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Retirement living: uncovering the real costs of a lifestyle investment

Moving out of the family home and into a retirement village has many clear benefits – but what are the costs? How does it compare to staying at home and ‘ageing in place’, or moving in with the family?

A recent report (October 2017) from the University of Technology Sydney (UTS)* shows that retirement living is better value than residential living once you add up the financial costs plus the intangible benefits, like social connection, security and peace of mind.

The reality is that retirement living is a lifestyle choice, not an investment decision, so it comes down to a choice about what kind of lifestyle you want to lead. Downsizing can be lonely, residential living can be a neighbourhood lottery, apartment living may not cater to your needs as you age, and while a granny flat may offer up opportunities to see your grandchildren daily, it’s not always smooth sailing living with family and in-laws! They can, of course, be great options if you love where you live and have a strong support network around you – and when you look at capital costs alone, they may seem like financially better options.

However, when you add lifestyle costs together with those intangible benefits, retirement villages are usually a better option than general residential living*. A recent survey of retirement village households conducted by St Ives Retirement Villages^ found 95% of residents were as happy, if not happier, than they were before they moved in, with 97% saying they felt as safe, or safer.

So – what are the actual costs of retirement living?  Most retirement villages operate on what is called a Deferred Management Fee (DMF) model. This is a way for you to enjoy the village now, and pay the majority of the costs after you move out, rather than up-front. This is a model unique to the retirement living industry, which allows units to be more affordable than comparable real estate in the area.

Before you move in, you’ll purchase your new home in the village at a price that is largely reduced compared to other real estate in the same postcode. In Perth, the average rate for a two bedroom retirement living unit is 84% of the cost of a median house price in the same postcode. (2017 PwC/Property Council Retirement Census).

While you are living there, you’ll pay a monthly ‘common service’ fee, which helps cover the running costs of the village and keep everything maintained to a very high standard. Then after you leave, your unit is refurbished and resold. At this point, you will pay the DMF, which is a percentage of the sales price to the village operator, with the rest being refunded to you or your family.

In a nutshell, when you add in lifestyle costs to the cost of your home, such as entry to local amenities, club memberships and social activities – all of which are already included in village life – the two options end up being financially comparable.

Plus, retirement villages provide a range of knock-on mental and physical health, social and wellbeing benefits from being connected to a community of like-minded people.

St Ives Retirement Villages offer a huge range of home and lifestyle choices; what is right for you depends entirely on your situation, and any decisions should be made with the advice of a qualified financial planner, with input from your family and a lawyer.

More information, as well as examples of the costs can be found here. And a great short video explaining these costs can be viewed here.