Having a large lump of cash, often for the first time in your life, can be a real problem, especially if you are moving to a retirement village and you are a pensioner.
You will have sold the family home, let’s say for $1 million, and moved into a retirement village home with an upfront cost of say $500,000 – meaning you have $500,000 left over as money in the bank.
Sounds great except for the government now says you have ‘wealth’ and it doesn’t have to support you as much with a pension – you can look after yourself financially.
In fact if you have $500,000 in cash they will reduce your pension by around $14,000 a year. This is close to double what the weekly fees would be to live in the village which is normally easily covered by the pension.
Pay more upfront – and less when you leave
Savvy financial advisors are now working with retirement village operators and new residents to improve this deal. They are asking the operators to negotiate the upfront cost – upwards! The deal is you pay more at the front end as a loan to the operator – and negotiate to pay less at the back end.
You lend the operator your money and he rewards you with the equivalent of an interest payment when you leave the village by reducing the exit fee (Deferred Management Fee) by the amount of that interest.
Because money is provided as a contribution to your housing the government does not include it in your wealth and your pension is protected.
You get to keep all the pension (say $14,000 which then pays the weekly fees and more in the village) and the fee you pay to be in the village is reduced by the tax-free interest negotiated with the operator.
Our advice is to get specialist financial advice and assistance in your negotiation – everybody wins.
