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How to decide where to retire in South Africa?
Getting to stay in a security complex and retirement village or retirement home happens only for a tiny percentage of the population. People do not have enough retirement savings to afford this luxury.
The South African government introduced a government pension called SASSA in 2007. It is a non-contributory social grant paid to South African citizens over 60. The aim is to reduce poverty and vulnerability amongst our elderly citizens.
SASSA
The problem is that SASSA only pays out a maximum of R1 890 per month, which is not nearly enough to cover the costs of a retirement village or nursing home. The SASSA retirement fund is not a perfect solution, but it does help some of our elderly citizens to afford retirement living.
First Option
The first option is to stay in your house where you probably have been living for the last 20 years or more. There should be no debt on the house, and you are in an environment you know very well. You can get your children involved and use the property later to help subsidise annuity income. The problem with this option is that as you age, you will need more care and assistance, which your children may be unable to provide.
It is not uncommon to have up to three or more generations staying in the same house.
Second Option Move In With Your Children
It may be an excellent idea if your family is close and lives nearby, but it comes with challenges. The first challenge will be sharing living space, which can be a bit of a strain. Garden cottages or inside the home often work well because the grandparents help with cleaning and cooking, looking after the children and sharing in costs like the monthly rent or mortgage.
Taking parents into your house can cause marital problems and cause a lot of stress. If you are the parents moving in with your children, you must watch this closely. Your children will pass the pressure on to you.
The second challenge is that as your children's lives change, so will their ability to accommodate you. It is not uncommon for grandparents to move in when the first child is born and then leave when the last one goes off to varsity.
Imagine living with your children in their house. It can be very emotional, and it's often hard on the grandparents, who become dependent on their children and then have to leave when they no longer need them. Children can get divorced or go bankrupt, or they cannot get along—a high-risk option but, for many, no other alternative and choices are limited.
Third Option Living Rights
Housing development schemes for the elderly are becoming more popular in South Africa. The government now realises the importance of providing adequate housing and care for our elderly citizens. Many property laws exist to take the burden of the government to look after people.
One of the most popular retirement schemes in South Africa is called "Life Right". A life right is a contract with a developer or religious institutions that own the nursing home by paying a lump sum for the right to live in the complex for the rest of your life. This scheme allows people to buy a share in a retirement village.
The positive of a live right is it is cheaper than buying the property; the owner has a vested interest in keeping the home or village financially secure to protect their investment and giving a good service.
The option could help the retirement savings last a bit longer.
You will only be able to sell the unit what you paid for less than the agreed costs, for example, new carpets and a repaint.
The concept is widely used but remains a difficult concept to understand.
A single person or a couple can go into the contract, and I have seen where children go into the agreement on behalf of parents, and they (the parents) have the right to stay until the last person's death.
Retirees who enter a life rights contract are protected under the Housing Development Schemes for Retired Persons Act 65 of 1988 (HDSRPA).
The Act states that you must be at least 50 to enter a formal contract, but some retirement villages have their own (higher) minimum entry age.
The downside is an ever-increasing levy that may make it unaffordable after years. It is not uncommon for people to spend 20-plus years in retirement. My father retired at 60 and lived to the age of 88 and my mother to 89. She was a pensioner for more than 30 years.
Once you are in, you cannot get out because of the rising costs of other property. Some of these villages may not offer frail care facilities, and you would have to find alternative accommodation at your own expense.
My wife's brother went into such a contract for their mother, and looking back, and I think what he paid for it was the best decision.
Fourth Option Rent
Owning a home could be overrated, and renting can provide you with the ability to look at various alternatives. Varying costs can allow you to find an alternative solution—no fees for upkeep or losing market value. Invest your money and let the proceeds pay for the rental cost.
Most of the retirement villages I looked at had options to rent. The investor purchases the property, and you rent it, and if you are a good tenant, you may be able to negotiate increases down.
If you do not manage your money well, rental increases may start to dilute your capital. Some investors buy a property to prepare for retirement but rent it out until they are ready to go there themselves.
Our children rented two different places in the last years of our parent's life, and it worked perfectly. We had no worries except for paying the rent.
Fifth Option Buy Into A Retirement Village
If money is no problem probably the best way to go, especially if demand is high. You may get a good return if you sell. I often see children who buy properties for their parents if well planned, viable options for both parties.
Levies and increased cost of living may be a threat if you get very old.
A certified financial planner or a good investment advisor is crucial.
Life is short
We get married and start working to earn an income to raise children, pay all our expenses, and don't forget the tax.
Then we find a suitable house and one day we do not just have our children to look after our parents start depending on us.
Then in a blink of an eye, you are the parent that needs to look at your children for survival.
You start looking at other housing options. You sell and move either away or some move closer to the children. Suddenly your working life is over, and the need for a double garage is gone.
One thing nobody can escape is getting old. Young people start looking at you the same way you looked at older persons when you were young. You suddenly have to make do with what you got.
Making plans
One of the reasons why I promote South Africa as a retirement destination is because I know there are millions of people planning retirement as I write this blog post. South Africans should sell Cape Town and other cities as retirement destinations.
Using the exchange rate is significant leverage and finding temporary residence in another country for a couple of years to stretch the life of the capital is not uncommon. Many couples don't have children to fall back on, and looking at other countries suddenly becomes an option.
Questions & Answers
What is a retired permit?
Document to prove you are a pensioner.
What is a reverse annuity mortgage?
Sell your house to an investor at an amount that makes it viable for you and the investor. The property allows transactions and is often people's biggest asset.
What about housing for the poor retirees?
Find charitable housing provided by charities such as the MOTHs, the Niall Mellon Township Trust and Abbeyfield South Africa, and religious institutions, including churches.
What about family?
Nothing beats a close-knit family environment; in some cultures, it is common for the family to look after the elder.
What is a sale and leaseback scheme?
Sell your property to an investor at a reduced price and lease it back. Create additional income from the capital to live off. Get good investment and legal advice.
You miss talking about Share Block.
Had to read up on it. Not a structure often used, the complex is registered in the name of the share block and each unit is allocated a certain amount of shares. You then purchase shares, giving you the right to use the flat, house and facilities. I recently spoke to somebody who bought such shares to live in a retirement community created on a farm.
You talked about moving in with the children. What if I keep my property and get the children to move in with me?
When advising my clients about their money, I always tell them not to hand children any control over their decisions until they really can't make any decisions anymore. If they move in with you, they cannot sell the property or make decisions that threaten your living security.
The downside is it could be hard to get them to contribute and not end up doing and giving them stuff for free. You are at a time when you need to look after your money.
Is South Africa a popular destination for British pensioners?
The Department of Work and Pensions show 40,000 Brits living in South Africa and drawing a UK state pension. Popular cities for ex-pats moving to South Africa are Cape Town and Johannesburg.
Summary
My initial question in the article was where to retire, but after concluding the contents, it is more important to figure out how you will retire instead of where.
The where will depend on how much money you have got!
Only 1% of people become rich, and fancy estates and retirement villages cater to them. The rest depend on charity and everything else I discussed in the article.
Maybe some get a glimpse of this life until they run out of money and end up with children if they are lucky enough to have children to help them.
Besides creating investments with fixed income through unlisted shares, we offer clients opportunities to earn additional income to assist retirement savings or income in retirement. Your retirement is your responsibility, but we can make things easier with our expertise and experience.
Albert Schuurman
You have to aim for financial freedom because retirement, as we know it, does not work.
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