Im­por­tant to be aware of dif­fer­ent retirement vil­lage con­tracts

The Sunday Mail (Queensland) - - NEWS -

MUCH has been writ­ten about fig­ur­ing out how much money will be needed in retirement, but much less about the fact that in­creas­ing life ex­pectan­cies mean the prob­a­bil­ity of liv­ing with a dis­abil­ity in later years is grow­ing.

In some cases, re­tirees can find them­selves locked into a retirement vil­lage con­tract that leaves them with in­suf­fi­cient funds to change where they live when their needs change.

Last month, retirement and aged care provider Aveo an­nounced they would now be pro­vid­ing three pay­ment op­tions: the cur­rent con­tract, Aveo Way, plus two al­ter­na­tives – Cer­tainty and Essentials.

The op­tions don’t change how much you pay up­front or what you pay while you live in ity – a trans­ac­tion that of­ten has peo­ple scream­ing about a dou­ble DMF. So what ex­actly is a dou­ble DMF?

Let’s say you move into an Aveo vil­lage, pay­ing $500,000 on en­try. The value of that unit in five years’ time may be $550,000, but your exit en­ti­tle­ment is $325,000.

If you move to an aged-care fa­cil­ity that has a mar­ket price of $550,000, typ­i­cally you would pay the $325,000 from the sale of your unit, and a daily pay­ment at an an­nual in­ter­est rate of 5.96% on the $225,000 re­main­ing, a cost of $13,410 a year. Many peo­ple can­not meet this cost from their cash flow, and so they choose to have their daily pay­ment de­ducted from their lump sum. If you wanted in­stead to move from vil­lage A to vil­lage B it may not be pos­si­ble un­less you could dip into your in­vest­ments for the ad­di­tional $225,000. And if you did, some or all of that could be lost on exit.

Un­der the orig­i­nal Aveo Way con­tract, the DMF is 35 per cent af­ter three years (25 per cent in new vil­lages), there is a 6-month move-in guar­an­tee and a 6-month guar­an­teed buy­back. Un­der the new Essentials con­tract the DMF is 35 per cent af­ter 5 years (25 per cent in new vil­lages), the move-in guar­an­tee is shorter, at just three months, and the guar­an­teed buy­back takes longer, at 12 months. Both of these leave you at risk of the dou­ble DMF sce­nario.

Un­der the Cer­tainty con­tract, the DMF, move-in guar­an­tee and guar­an­teed buy­back are all the same as the Aveo Way con­tract, but if you choose to leave the vil­lage to move to an­other Aveo vil­lage, one of their Free­dom vil­lages, or an Aveo Res­i­den­tial Aged Care Fa­cil­ity, you can swap your unit for a sim­i­lar-priced unit, apart­ment or aged-care bed with­out be­ing charged again.

Aveo’s Cer­tainty op­tion would en­able you to pay the $325,000 for the $550,000 unit or aged-care bed. It’s not free – the cost for this op­tion is $2000 a year – but com­pared with the al­ter­na­tive cost this may be a bar­gain. The op­tions are lim­ited to Aveo-op­er­ated es­tab­lish­ments, so if you want to leave Aveo to go to an­other op­er­a­tor the Cer­tainty con­tract isn’t go­ing to help you. But Aveo do have over 90 vil­lages and res­i­den­tial aged-care fa­cil­i­ties in their port­fo­lio, so there are po­ten­tially a lot of op­tions.

Aged Care Guru Rachel Lane sug­gests crunch­ing the num­bers on Retirement Vil­lages, re­mem­ber­ing to break it down into the in­go­ing, on­go­ing and out­go­ing costs – sim­ply com­par­ing what you pay up­front will ig­nore most of the key in­for­ma­tion.

Seek­ing ad­vice from a spe­cial­ist ad­viser will en­sure you un­der­stand the im­pli­ca­tions for your pen­sion and po­ten­tially rent as­sis­tance too, your abil­ity to fund your new life­style and what po­si­tion you would be in if you needed to ac­cess home care or tran­si­tion to res­i­den­tial aged care. noel@noel­whit­taker.com.au

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