A home for retirement

Many people look upon their house as their principal investment for retirement. They believe that by the time they are ready to retire the house will be paid off, so it can be sold and the proceeds used partially for something smaller, while the balance can be invested.

However, whenever there is a minor financial crisis the first thing many people turn to is their access bond, and as retirement draws nearer the bond continues to loom large in the wrong column of their Statement of Assets and Liabilities.

This situation is often aggravated by an ever-changing property market. The value of what appeared to be a sound investment 15 or 20 years ago has perhaps been eroded by inflation and by increasing pressures on the property market, such as the growing crime rate.

These pressures are more evident in centres like Johannesburg, where a secure retirement home is likely to cost as much as, if not more than, the selling price of a large house. And while in cities such as Cape Town there could still be a margin for investment after selling a house and buying a retirement home, with the spread of crime they too are likely to experience the same pressures in the future.

Risky business
For this reason it is risky to regard your house as an investment in your retirement portfolio, even though it may represent the biggest single investment in your lifestyle.

People facing retirement in five to 10 years should start thinking about it now. The alternative to merely downsizing to a cluster or townhouse complex could be to move to a retirement village.

The retirement village option requires a decision whether to buy a property outright or to buy 'life rights'.

Ownership options
While outright ownership means that your estate would receive the benefit of any growth in the value of the property, you may be faced with increasing levies during the stage of your life when your income is fixed. Should you later need to sell and move into a frail care facility, it could be at a time when the property market is falling. Life rights will, on your death or transfer to a frail care facility, pay out the initial capital value of the property, or possibly slightly less, into your estate.

Although life rights may represent a poorer investment as far as your heirs are concerned, there are no transfer duties, and there should be no levies or other unexpected costs over the years. Planning ahead and timing the sale of your old property can greatly improve your circumstances. An important reason for beginning to plan now for where you are going to live after retiring in five or even 10 years time is that many retirement villages have waiting lists that long. Put your name down at several places, and even pay a deposit if necessary, to keep your options open.

This could provide the window you need to sell your home when the property market is favourable. You can then rent a house for a few years until you are ready to retire, while the proceeds can be invested. Investment in a growth portfolio is preferable to buying a retirement home at that stage and renting it out for five or 10 years. Tenants can be unreliable in caring for the property and difficult to get rid of when you need the home for yourself.

Choose your facilities carefully
When choosing your new retirement home you need to consider what your money is buying. Does it offer frail care facilities and what are they adding to the initial cost and future levies? Do you feel you will need frail care facilities in the future? A more practical and useful alternative could be a unit with a spare bedroom that could accommodate a nurse should the need arise.

Do the facilities include services such as shared vehicles to take people shopping, a restaurant, a laundromat or a central entertainment area? An independently audited account of maintenance and development expenditure in previous years will show whether or not the management committee has consistently been able to operate within budget.

In the major centres there are a number of retirement villages to choose from. Selecting the right one could make the difference between comfort and growing concern over the remaining years of your life.