Funding your retirement lifestyle as well as preparing for the frailty years
How much is enough?
A common question we get asked about preparing for retirement and retirement living is “how much is enough?”.
This, as you can imagine, is a hard question to answer because it is very personal. Generally, it will depend on the person's lifestyle aspirations, family commitments and health.
Retirement Living Landscape - a snapshot
The statistics show people are waiting longer to go into retirement living. There are many reasons attributed to this, but one reason could be that more subsidised home care services are available for people over 65 years.
Key insights from the 2020 PwC Australia/Property Council Retirement Census, the biggest annual survey of the retirement living sector show:
64% of residents are female and 58% of units are occupied by a single resident;
The average age of new residents is 75 years of age, while
the average age of all residents is 81 years,
8-9 years average is the average time residents live in a village,
There is a 261 day average from vacant possession to settlement,
90% of residents are choosing to pay in part, or in full, for home care services, pointing to a growing trend for residents to age-in-place and support their own lifestyle needs, rather than just rely on government-funded support.
"You need to be able to afford to go into a retirement living arrangement.
It is important to do your numbers and do not over commit". Craig Phillips
Financial Tips and Traps to Avoid:
Short on cash
Living in a retirement village is a little different to living at home. You just need to remember that if you run out of cash, you are unable to use a reverse mortgage.
Tip: do budgets carefully and not overspend or get advice.
When it is time to leave the village your unit may need to be sold before you get your funds. This can take a long time in some villages:
Tip: ask how long the average sale is taking and think about how this might impact you.
You need to know how much money is going IN and OUT the door.
Tips: There are many budgeting tools available to help you do this. We use a program called My Prosperity. We favour this program because it is a highly interactive web and app-based tool which gives one view of your assets and income. There are live feeds for your bank and portfolios and important documents such as insurances, wills and estate planning documents can be uploaded.
When moving into a retirement living community, it is important to continue to plan at least 15 to 20 years ahead. Get help to plan for the worse case. We call this The Frailty years, that is if you need 24-hour supportive care. Factor in, how long it will take for you to get your money once you leave the retirement community.
Rule of thumb, if budgeting to have enough money in the bank to cover a full year of expenses.
The upside to downsizing
Superannuation downsizing. In July 2018, you can top up your superannuation unrelated to your contribution cap. If you are aged 65 or more and sell a property that has been your main residence AND you have owned this property for 10 or more years, you may be able to contribute some of the proceeds to your super account.
Singles can add $300,000 & for couples $600,000 into superannuation, regardless of your work status, super balance or what you’ve already contributed under the ordinary concessional and non-concessional contribution caps.