a nursing home of choice, you have to rely on a government funded aged care placement.

See graphic below -

 

LSIC Recommendation 2

The Victorian Parliament’s Legal and Social Issues Committee inquiry into Retirement Living has made 15 recommendations.

RECOMMENDATION 2: That the Victorian Government review the Retirement Villages Act 1986. The review should determine the effectiveness of the Act in providing consumer protection while allowing growth and innovation in the sector.

The State Government is yet to respond to the recommendations.

Issues and concepts around Retirement Villages are presented at http://www.retvill.net/

LSIC Recommendation 15

The Victorian Parliament’s Legal and Social Issues Committee inquiry into Retirement Living has made 15 recommendations.

RECOMMENDATION 15: That the Victorian Government introduce a new alternative for low cost, timely and binding resolution of disputes in the retirement housing sector. This may be through a new body or by extending the powers of an existing Ombudsman.

The State Government is yet to respond to the recommendations.

Issues and concepts around Retirement Villages are presented at http://www.retvill.net/

Deferred Fee Retirement Villages

Deferred Fee - The greatest retirement village myth.

The retirement village industry and particularly operators use the terminology that you pay the deferred fee only on departure. Village operators like this because it sounds better and sells better when something is way off into the future. You will not have ownership of the property even though you are paying a commensurate cost as if you were taking ownership, you are paying this large sum of money for just a right to live in the property.  The reality is that you write the cheque before you move in not when you move out, the operator simply performs a magic trick naming it an in-going amount on the way in and naming it a deferred management fee on the way out.

Retirement village operators will defend the deferred fee structure on the basis that every resident should make a contribution toward the village communal hall and recreational facilities. What they fail to detail however is that they get a contribution from every new resident over the entire life of the village.

A village with 100 units of an average value of $500,000.00 per unit, 1. a deferred period of say 7 years and 2. a deferred fee rate of 25% ($125,000.00), with the industry average of 7 years per stay this has the capacity to generate up to $12.5 million dollars in deferred fees every 7 years for the life of the village.

This and other retirement village issues are presented at http://www.retvill.net/

Retirement Village Poverty Trap

Retirement Village Poverty Trap

The so named 'retirement village poverty trap' is where the $ value or your refundable amount on departure is so diminished over time by inflation, rising property prices and rising nursing home entry costs that it places you at a point where:-

1. You do not have sufficient money to leave the village and re-enter the property market.


2. You do not have sufficient money to enter a nursing home of choice, you have to rely on a government funded aged care placement.

See graphic below -

[caption id="attachment_296" align="alignnone" width="363"] Retirement Village Poverty Trap[/caption]



 

Retirement Village Living - The Counter View

The federal government is considering introducing incentives to get older Australians to downsize by selling their biggest asset the family home and moving into a retirement village.

A new web site has appeared which presents financial concepts that have a negative on older Australians considering taking this path with particular emphasis on the financial pitfalls of entering a retirement village.

The web site www.retvill.net provides a counter view to many aspects of retirement village living with emphasis on the true financial costs of the entry amount.

Although conceding that moving into a retirement village can be a good social decision www.retvill.net warns that there can be financial pitfalls even leading to what is referred to in the industry as the retirement village poverty trap.

Multiple aspects of the current retirement village industry model are discussed and present a counter view to the often glossy and glowing images presented by industry operators.

Take this link – http://www.retvill.net/

Treasurer Scott Morrison expected to announce incentives for the elderly to downsize the family home

Speculation is growing that the Federal Treasurer Mr. Scott Morrison will announce measures in the May budget that will encourage older Australians to downsize by selling their family home and enter retirement villages.

A recent article in the Australian newspaper included the following:-

"As well, the budget package will include measures that help boost the supply of housing for older Australians — such as villages for the over-55s — so more people are able to downsize without being forced to move far from their home suburbs or towns."

For some of these older Australians encouraged by these new government incentives will finish in what is referred to as the 'retirement village poverty trap'. A situation where the refundable amount due for repayment on departure is devalued by inflation and rising nursing home entry costs to the point where the retirement village resident is unable to move back into the property market or pay the entry cost to a nursing home of choice. This forces the resident who once had a substantial appreciating asset being the family home to go cap in hand to the taxpayer and seek a government funded nursing home placement, an impact Mr. Morrison has clearly not forseen.

If introduced as speculated these incentives have the capacity to send older Australians to financial ruin who then have to come back to the taxpayers for a government sponsored nursing home placement. This and other negative financial impacts of living in retirement villages are explained at www.retvill.net .

The following graph illustrates the problem for retirees, lifestyle versus the impact on capital wealth.





 

RETIREMENT HOUSING FORUM

RETIREMENT HOUSING FORUM

Responding to the recommendations of the Parliamentary Enquiry into the Retirement Housing Sector.

As a result of the current interest in retirement housing, and the current reforms taking place, Housing for the Aged Action Group will be holding a retirement housing forum on 1 May 2017.

This will be held in conjunction with Consumer Action Law Center, COTA and Residents of Retirement Villages Victoria and looks to create a strong campaign strategy to ensure the inquiry recommendations are seriously considered and acted upon in future reform.

Monday May 1st
Registration at 10am (For 10.30 Start) – 3pm
Victoria University City, L12,
300 Flinders Street, Melbourne.

RSVP by April 24.

For more information go to http://www.oldertenants.org.au/events/retirement-housing-forum