Life rights vs Property ownership in retirement.
When considering your options for accommodation in your retirement years, you inevitably come across the decision of staying in your own home or opting for a Life-rights option in a retirement village. This can be an incredibly emotional decision to make. Torn between wanting to retain your independence for as long as possible, while at the same time fearing how you will cope as age catches up with you. In this article, we explore life in a life right’s retirement village as opposed to retiring in your own home, and what financial planning considerations need to be accounted for.
Property title versus life right
Simply put, Life-right means you are effectively purchasing the right to use a unit in a retirement village for the remainder of your life or on the death of the last-dying spouse. This right is an inalienable one, with the security of tenure forming the foundation of your life rights agreement. Life rights retirement villages are regulated by the Housing Development Schemes for Retirement Persons (HDSRP), and before purchasing a life rights unit, it is essential that you fully understand the terms of the agreement, specifically what happens in the event of your death and what percentage of the purchase price will be paid into your estate. Some contracts include a refund of your initial investment plus a percentage of the profits on resale, while others provide for the repayment of a percentage of the purchase price. Either way, purchasing a life rights unit means that you do not hold title in any property.
On the other hand, if you hold title to a property – whether freestanding or sectional title – that property will form part of your deceased estate in the event of your passing, and will be distributed to your heirs either in terms of a valid will or in terms of the laws of intestate succession should you die without a will. Remember, your heirs and beneficiaries are exempt from paying transfer duty on immovable property inherited from your deceased estate.
Maintenance and upkeep
As many property owners are aware, maintenance and upkeep are a never-ending responsibility, and as you age this might become a huge burden. In addition, as your property ages, it is reasonable to expect that the maintenance costs will increase, and these costs may be difficult to absorb when living off a fixed retirement income. On the other side of the fence, the idea of a life rights complex where the onus passes onto the developer to maintain and upkeep the property can look very tempting to potential retired homeowners.
If you own your own freestanding property, your bond will likely be settled in full by the time you retire which means that you won’t have monthly accommodation costs to account for, although you will need to budget for rates and taxes, ongoing maintenance costs, and other costs associated with homeownership such as building insurance and security. As an owner of a sectional title property, you will be responsible for monthly levies which are set annually by the body corporate. When it comes to life rights schemes, monthly levies and administration costs are generally lower, and developers are obliged by law to provide a two-year cost estimate in respect of levies. Reduced levies and greater levy transparency make it easier for members of a life rights scheme to plan financially for the future.
Many retirement villages provide a set number of conveniently cooked meals per month, which for many retirees is a major drawcard especially because the costs of these meals are included in the monthly levy so are easy to budget for. These meals can be eaten in your private apartment or you can choose to enjoy your meals in the shared dining rooms. That said, regular communal dining is not for everyone, and some can find the pre-set meal times restrictive and annoying. While you are relatively fit and physically strong, grocery shopping and meal preparation will be easy, but may become more challenging as and when you lose physical mobility.
Entertainment and socialising
Remaining socially engaged during your retirement years is important when it comes to looking after your mental health, keeping your mind stimulated, and maintaining a support system – which is why retirement villages are appealing to many retirees. Many retirement villages have social activities for their residents which include bridge clubs, games evenings, book clubs, walking and other interest groups, which make it easy for residents to participate, meet people, and remain socially connected. Living independently, especially if you are single or widowed, can lead to loneliness, boredom and/or depression and in turn isolation, remaining socially active can be difficult to maintain if you lose physical mobility and/or are unable to drive. You will also need to build the costs of entertainment, clubs and hobbies into your budget, whereas in a retirement village many of these costs will be absorbed as part of your levies.
The tight security offered by upmarket retirement villages is a massive drawcard for many. Not only is private security at one’s home expensive, but it’s also becoming increasingly hi-tech and digitally advanced – leaving many older people feeling unable to keep up with the technology required to operate their security systems. Most upmarket retirement villages protect the safety of their residents using a combination of 24-hour guards, access control gates, electric fencing, cameras, burglar bars and beams, as well as armed response. These security measures often provide peace of mind for family members of residents. Independent living will mean the responsibility of budgeting for your ongoing security costs as well as for security enhancements and upgrades as technology changes or as system repairs are required, fall on your shoulders.
Nursing and frail care
Retirement villages that provide onsite nursing, assisted living and frail care facilities are very sought after because they provide you with peace of mind that your future healthcare needs will be provided for without the need to uproot later on in retirement. If you choose to continue living in your home post-retirement, you always carry the risk of illness or injury that requires you to have part- or full-time care, at which point you may be required to make major decisions regarding your future accommodation. While private home nursing is an option, it is often very expensive, depending on the level of nursing care required. If you’re planning to live independently in retirement, it is essential to budget for the future costs of home care if you should require it. Alternatively, ensure that you put your name down timeously at a frail care facility so that, if necessary, you have this option available to you, as these facilities tend to fill up quickly and residents get preference.
For many of us pets are like family members and increasingly so when we get older, keep in mind that many retirement villages have strict ‘no pets allowed’ policies, while other villages allow small pets and service dogs only, so be sure to do your research in advance to avoid heartache. If you’re planning to transition from your own home into a retirement village at some point during retirement, you will need to time this move carefully to ensure that your pet can be accommodated, and you are not left in a position where you need to re-home your pet. It is best to contact any prospective villages you are considering familiarising yourself with their policy on pets.
Cleaning, gardening, and maintenance
For those who don’t enjoy DIY and gardening, the lock-up-and-go aspect of retirement village living may be particularly attractive, especially as one grows older and less physically able. On the other hand, gardening and home DIY are great hobbies to engage in and provide ways to keep active, busy, and outdoors. Having your own home also means that you can entertain freely, have family and friends over to stay at any stage (retirement villages have strict visitor policies and are bound by government regulations such as Covid-19 lockdown rules), and enjoy more privacy. However, with managing a larger property comes added responsibility such as paying domestic wages, contracting cleaning and gardening services, taking out refuse, paying municipal accounts, reporting faults, loading electricity and managing service providers such as fibre and DStv. Any decline in your mental acuity as a result of ageing can affect your ability to competently manage these affairs, and this must be taken into account in your retirement planning. There is something to be said for simplicity as we get older.
If your goal is to remain living in your own home throughout retirement, it is always advisable to have a contingency plan in the event that independent living becomes impossible. If you reach a stage where you require full-time care but cannot afford private home nursing, you may be forced to consider entering an assisted living or frail care facility – and if you haven’t at least put your name down on some waiting lists, you may find yourself without options. A sudden need to move into a retirement care facility may also result in you urgently needing to sell your primary residence which, because of fluctuations in the property market, may result in you not being able to sell your asset at a market-related price. Being forced to make rushed decisions is never a great position to be in.
Taking all this into account, it should still be noted that there is no “one size fits all” option when it comes to your decision on how you want to live through your retirement. Make sure that you are informed on all the aspects that matter, to be confident that you are making the best decision for you!