Exploring Retirement Income: Unconventional Methods Through Controversial Sales
Selling your home for a lifetime annuity can seem like a tempting option when you're staring down a 40% drop in retirement income, but it's not without its preconceived notions.
Take the case of Nicole, a 75-year-old woman who recently sold her house in a viager deal to a couple in their forties. In this arrangement, the buyers paid Nicole half the value of the house (200,000 euros or 100,000 euros) upfront, with Nicole keeping her residence. On top of this, the buyers agreed to pay her a monthly annuity of around 700 euros for approximately 15 years, based on her life expectancy. To make matters even sweeter, the annuity benefits from a 70% tax deduction on income tax, as Nicole is over 70.
This little boost to her income, which doesn't exceed 2,000 euros per month, isn't just welcome; it's essential. In fact, 31% of viager sellers opt for this arrangement to cover daily expenses like grocery shopping, according to Renee Costes.
But the 100,000 euros lump sum also allows Nicole to help her children buy their own homes—a common goal among viager sellers, who, on average, are 74-year-old single women with lower professional earnings compared to men, as stated by Renee Costes. Moreover, the buyers are now responsible for property taxes and major repairs.
While this arrangement might seem too good to be true, only around 80,000 retirees in France currently benefit from it. This is largely due to persistent misconceptions about the viager, particularly the idea that it leads to the loss of inheritance.
However, there are ways to compensate for this perceived disadvantage, as Nicole did by using the viager to provide her children with liquid assets for themselves.
Getting the Facts Straight on Viager Sales
- Property Valuation: In a viager sale, properties are typically sold at a discounted price, as the buyer is committed to paying an ongoing annuity. This reduces the upfront cost but increases the long-term financial burden on the buyer.
- Guaranteed Income: Although the annuity from a viager sale can provide a stable income, it isn't guaranteed and depends on the buyer's financial ability to cover the payments.
- Inheritance Impact: Viager sales can complicate inheritance, as beneficiaries may inherit ongoing financial obligations tied to the property.
- Control Loss: While sellers may continue living in the property, they typically lose control over it once the sale is completed.
- Tax Implications: Both the sale price and the annuity payments from a viager sale are subject to taxation.
Before deciding on a viager sale, it's crucial to understand these misconceptions and their implications on inheritance, financial obligations, and control. Proper planning and wading through the misinformation can help retirees make informed decisions about their future financial security.
Further Reading
- Real Estate Sales
- Viager
- Taxation
- Donation
- Inheritance
Sources:- Renee Costes Press Conference, June 11, 2023- Viager Sales Statistics, Various Sources, 2021-2022
- Nicole's personal-finance situation improved significantly with the annuity she received from the viager sale, which permitted his to cover her daily expenses and even invest part of the lump sum in real-estate for their children's home buying.
- As a retiree considering a viager sale, it's essential to understand that the arrangement comes with tax implications and may impact inheritance, as well as potentially affect control over the property and introduce long-term financial obligations for the buyer.
