Downsizing Policy Hurts Older Australians

The federal government is introducing incentives for older Australians downsizing from their family home into accommodation such as retirement villages.

The table below indicates what a financial disaster downsizing to a retirement village could be as retirement village deferred management fees, maintenance fees, selling fees and unit refurbishment costs have a negative impact on the original capital base of these retirees.

This could lead these retirees into what is called the retirement village poverty trap for longer term residents of the village.

This so named retirement village poverty or financial trap is where the $ value of the refundable amount payable on departure is so diminished over time by inflation that it places you at a point where you can no longer afford to leave the village and re-enter the property market or have sufficient money to enter a nursing home of choice as a result of an Aged Care Assessment.  

The higher the percentage of total life savings used to pay the entry cost of the village –

1. the higher the likelihood of being in the so named ‘poverty trap’ on departure.

2. the higher the likelihood of requiring family assistance due to a lack of capital.

3. the higher the likelihood of being dependent on a government funded nursing home placement rather than a placement of choice.

For more reading on the retirement village poverty/financial trap go to - http://www.retvill.net/poverty-trap/