With an annuity, seniors can plug financial holes: their home becomes money, but they can still live in it. However, the model carries risks.
This is original content from the Capital brand. This article will be available for ten days on stern.de. After that, you will find it exclusively on capital.de. Capital, like the star to RTL Germany.
Many seniors cannot imagine moving again in old age and settling into a new place. This is no surprise, because anyone who has raised their children in their own home and sees their grandchildren running around the living room is emotionally attached to their own four walls. But maintaining a house is expensive, even if it is already paid off.
Despite living rent-free, money can become tight. This is especially true if the house still needs major repairs, the maintenance fee for the condominium takes up too much of your pension, or your income is not enough to cover nursing care. This means that the love of your own home quickly becomes a cost trap in old age.
Life annuity through property sale
At first glance, a life annuity can provide a solution. To do this, seniors sell their property, but instead of a one-off purchase price, they receive an additional pension, the life annuity, until the end of their lives. They can also agree a so-called usufruct with the life annuity provider, for example a foundation, which is entered in the land register. This guarantees that the senior citizen can live in the house or apartment rent-free for life or can rent it out. Another advantage: the buyer is then responsible for maintaining the property. “The buyer also has to pay the property tax,” says Markus Budde, a specialist in building finance at the loan broker Dr. Klein.
For many people, retirement planning is one of the main reasons for buying property. But this supposed safety net can become a cost trap in retirement.
Stay in your own property, top up your pension and not have to worry about maintaining the house. That sounds tempting at first. However, consumer advice centers point out that annuities are relatively expensive products and the liquidity gain, i.e. what actually ends up in your account at the end, is low. Experts therefore advise selling your own house if in doubt. That may sound harsh at first. But anyone who receives a one-off purchase price on the property market usually gets a better deal than with monthly annuity payments.
Protect your family members through a minimum term
Anyone who still decides to take out an annuity will receive it monthly, quarterly or annually. “For a property worth around 350,000 euros, you get an average of 800 euros a month,” says Budde. The exact amount depends on the purchase price of the property and the age of the seller. The older the seller, the higher the payments will be.
Since seniors give up their ownership claim with the annuity, they can no longer pass the property on to their heirs. In order to still provide financial security for their relatives, a pensioner can agree a minimum term with the annuity provider. If they die before the end of this guaranteed pension period, their relatives will receive the payments from the annuity until the agreed date is reached. Couples can also provide mutual security in this way.
Those who do not want to retire can continue to work. What models are available for this, what bonuses the pension insurance pays, when taxes are due and what the government plans to do with the pension deferral bonus
Another option is the shortened annuity, where a maximum term is set. Here, the person only receives the pension for a limited period, for example ten to 20 years, not for life. However, the rates are higher – so it is more likely that the senior will receive the entire amount during their lifetime.
Sale to commercial providers or foundations
To receive an annuity, retirees can turn to private individuals, commercial providers such as Deutsche Leibrenten AG and Deutsche Immobilien-Renten AG, or a foundation. Different requirements apply depending on the provider. For example, at Stiftung Liebenau, the minimum age is 65 and the property should be worth at least 200,000 euros. It is possible to sell properties that still have a mortgage at both Deutsche Leibrenten AG and Stiftung Liebenau – however, the remaining debt should only be between 20 and 50 percent of the market value. Future recipients of an annuity should obtain various non-binding offers in order to secure the highest payment amount.
It may seem easier at first to sell your own house to a private individual. But that involves risks. If you want to sell, you should definitely record the usufruct or right of residence in the notarized purchase contract and have it entered as a mortgage in the land register – even if the contract is concluded with family members. Children who are to take over the parental home during their lifetime can use the annuity model to save gift or inheritance tax and support their parents in financial difficulties.
Pensioners should not agree to an annuity with strangers. There is hardly any way of determining their ability to pay. Banks and other payment service providers check the creditworthiness of a contractual partner before concluding any contract. There is a high risk that private individuals will not pay on time or, in the worst case, will not pay at all.
It is unlikely, but not impossible, that commercial providers will default on payments, for example if they have to file for bankruptcy. Seniors can continue to live in the property because the right of residence has been secured in the land register. However, pension payments may not be paid. In this case, the person would have sold their property cheaply, but the promised windfall would not materialize. So here too, it is worth choosing the provider carefully. Or perhaps simply selling your own house.
Source: Stern
