Think HBR

Baby boomers’ high expectations for retirement living…and why the sector must meet their demands

Shaun Mahony
DFK Crosbie
The aged care industry is in a growth phase as the population ages, but that’s not the only reason there’s change happening in the products and services being offered by the sector.
Baby boomers have enjoyed the most prosperous period in Australia’s history, accumulating more private wealth than any previous generation. The older boomers are now aged 70 and their lifestyle expectations in aged care and retirement facilities are poles apart from their parents. The traditional retirement village in the suburbs, with basic services and largely segregated from the rest of the community, simply doesn’t cut it.
Retirees want independent living options that allow them to stay active and enjoy all of life’s pleasures, including room for their extended family and friends to stay—albeit not for too long!
As a result of these high expectations, the aged care and retirement living sector has significantly boosted the variety of options in the market place over the last decade. We’re now seeing much higher-quality choices in accommodation, food and lifestyle facilities like gyms and pools.
It’s obvious that residential aged-care (nursing home) operators remain heavily influenced by governments, particularly federal, given they’re government-regulated and subsidised. But there are moves towards a more flexible, user-pays system. For instance, the government retains limits on the number of subsidised places and on fees providers can charge. Yet operators can seek approval to charge extra for residents prepared to pay for premium services. Another example is last year’s change to the assets test, factoring in the family home. It means operators can charge higher bonds when residents move in.
Retirement villages aren’t quite as highly regulated but operators are still influenced by various pieces of state legislation.
They too will find their traditional financial model under the increasing scrutiny of potential residents and investors.
Most financial models for villages have these key components, albeit with many variations when you get down to the nitty-gritty:
• a long-term lease with an interest-free loan provided to the operator, based on the market value of the unit • recurrent fees, often a percentage of the aged pension, to fund operating costs such as maintenance of grounds, pools, etc.
• deferred management fees, payable on departure and based on an agreed percentage of the unit’s market value (a common model is 4% of the entry price for a maximum of seven years)
• capital gains on the transfer of units—in some villages it’s assigned to the departing resident, in others to the operator, or it might be shared in some agreed manner.
As demands and demographics continue changing, it’s likely the range of financial arrangements will become even more disparate as the best operators seek peace of mind by adapting their business models to keep up with the new realm of retirement living. After all, it’s changing almost as quickly as our population is ageing.
For further information, contact DFK Crosbie on 4923 4000, email or visit
Shaun Mahony2 Shaun Mahony

is an Audit and Business Services partner at DFK Crosbie. His experience covers a broad range of industries, including Government, Private Health Insurers, Hospitals, Aged Care Providers, Community Service Organisations and SME’s. Shaun’s focus is on building great relationships with clients, by understanding their business and what is driving them to succeed.