With a life annuity, owners sell their property—house or apartment—and receive a monthly amount, the annuity, for life in addition to the right to live there. This can be for life or for a fixed period of time. For the seller of the property, this means that they can continue to live there without having to pay rent. The buyer, on the other hand, usually pays a monthly annuity to the seller. Sometimes they also purchase the property with a one-time payment or a combination of both payment options. The life annuities, which are paid as a fixed amount, are valid for the lifetime of the seller.

Life annuities and rights of residence are notarized and entered in the land register as real encumbrances. Through the transfer of ownership, the buyer also assumes responsibility for the property. They undertake to pay any costs incurred, such as maintenance costs or property tax.

In contrast, there is the temporary annuity, where a period is specified for how long the annuity will be paid. While payments under a life annuity are linked to the lifetime of the seller, a certain payment period is specified for a temporary annuity.

The advantages and disadvantages can be illustrated with an example:

A senior citizen retires 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. The 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.

Seniors often decide against the monthly pension model and opt for a one-time payment. Roughly speaking, this consists of the market value minus the value of lifetime 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 for $800 per month. If we extrapolate this to the statistical life expectancy of around 14 years, the life estate value is $134,400. The senior citizen thus receives 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 lump sum 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 lump sum to pay their children as preliminary heirs and live off the monthly pension payments themselves. Everyone can decide for themselves how large the lump sum should be in comparison to the monthly pensions.

We do not recommend taking this step without professional advice. A broker can provide you with professional support in determining the value of your property and ensure that you receive the amount you are entitled to. They will analyze your wishes, ideas, and resources and, on this basis, provide you with detailed advice on which financial model best suits your lifestyle.

From our everyday work, we know that many seniors find that, as they get older, the home they bought in the prime of their lives has become too big or unsuitable for their needs, and that maintaining the property is becoming too much work. When living becomes a burden, a right of residence is of little use. We therefore advise you to consider whether selling or renting out your property (and thus moving to a senior-friendly apartment) is the better option for maintaining your quality of life without suffering financial losses before deciding on a real estate pension.

• Living off the money from the sale of your property

The advantages are obvious at first glance. By selling your property, you immediately receive a large sum of money, which is correspondingly higher by the amount of the life interest value, as the property is sold free of encumbrances and rental agreements. You can reinvest this in an age-appropriate home. In addition, money is much easier to bequeath than real estate—after all, it is easier to divide among the various heirs. Furthermore, when you sell your house, you also sell all your obligations.

However, many people find it difficult to part with their beloved home for good. After all, many parents hope that their own children will move into the property later on. If this is a possibility, renting out the property in the meantime may be the better option.

• Earn money by renting

By renting out your property, you can sometimes significantly supplement your monthly pension. In addition, the property remains in your possession and can thus be passed on to your children later. What's more, property values are currently rising in many regions. Even if your children decide to sell the property later on, they could make more profit than you would today.