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Lifestyle as you age

Thinking of downsizing your home and wondering about your options? 

Maybe you want to shift from your family home to a smaller courtyard home for easier maintenance or to release some capital to generate extra income?

Downsizing incentives in the last Federal Budget now allow retirees to contribute into superannuation up to $300,000 released when downsizing their home.  This may particularly appeal if you’re over 65 and want to boost your super but you no longer meet the work test.

So if you’ve owned your home for over 10 years, then sell it to downsize after 1st July 2018, you may be able to contribute up to $300,000 of the proceeds into super ($300,000 each for a couple).  Legislation to enable this is still being developed with effect from 1st July 2018. So until the legislative detail is done, we can’t be too sure how appealing this will really be.

What would you downsize into?  Maybe a smaller courtyard home, or perhaps a retirement village.  These can offer lifestyle options for you to enjoy in your retirement years.  Retirement villages aim to meet the needs of healthy, mobile and socially active retirees.  For independent living in a safe, secure and social peer setting, some villages offer shared recreational and dining facilities and well-maintained grounds to suit an active lifestyle. Minimal in-house daily personal care and support services may be available and if so, it’s usually on a ‘fee for service’ basis.

Rather than you owning the real estate of a retirement village, instead you have a ‘right to occupy’.  Such contracts are usually covered by the Retirement Villages Act 1987.  An administering authority provides general maintenance, rates and taxes, building insurance and general administration.  You would be responsible for your own contents insurance, electricity, telephone and gas usage.  A significant entry fee also applies and when you eventually leave the village, it may not be repaid until your unit is subsequently re-contracted – this is now capped at 18 months by SA legislation. Each village will have a different contract for exiting, for example you may receive 75% of the market value of the unit. Other contracts may have exit prices that are tied to the original purchase price.

Some benefits of retirement villages are; easy access to facilities, social activities and freedom to choose a lifestyle that meets your needs. If you do fancy the retirement village lifestyle, it’s best not to leave it too late – ideally do it in your 60s or early 70s.

There are obviously financial considerations in moving to a retirement village.  How will the entry cost interact with any Age Pension entitlement you may have?  If your Entry Contribution exceeds the $203,000 ‘Extra Allowable Amount’ when you enter, then that Contribution you pay becomes an exempt asset for Age Pension purposes and you’ll also be deemed to be a homeowner for Centrelink eligibility purposes.

Also make sure you can cover the monthly fees for day-to-day village management and maintenance (possibly about $400 a month).  As your health needs change, you may need to use aged care services (whether as home care services or moving into residential aged care) and this may also impact your cash flow.

A retirement village checklist:

If you are considering a retirement village, check the contract with an expert and also:

  • Talk to your family and friends
  • Visit several villages to compare services, facilities and financial arrangements
  • Will the services and facilities still be suitable as you get older (ten years time or more). Are there any stairs and are the paths easy to access?
  • Are the grounds pleasant and well-tended? Can visitors easily park?
  • Are pets allowed?
  • Can someone stay over for a visit or move in?
  • Can you can access local facilities like GPs, shops, hospitals, libraries, churches, clubs and public transport?
  • Can you make changes inside your living space – e.g. if you need a wheelchair?
  • What are the security arrangements – e.g. is there enough external lighting?
  • Review the exit fees (deferred management fees) – lifestyle choice has a cost

 Case studies:

Bruce and Joyce in their 70s wondered whether to move into a Retirement Village or buy another house on a small block. They both had some health issues though were still actively involved in the local community. As Bruce is several years older than Joyce, they’re both anxious about the possibility of Joyce being left alone if Bruce dies first.

Harry and Alice were a similar age and still living in their family home with its large garden.  Harry does the home handyman jobs and Alice worries when he climbs the ladder to clean gutters. Their memories are faltering and they become anxious easily. While reluctant to leave their home, their family are also worried about handyman risks for Harry.

Both couples decided upon a Retirement Village with a community centre and social activities to relieve anxiety and prevent social isolation (even a small garden for Harry to potter about in – without any ladders!). Home care services can also be delivered to them in the village if their health declines further.  Indeed, they’ve now become firm friends.

If you would like to discuss the information in this article or your investment options with one of our wealth management professionals, get in touch today!

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Disclaimer: All information in this article is intended to be general in nature for discussion purposes only. So you should not rely on it and seek personalised professional advice before making any decision.