There’s an added element of retirement planning that perhaps does not receive the attention it should. It relates to the choices about the roof over one’s head when one becomes a senior citizen.
Typically, what tends to happen is that a person lives in the family home – the suburban home that the children were brought up in – until the time when a move becomes an absolute necessity. This may be owing to a serious health issue or concerns about safety. The risks of continuing to stay in this sort of home are exacerbated when only one spouse remains: the elderly widow scenario.
“In the event of a forced move following a health problem or a criminal incident, the person may find that there’s little choice as to where they end up,” warns Arthur Case, the Chief Executive Officer of the Evergreen Group, which develops lifestyle village accommodation for the retired community. “Many people find themselves living in the sort of environment they would not have selected had they had the opportunity to make a choice.”
The reasons for this situation are that there is a tremendous shortage of accommodation in South Africa specifically geared for older people, and so people end up on waiting lists for five years or more. During this period, it’s possible that the individual could face deteriorating health.
“It’s really important that people plan ahead for the home they will need during the years they are older. Doing so will give them a much better chance of ending up in a home they are happy to live in, where they can enjoy a quality life for as long as their health is still good,” says Case. “We encourage people to start their planning from their mid-50s or early 60s.”
Buying property in a retirement facility can be done via a number of ownership structures, as described below:
- A free-standing home that a retiree would purchase when downsizing their home.
- Security and medical assistance not included.
- The property can be bequeathed.
- Property may grow in value depending on the location.
- Risks associated with old age remain.
- Common form of ownership of apartments and cluster homes.
- Security and medical assistance may be included. Medical included if specifically for senior citizens.
- The property can be bequeathed.
- Growth in value possible depending on location and quality of management of the property.
- If not specifically for older people, common problems associated with old age may apply.
- Buyer acquires shares in a company owning an apartment block. Shares provide the right to live in the property.
- Shares can be bequeathed.
- Growth in value possible but not likely because these schemes have become unpopular.
- Many schemes struggle with management and with funds to maintain properties. Shares may be difficult to sell because of unpopularity of the system.
- Buyer gets the right to occupy a unit in a retirement village for the rest of their life. Rights include use of facilities at the village, e.g. security, medical care, swimming pool, gym, bowling green.
- On death, the life right ends. Unit is resold and initial sum paid goes into estate, as well as a portion of the profit (depending on original purchase arrangement).
- Growth possible but this is not an investment asset.
- If the scheme is very small, monthly levies may be high.
According to Case, “Advisers should encourage their clients to investigate the options in good time. Lifestyle villages allow for fully independent living in cluster homes via the life right concept, with the added option of moving into a home more suitable for assisted living at a later stage when one’s health deteriorates.”
This article was first published by Money Marketing on 25 May 2017.