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Real estate annuities: These models are available

The concept of real estate retirement is becoming increasingly well known in Germany. It is often explained as follows: Seniors who retire their real estate receive a monthly pension payment for the rest of their lives and retain the right to live there for life. However, this is not entirely accurate. In fact, there are several annuitization and payment models. We present the most popular annuitization options.

 

Life annuity and temporary annuity

 

First of all, a distinction is made between life annuities and temporary annuities in real estate annuities. While payments for life annuities are linked to the lifetime of the seller, a certain payment period is specified for temporary annuities. Both models have their advantages and disadvantages, which can be illustrated with an example:

A senior citizen sells her property at the age of 70. Statistically speaking, she has about fourteen years left to live. With a life annuity, this value is used as the basis for calculating the monthly pension. However, the senior citizen will continue to receive the pension payments even if she lives for another twenty years. If, on the other hand, she dies after only five years, the payments will be discontinued at that point. With a fixed-term annuity, for example, it would be possible to agree on a payment period of 20 years. After that, the senior citizen would no longer receive any pension payments from the buyer. If she dies earlier, however, the payments go to her heirs.

A temporary annuity is therefore particularly suitable if you want to provide for your heirs after your death. With both models, seniors can also choose whether they want a lifelong or temporary right of residence.

One-time payment and monthly payments

However, seniors often decide against the monthly annuity model and opt for a lump sum payment. Roughly speaking, this consists of the market value minus the value of the right of use. This can be illustrated once again using the example of our 70-year-old senior citizen:

The senior citizen's property is worth $400,000 and could be rented out for $800 per month. If you extrapolate this to the statistical life expectancy of around 14 years, the value of the right of use is $134,400. The senior citizen would thus receive a one-time payment of $265,600.

However, seniors do not have to choose between a lump sum payment or a monthly pension. A lump sum payment and a monthly pension can be flexibly combined. Many pensioners use the one-time payment to pay off an outstanding mortgage, for example, and have the rest of the value paid out as a monthly pension. Or they use a one-time payment to pay their children as preliminary heirs and live off the monthly pension payments themselves. Everyone can decide for themselves how large the one-time payment should be in comparison to the monthly pensions.

Are you interested in converting your property into a pension? Contact us now. We will be happy to advise you on your options.

Photo: 4pmphoto@gmail.com / Depositphotos.com

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