- Contemplate selling your abode, yet remain its inhabitant. Is retiring an appealing prospect?
Relocating in old age and getting accustomed to a new atmosphere is challenging for many elderly individuals. With memories of raising their children in the very same house and watching their grandchildren play in the living room, it's understandable why many seniors have strong emotional attachments to their living spaces. However, maintaining a home can be costly, even if it's been fully paid off.
Despite living rent-free, financial constraints can still surface, especially when major home repairs are needed, hefty HOA fees eat away at the pension, or income from home care services isn't sufficient. The affection for one's home in old age can unexpectedly turn into a financial predicament.
Lifetime Income from Property Sale
At first glance, a lifetime income might seem like a solution. Senior homeowners sell their property and receive a continual income rather than a lump sum payment. This income continues until the end of their lives, known as a lifetime income. They can also agree with the company providing the lifetime income on a privilege called usufruct, which is registered in the property registry. This ensures that the senior may live rent-free in the house for life or rent it out at no cost. Another advantage: the property maintenance is now the buyer's responsibility. "The buyer also takes care of the property tax," says Markus Budde, a mortgage financing expert at credit intermediary Dr. Klein.
For many, retirement savings is one of the primary motivations for buying a property. However, the supposed source of security could become a financial burden during retirement.
Maintaining one's own home, supplementing the pension, and not worrying about property maintenance sounds appealing at first, yet consumer centers warn that lifetime income plans are rather costly products, and the actual amount received is minimal. Experts therefore suggest selling the property if in doubt, as this usually yields a higher one-time payment than lifetime income payments.
Securing Relatives with Minimum Term
Those who opt for a lifetime income receive it monthly, quarterly, or annually. "For a property valued around 350,000 euros, you can anticipate around 800 euros per month," says Budde. The exact amount depends on the property's purchase price and the seller's age. The older the seller, the higher the payments.
Since seniors relinquish their property ownership with a lifetime income plan, they can no longer pass it down to their heirs. However, to financially secure their relatives, a retiree can negotiate a minimum term with the provider of the lifetime income. If the retiree passes away before the agreed timeframe, the relatives will now receive the lifetime income payments until the agreed date. Couples can also secure each other in this way.
For those who prefer not to retire, continued employment is an option. Information on available models, pension insurance bonuses, tax obligations, and the government's retirement deferral premium plans.
To receive a lifetime income, retirees can seek out private individuals, commercial providers like Deutsche Leibrenten AG and Deutsche Immobilien-Renten AG, or foundations. The requirements vary with each provider. For instance, the minimum age at Stiftung Liebenau is 65, and the property should be worth at least 200,000 euros. While both Deutsche Leibrenten AG and Stiftung Liebenau allow for properties with mortgages, the remaining debt should be between 20 to 50 percent of the property's market value. Retirees should obtain multiple non-binding offers to maximize the payment amount.
Initially, selling the house to a private individual may seem simpler. However, this carries risks. Those who wish to sell should most definitely include the right of usufruct or the right of residence in the notarial sales contract and have it registered as an encumbrance in the property registry – even when dealing with family members. Children who plan to inherit the parental home throughout their parents' lives can save inheritance or gift tax through the annuity model and provide financial support to their parents.
Retirees should not agree to a lifetime income plan with strangers. They have limited means to assess the financial stability of the other party. Banks and other financial institutions evaluate the creditworthiness of a contracting party before each contract is finalized. The risk is high that private individuals may fail to make timely or, in the worst-case scenario, any payments at all.
Although rare, commercial providers may default on payments, for example, if they file for bankruptcy. While seniors may still live in the property, thanks to the right of residence secured in the property registry, the lifetime income payments may cease. In this case, the senior would have sold their property at a discount, but the promised financial benefit might not materialize. Therefore, it is also wise to choose the provider carefully. Or perhaps, it's better to simply sell the house after all.
Following the text, here are two sentences that contain the phrase 'Pension insurance':
The retirement savings of many seniors is one of the primary motivations for buying a property, but the supposed source of security could become a financial burden during retirement, leading some to consider other options such as pension insurance.
For those who prefer not to retire or rely solely on their property's financial returns, continued employment or pension insurance could provide additional income and security.
