Deferred Management Fee Myth

What is the Deferred Management Fee Myth

The ‘deferred management fee’, the first component of the retirement village entry price.
The myth is that it is paid on exit whereas it is in fact paid upfront to the operator before moving in.

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.

The ‘interest free loan’ to the operator, the second component of the retirement village entry price.
The problem is the $ value of the interest free loan to the operator paid on entry is ravaged by inflation, rising property prices, rising nursing home entry costs, loss of earnings until it is due for eventual refund on exit from the village.

The purchasing power of the interest free loan component of the village entry price will be greatly diminished over time to a much lower present day $ value due for refund on exit.

This then creates the potential to be caught in what is called the retirement village poverty trap as a result of this devaluation of capital value over time. The cost of re-entering the property market and the cost of entry into an aged care facility of choice have marched on over time and there may not be enough capital value left on departure from the retirement village to achieve either.

An understanding of the following two components (where applicable) of the entry fee should have a high priority:-
Part 1. The non-refundable capital amount or deferred management fee – generally a deferred management fee has a reducing refundable amount until $0 at the end of the deferred fee period.
Part 2. The fixed refundable amount – due for repayment on exit but can be greatly devalued over time.