Housing in retirement: What to consider

BOITUMELO NTSOKO: Choosing a spot to enjoy your retirement years [in] is a big decision. Would it be better to stay in your current home or to move to a retirement village? And if you do decide to move, what are some of the key aspects to consider?

Hi, I’m Boitumelo, and in this episode, I’m joined by Gareth Collier, who is a certified financial planner at Crue Invest. He will take us through the different contracts offered at these villages, the upfront and ongoing costs, as well as the red flags to look out for to avoid being scammed. Welcome, Gareth.

GARETH COLLIER: Hi, Tumi. Thanks for having me.

BOITUMELO NTSOKO: Gareth, when should one start thinking about retirement accommodation?

GARETH COLLIER: Look, I think this is a bit of a dynamic question because, like most things, it’s going to depend on your personal circumstances. But as a rule of thumb, you know, I think we should start thinking about it maybe in our 40s, sort of mid to late 40s. What does retirement look like for you in terms of where you’re going to stay, and what your needs are going to be? You might have a better idea at that point about what the future holds for your own kids. Are you going to stay where you’ve possibly lived your whole life? Are you going to possibly move closer to them for children, grandchildren, whatever that is? So those longer-term decisions, you can start thinking about them.

And then we would normally say sort of in your 50s we would get a little bit more proactive about really kind of getting intentional about where it is that you’re going to stay.

The reason being a lot of the places that you find you might be very keen on tend to have relatively long waiting lists, particularly if they’re very popular. So, the sooner you get in there the better.

BOITUMELO NTSOKO: And what are some of the most important aspects to consider when making this decision?

GARETH COLLIER: Look, I think you need to look at your personal living circumstances. So, does it suit your needs, your household needs to maintain your family home? Again, maybe your kids have moved on, they’re in their own space now. Maybe you had a larger family home. Does it still meet your needs? And it still might.

You know, a lot of people enjoy the fact that maybe the family comes around for sort of social gatherings on the weekend and they’ve got the space and the facilities to do that.

And for others, it might be a case of well, you know what, we maybe want to downscale and have a simpler home life and maybe sort of be able to start venturing out and travelling and maybe a lock up and go with sort of minimal maintenance and overheads and security concerns would better suit them.

BOITUMELO NTSOKO: If I’m warming up to the idea of maybe going to a retirement village, what information should I be looking for when researching these?

GARETH COLLIER: Well, I think you’ve got to think about it as a very long-term decision. Sure you think of an exciting lifestyle – maybe the initial part of retirement possibly does hold some travel and some sort of relaxation from a busy life of work and raising families to maybe almost going back to like a more of a social setting.

You know, if you’re in this environment with other people that are in a similar life stage, it can be quite enjoyable and quite social. But beyond that, you know, unfortunately we have to be realistic about the march of time and what it can do to our health.

So, the facility that you’re going into, does that hold the long-term prospect of things like assisted living or frail care, what are the medical facilities like, or is it the kind of place that you could go into for life or are you going to have to have a secondary option further down the road?

BOITUMELO NTSOKO: And then, if one does decide to go this route, what are the three options offered in retirement villages? And could you please explain the contracts of each?

GARETH COLLIER: Yeah, sure. So, some of them will hold the likes of a title ownership. So that’s where you will actually physically buy the property within the village itself, and you take ownership. So, you know, there’s an actual transfer deed of ownership there. And when you pass away, you’d actually be able to bequeath that your heirs. And that of course comes with its own considerations because there you would still be liable for all of the maintenance and upkeep and the insurance of that property and that unit.

The other option could be to go into what’s called a block share. So there, rather than actually taking physical transfer ownership of a property title, you actually buy shares in a company that owns that property unit, and you have the right to stay there for as long as you sort of hold those shares.

In terms of maintenance and things, you would still be liable for the upkeep of your own unit, almost on the inside if you want to think about it. Whereas the share block would still have a levy that you would need to pay. And that levy would then be used to pay for sort of things like the upkeep and the maintenance of the block itself as well as the security, but also you sort of run the danger there where people need to set that budget on an annual basis of what those levies will be.

And then of course if there’s other exceptional expenses that maybe weren’t planned on, let’s say they are elevators that need maintenance, something like that is quite an expensive undertaking, so they might have to raise a special levy specifically for that, which can be challenging.

When you’re in retirement you sort of tend to be more on a fixed budget, you know what you can afford month to month, year to year, and having these unforeseen quite, quite large expenses can be quite detrimental to your budget.

And then the last one, which is probably the most popular and certainly gaining a lot of interest around the country, is the concept of a life right.

So here what you do is you are effectively purchasing the right to stay in that particular unit or property or whatever it might be within a retirement village for the balance of your life expectancy. If you’re going in there as a couple, then the contract will tend to state that it’s up until the last [one] dying. So that’s basically once the surviving spouse is there after the first one’s passed away, only once that person has passed away would that life right come to an end.

What’s nice about that is again because there’s no transfers of property titles or anything, there are no transfer costs, you’re simply buying the right to stay there and [in] a longer-term instance the owner of that village or the developer is completely incentivised on the maintenance and upkeep.

So yes, there will be a levy, but by law, they need to be able to give a minimum of at least two and perhaps even three years in advance of what the levies are going to be which can make it easier for budgeting for retirement purposes.

And then, you know, once you pass away or that last spouse has passed away, depending on the contract with the life right, nine times out of 10 it will be the case of whatever you put down – let’s say you bought a unit in 2022 for R2 million and you or you and your spouse passed away 15 years from now, then that R2 million – would be paid back into the estate.

Sometimes it’s a portion of that and sometimes it’s the original capital plus a fixed amount of interest or growth within there. It’s just going to depend on the contract and the agreement that you’ve got with the village itself.

BOITUMELO NTSOKO: You mentioned a few expenses that one might be faced with. Could you maybe give us an estimate of the upfront and ongoing costs of buying into a retirement village?

GARETH COLLIER: Again, it’s going to depend on the type of purchase you make.

So, as I mentioned, if you do a freehold sort of title transfer of the unit you still, like you would in any other property purchase, need to budget for things like transfer cost, transfer duties.

Those are the kind of things you would need to be aware of and those would all be applied as they would be with any other property purchase.

If you went into a share block or a life right, those tend to be a little bit less onerous upfront because there’s no transfer of properties. You don’t have to worry about those heavy upfront costs.

However, there might be deposits that you need to put down for things like levies, for things like purchases, and you just need to be aware of those.

So again, it’s all going to be things that should be discussed when looking at the various villages and what the opportunities are, what the offering is on the table to understand exactly, sort of rand for rand, what you’re going to be in for.

BOITUMELO NTSOKO: And Gareth, could you maybe give us the advantages of retirement villages compared to independent living?

GARETH COLLIER: Yeah, I think again that’s probably subjective and it’s going to depend on the individual that’s going in there. I think if you look at it, probably the key [requirement] in our older age tends to be company. It’s a shared living space, people in similar situations, people that have maybe got younger members of the family that are kind of living their busy lives now and, not that they don’t want you, but [they] might not have the opportunity to visit as often as they want.

A lot of the villages have got great facilities and amenities for sporting pursuits or clubs or card games or whatever it might be. They tend to also kind of run their own meal programmes. Their meals tend to be quite heavily subsidised, like in a club environment.

And then of course there’s the security aspect of it as well. They tend to all be gated communities, so people might feel a little bit safer within those spaces. And then probably also having ideally direct access to medical care and facilities within the village if that’s part of the kind of the facilities that are made available.

BOITUMELO NTSOKO: Just staying on the medical benefits that are offered, some retirement villages offer assisted living or frail care. What is the difference between the two?

GARETH COLLIER: So assisted living is sort of where you kind of notice the first signs that maybe you, or you’re noticing that your parents, are possibly losing the ability to sort of live independently.

That doesn’t necessarily mean that they can’t do anything for themselves, but it might be little things like, you know, they forget to pay bills and municipal accounts, they might be on medications, particularly chronic medications, and perhaps they, not intentionally, but start missing out, taking those medications.

Important aspects of being able to run an independent life start to just become a little bit difficult or [you become] kind of forgetful [and] don’t notice. And it might be that that person now requires a little bit of assistance just to make sure that those day-to-day elements can be taken care of.

Whereas frail care tends to be [for] somebody who generally speaking would either have deteriorating health or perhaps suffered a big health event such as a stroke or heart attack, and, coming out of that, is unlikely or never really going to be able to live completely unassisted and will need help with very sort of basic needs of living on a day-to-day basis. So things like feeding themselves, washing themselves, you know, the basic sort of care for themselves. If they’re no longer able to do that, then they would tend to need to go into a frail care facility.

BOITUMELO NTSOKO: Are there instances where both are offered at a village?

GARETH COLLIER: Yes, I think a vast array of them will offer both of those options. Obviously, there’s a cost involved, and people should be aware of those. Just check what is available within the village. Some of them go even to the point where sort of life support, and real medical procedures can happen on site as well. So again, it’s just going to depend on what village in particular has made available.

BOITUMELO NTSOKO: And what are some of the red flags retirees should look out for to avoid falling victim to scam operators?

GARETH COLLIER: So when somebody’s looking at purchasing into a village, but particularly a new development, anything that’s going to qualify to [have] retirement village status needs to comply with what they call the Housing Development Schemes for Retirement Persons Act.

Now it’s quite a mouthful, but basically what that act sets out is a whole bunch of limitations and rules that need to apply where, if you’re buying into that development, the title deeds of the property itself have to be endorsed by the Deeds Office, and [it must be ensured] that the land has actually been registered for development.

And then also that contract must state that what’s called a Section 61 certificate has been received. That … certifies that the development … has been put in place [in] accordance [with] all the approved plans.

So basically, if you’re being sold this new concept or whatever the case is and people are looking for deposits, those are the two key elements you need to look for to make sure that you know it’s not somebody just trying to scam you out of money.

Bear in mind that people can often be sold on the fact that, you know, make sure you put your deposit [down] now and secure your place even if you’re only coming in 10 years and you might do that.

And you know, if you think about it, all of a sudden a couple of years out you start to ask questions about what’s happened to these funds, and those people are possibly long gone and very difficult to track down.

Outside of scams, I think in general just make sure that you have a clear understanding of possibly what your monthly costs are going to be. So like I mentioned earlier, these villages need to make available projections on the levies two to three years in advance. Have a look at that, understand other costs within the village itself. What do your levies cost? Do they include or exclude meals, how many meals, and what are those elements to consider?

And then what are the other facilities that could be there. So if they are putting on entertainment and social events, are those included or excluded? Just little things like that, don’t be afraid to kind of ask questions.

And then obviously the big one is longer term – just make sure, if your intention is to stay there and quite possibly need the medical facilities, understand what those costs are going to be as well.

BOITUMELO NTSOKO: Gareth, is there a situation where independent living would be a better option? And what should a retiree consider when choosing this route?

GARETH COLLIER: Look I think one of the small ones, or the silly ones, sometimes it feels like, but it’s actually quite a big thing, is you’ve got to see what pet facility or pet rules are in place for villagers.

Are they allowed, or are they not allowed?

If you’ve been pet people your whole life, you’re possibly quite used to being able to make up your own decisions whether you have them or not.

The other considerations could be, particularly if you’ve been living in a freehold property, you’re used to your space and your privacy, you’re going into a slightly more shared living space, smaller units can feel a little bit sort of claustrophobic for people and it can be a little bit of an adjustment.

So just kind of be ready for that.

And the other side, if you’ve got a beautiful home – you might have a specific home, you might live in a specific area; you might have retired to a coastal village or something – and maybe your family, maybe your kids, want to keep that as a family holiday home one day, and in that instance, if you stay there till you pass on, you know that at least that title can be bequeathed to them and the family can carry on with it.

BOITUMELO NTSOKO: And finally, what are the pros and cons of maybe living in a garden cottage on a property belonging to one’s children?

GARETH COLLIER: Look I think the pros are that it can be relatively cost-effective, depending on the setup of the home [and] if you’re not in one of those of [in your hair, in your] space too much [situations] and depending on the family dynamics.

For some people that works fantastically well, having grandparents around to not just help with young children but also be actively involved in their lives. Just having kind of another sort of more experienced head can help mom and dad when they’re feeling a little bit overwhelmed with their own children, to be able to lean on their parents for a bit of guidance, and advice will help.

And also, for the grandkids, it can be a lot of fun having gran and grandpa around. You can help possibly with school runs or something. We live very busy lives, so having those extra pairs of hands can be wonderful, on top of the cost-effectiveness of being able to kind of share property prices or maybe assist parents in their living situations.

Probably one of the key downsides is if you’ve gone that route, and then, of course, it’s always around health – and if medical treatments, medical care is required, and you yourself are not capable of doing that or qualified to do that from a medical standpoint for your parents, then you’re going to have to still look at either bringing somebody in to assist with that, or them still ending up having to go and look at a facility …

BOITUMELO NTSOKO: Thank you so much, Gareth. That was Gareth Collier, who is a certified financial planner at Crue Invest.