The moment you move into a retirement village, you’re making a financial commitment that extends years beyond your residency. Yet many people focus only on the ingoing price and overlook the expense that emerges when they leave. For most Australians considering this step, the real financial question isn’t whether they can afford to move in — it’s what the exit will actually cost.
Most retirement villages operate on an exit fee model. You pay an ingoing contribution, enjoy your time in the village, and when you decide to move on, you’re charged a fee. The Retirement Living Council and PwC found that exit fees remain the dominant contract type, averaging 33 per cent. But a small but significant number of villages — around 8 per cent of contracts — now offer an alternative: paying a management fee upfront instead. You’ll find this option at larger operators like Aveo, Keyton, and Levande, though many smaller operators don’t yet offer it.
The upfront model seems straightforward. Instead of being charged when you leave, you pay the management fee on entry. Because operators receive the money earlier, they typically discount it — often to 20 per cent compared with the traditional 30 to 35 per cent exit fee. On the surface, this looks like a saving. But the financial picture extends far beyond the fee itself, touching on pension income, aged care costs, and how long you actually live in the village.
Here’s where it gets complex. If you have significant assets, you’re likely to cross the asset threshold that triggers a pension reduction. For every $100,000 of assets you hold, your age pension drops by $7,800 a year. Paying the management fee upfront can shift your asset position in a way that preserves your pension income. Similarly, the way you structure your payment affects Support at Home contributions, which are directly tied to pension means testing. By paying upfront, you might reduce these annual costs too.
Consider a concrete example. A resident purchases a two-bedroom unit priced at $850,000 and faces two paths: pay that amount with a 33 per cent exit fee, or pay $1,020,000 ($850,000 plus a $170,000 upfront management fee). With a general service fee of $645 per month, the annual costs and pension implications differ sharply.
Under the exit fee approach, annual outgoings total around $32,170 per year (service fees, aged pension income, and Support at Home). Over ten years, your total exit payment on departure is $569,500. Under the upfront fee structure, annual costs sit at around $40,185 per year initially, but you receive a significantly higher age pension and pay much less for Support at Home. Your exit payment when leaving the village is $850,000 — the original purchase price.
After a decade, the difference between these two paths comes to around $240,500. Of course, paying upfront means forgoing the income that $170,000 could earn elsewhere. At a conservative 5 per cent return over ten years, that’s another $85,000 in opportunity cost. But when you eventually move into aged care, an upfront payment often means a higher exit payment from the village, and that extra money becomes available for a Refundable Accommodation Deposit in aged care — where it can make a significant difference.
The truth is that neither model is automatically superior. Many residents won’t be offered a choice at all. But whichever path a retirement village presents, it’s worth doing the maths. The cheapest-looking retirement village home isn’t necessarily the most affordable when you factor in the full financial journey.
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