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July 8, 2026 — 5:10am
For many Australians considering a retirement village, the biggest financial question is not whether they can afford to move in — it is what happens when they leave.
Retirement village contracts have been built around an exit fee model. You pay an ingoing contribution, live in the village, and when you leave, an exit fee is taken.
The latest Retirement Living Council/PwC Retirement Village Census found exit fees to still be the most common contract, with an average fee of 33 per cent. But last year upfront management fees represented 8 per cent of contracts.
While that may sound like a small number, it is potentially a significant proportion of residents because it is not offered by all villages. While it is common across the big operators like Aveo, Keyton and Levande, many other operators don’t offer the option.
The concept is simple: instead of paying when you leave, you pay it upfront.
There can be several benefits, and the biggest is likely to be the discount. Because the operator receives the payment earlier they charge less – 20 per cent upfront compared with 30 per cent or 35 per cent at the end is common. But the financial implications extend far beyond the management fee.
Longer term, if you move into an aged care home, paying upfront normally means your exit payment from the village is higher.
Moving into a retirement village with an exit fee might be cheap, but once you realise what it means for your pension it can make the move unaffordable. That’s because when you go over the asset threshold your pension reduces by $7800 a year for every $100,000 of assets. Paying the management fee upfront can enable you to preserve some of that pension.
How you pay for your home in the village can also impact on your cost of care in the village and beyond. Support at Home contributions are closely linked to pension means testing, so paying in a way that preserves pension can reduce your contributions.
Longer term, if you move into an aged care home, paying upfront normally means your exit payment from the village is higher (and sometimes quicker), leaving more money to pay towards a Refundable Accommodation Deposit (RAD). Here’s an example.
A resident buys a two-bedroom retirement village unit. The options are to pay $850,000 with a 33 per cent exit fee or pay $850,000 plus 20 per cent as an upfront management fee ($170,000). There is a general service fee of $645 per month.
Under the exit fee option:
- Ingoing price: $850,000
- General service fee $7740/year
- Age pension $19,640/year
- Support at Home $4790/year
- Exit fee: $280,500
- Exit payment: $569,500
Under the upfront fee:
- Ingoing price: $1,020,000 ($850,000 plus upfront management fee $170,000)
- General service fee $7740/year
- Age pension $30,149/year
- Support at Home $2296/year
- Exit payment $850,000
After 10 years the difference is around $240,500. Of course, by paying upfront you are forgoing the income the $170,000 could earn. At 5 per cent per annum over 10 years, that’s $85,000.
Neither model is automatically better, and you won’t always be given a choice. In either case, it’s worth crunching the numbers, because the cheapest home in a retirement village isn’t always the most affordable.
Rachel Lane is the author of Downsizing Made Simple, a book and website aimed at demystifying downsizing.
- Advice given in this article is general in nature and not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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