Episode 26 : When Home Becomes a Question

Michael Avery

Welcome to Life Chapters, Money Choices. This week’s episode is one of the more emotive transitions we’ll ever have to make. We’ve discussed it in the past with Ronel Baker and recently with Miranda Isakides, and it is one of those topics that we know is emotive because it is the family house. It is moving into a retirement village or a retirement lifestyle estate, whatever you want to call them.

I’m a little torn around this one because, for many people, the family house isn’t just an asset that sits on a balance sheet. It is where the children were raised, where careers were built, where life happened. And yet, at some point, the question becomes unavoidable: do we stay or do we move on? And if we do move, where do we move to? Perhaps more importantly, how do we structure that decision financially?

Today, the options are no longer as binary as they once were. It is no longer just buy or rent. We are seeing a sharp rise in retirement estates, lifestyle villages and, increasingly, the concept of life rights, which is a model that offers security and simplicity but does challenge traditional ideas of ownership and inheritance.

So today we are going to unpack all of that. To help us, I am joined by Jason Appel, Financial Planning Specialist, and Kim Potgieter, who helps clients design not just financial outcomes, but meaningful next chapters. Welcome to you both.

Kim, maybe I can start with you. This is not a new subject, but often, let’s start where most financial planning conversations do not: the emotional side. We do not talk about this enough when it comes to choosing whether or not to leave the home you’ve been in and raised the children in. Why is this decision to leave a long-time home so psychologically difficult?

Kim Potgieter

Well, Michael, maybe just to share, I’m not going into retirement, but I’m in empty nest and I need to leave my family home right now because I’ve got many bedrooms with no people sleeping in them. When I walk down that passage and see all those empty rooms, it is a continual reminder that there is an imminent change in my life that I need to take care of.

I can talk for myself first before I get to clients. It comes so quickly. It is not something you are prepared for because you are so busy doing all the things you should be doing, living in the present and living in the moment, and then this time just creeps up on you when your children are no longer living at home and you have these homes that are actually meant for five or six people, with two of you living in them.

It has so many memories and so many things we used to do in it. We are holding on to that, and we are holding on to the thought that they are going to come home for the holidays, or maybe they are going to come for a weekend. It is this attachment you feel to this part of your life that you have absolutely loved. And this new chapter, whether it is retirement or midlife, feels open. You are not exactly sure what is going to be in it.

When I work with clients, even when they come in in their late 50s or early 60s and I bring up the words retirement village or lifestyle estate, I have had clients, Ronel Baker was one of them, who say, “You are not putting me in that category. I am not old. I am not going to one of those places.”

So there are a whole lot of emotional things going on. It is attachment to the house, but it is also this hanging on to the fact that we want our life to be like it used to be.

Michael Avery

Yes, I mean, just to add to that personally, Kim, I’m in my second kind of marriage, so to speak. We’re not married yet, but Nic’s children are exactly that: at university. We have an empty nest, although my two are much younger, so we’ve got their rooms and they come over occasionally. But still, the other bedrooms are kept there for those odd occasions on a varsity holiday when the children will come back home, and there is an attachment to that.

But equally, through watching Nic’s parents, they had a holiday home down at the coast and they’ve started to downsize. They sold that because it came with all kinds of responsibilities as well as expenses. And I think, as you enter maybe your 70s or 80s, to keep up with that, and if you don’t want a separate property manager, it becomes a whole other conversation.

So there are lots of things, and then layered onto that, as you say, your identity and not wanting to be seen to be putting one foot in the grave, so to speak. I think a lot of people have that kind of association.

Jason, just to bring you in and your experience, what typically triggers that decision to move? Is it more from proactive planning, or is it mostly, as I suspect, that we are reactive to events, maybe a health shock, cost pressures or even children moving out of the house, and now you have to think about something that really you have been putting off for a very long time?

Jason Appel

I think I’ve seen two distinct cases. Definitely reactive, and I find when it is reactive, it is very emotive and often the decision-making process is very difficult. The best outcomes I’ve seen, and to Kim’s point about bringing it up with the client sooner rather than later, are when people try to make a financial decision from a point of power, not when they are backed into a corner and have no choice.

So the worst-case scenario is that you are forced to move because you have either got a health problem, or you need to raise funds because life has become very expensive. Now you have to sell your home in a market where the prices are not good, you do not realise what you need for your home, and then you cannot get what you need. You cannot actually purchase the property that meets your lifestyle requirements in the right estate or in the right region, and then it just goes haywire from there.

So the reactive approach is quite common and unfortunately does not always have the best outcomes. But with that in mind, there are always ways to plan and things to do. If it is a reactive decision, then it is about how we work through that in the best possible way that does not have major negative consequences.

But first prize is to get ahead of the problem and say, well, how does this look in five years’ time? Where are we going? Let us plan for what this next thing looks like. That way, we plan from a position of power and we can put a house on the market at the right time, get the right price and go to the right village or the right estate. So those are the two very high-level scenarios I see most commonly.

Kim Potgieter

We’re not allowed to use that anymore.

Michael Avery

They look very different from what they did 20 years ago. What is driving their popularity?

Kim Potgieter

Well, from my side, Michael, maybe I’ll just add before Jason comes in, that has changed. I think that is what is so important. It is no longer that old-age home. They have really changed it. I have seen some of the estates now encouraging people to come in in their early 50s. Some start at age 50, some at 55, and they are making it look a lot more appealing. So it does encourage people because it looks much more appealing than before, when you were in little blocks and certainly did not have the swimming pool, the place to go and eat, the padel courts and all the things we are seeing in these estates now.

Michael Avery

Jason, what are you seeing that has really shifted the needle in the way we think about retirement estates or retirement villages?

Jason Appel

Yes, I think it is a change in how people want to live. Firstly, in South Africa, security is paramount. I think people are looking for secure areas to live. They might not want to leave, for example, Gauteng, but they want to be secure. So security is a major thing. And then, yes, the amenities that these estates offer, the activities, are definitely a major drawcard.

Another major one I am seeing is definitely community. I think people are hungry for community. I am in my late 30s, and even I live in an estate in KZN. Having done that, just being around other young families with other young children, there is something that draws you to it. The notion of living in a house behind walls and gates just does not quite have the gravitas it once had.

People are choosing to live in smaller homes inside estates, and they are sacrificing the luxuries of having these big homes to have security and community around them. So I think community is a big part of it.

Michael Avery

Yes, and what you may give up in terms of the size of your erf or your property, you gain in the size of the shared amenities on the estate as well. And to your point, when you do not have as many walls and you feel a lot safer, you get out there, you watch the children riding their bicycles, you interact, and I think that is definitely part of it. We are human beings. Kim, to bring you in here, that sense of community psychologically is so important for us as we enter our retirement years, is it not?

Kim Potgieter

It is one of the most important things. That Harvard study was done, and the Harvard study followed a group of people for over 86 years. They asked them what brought them happiness, and the overwhelming response was relationships.

To Jason’s point, many people are living in a way where they cannot find community and they cannot connect without work. This environment does create that. I have watched people change, Michael. It has been so interesting to see. Often the ones who have fought with me the most are the ones who go there, and then come back and say to me, “Kim, it has made such a difference in my life. I cannot believe now that I have somebody who cares, somebody who comes and picks me up so we can go for a walk. We meet people for dinner at night.”

People are staying up later, visiting each other and having dinner parties. Sometimes when I hear the times they are staying up and they tell me, I think, how do you do that? So I have really seen a renewed energy come to people when they do it.

But to Jason’s point, there are so many who go in kicking and screaming. We are talking about community now, but it happens in a couple. I will sit with a couple where one of them will say, “I am ready to go,” and the other one will say, “I am absolutely not going.” So it becomes quite a big discussion, and it is a very emotional discussion. Making sure that both people want to do it is so much better.

Often, where it comes to life is when they lose one of their friends. I have seen it happen a lot now. One of their friends will lose their partner, and then they will watch their friend having to pack up the house and be on their own. Then the couple will come in to me and say, “It is time. We are ready to go. I would hate for my partner to have to do it on their own. I want to go in with them so we can get settled together, so that if anything happens to me, my partner will have community around them.”

I know that sounds quite negative, but I think it is extremely caring. It shows love and care. I have seen that as the pull that brings people to move many times.

Michael Avery

I think that is a really interesting insight and observation. Again, these things are difficult to talk about, and often I think we postpone the conversation because we do not want to confront the fact that we may be the ones who are left behind having to deal with all of that. So we push back against having that conversation. But if you have had it early enough, to our earlier point, then you can at least plan for a far easier transition through what is a very difficult emotional and psychological moment in any event.

I want to move now, Jason, if we can, to the options that are on the table here because I think it does confuse a lot of people. You have got outright purchases, which people know. You have got sectional title or full title. Then you have got life rights, which has emerged more recently into the picture, and then obviously you have got renting. So maybe you could give us a clean framework for how they differ at a very high level before we go into some of the real detail.

Jason Appel

Yes, I think I will start with outright purchase. As you said, that is the easiest one to understand. I purchase a property and the title deed is registered in my name. I pay my rates and taxes. I can do pretty much what I want with it, barring some complex rules that you might have. But you own that property and the capital appreciation on that property is invariably yours. Then it comes with all the responsibilities of owning property: maintenance of the property, paying your rates and taxes, and so on.

Life rights is an interesting one because it is fairly new to South Africa, but it is quite an old concept internationally. In fact, retirement estates around the world are predominantly life rights. It was made quite popular in the United States. So if you are looking for places internationally to live as a retired person, in most cases what is on offer is a life rights contract.

Essentially, it is a right to live in a property for the rest of your life and the rest of your partner’s life if you go in together. What that means is that you do not own the property. There is no title deed registered in your name. It is structured almost like a contract to say that I can live here and you cannot kick me out of this home until I die.

They generally come with a levy that you pay. There are no rates and taxes, and there is no external maintenance on the property. All of that is done by the life rights company that owns the retirement estate. So the amount you pay is almost akin to a big upfront rental, Michael. That is the best way I can describe it. You are saying, “Here is my three million rand,” as an example, “and for that three million rand, I have got a two-bedroom unit in this estate, and I am there for the rest of my life.”

Michael Avery

Yes.

Jason Appel

And I cannot be kicked out.

Michael Avery

Or there is a third way: you could just rent. You can rent, yes. I mean, if you sell your house and you have got your pension money that you have been saving, and you have done the numbers and think you will be able to do that and take on the longevity risk. But I want to come to Kim on the big psychological hurdle here because, for many people, the idea is: I do not own it, my children will not inherit it. That is the other thing: it does not go into your estate at the end. How should people think about that trade-off?

Kim Potgieter

So, Michael, often there is need. Often they do not have enough money. Being able to take it on life rights means they are paying a lot less for it than when they are outright buying it. So they get a lot more home for their lifetime that they get to enjoy. Yes, their family gets to inherit less in a way, but they are getting, the way I want to describe it, the most bang for their buck because they are getting the two bedrooms, the double garage, the more space for the money that they have got.

But again, many times when I am working with people, and we work with people, they want to think about leaving something to their families. They are more preoccupied with leaving something to their families. Then we call the children in and we get the children involved, and the children go, “Mom and Dad, we want you to be fine. We want you to be well looked after. We are not worried about what we are going to inherit.”

But as parents, your children have been so important to you that you have given and given and given. And then even at this time, we are having to say, “Please, can you just be a little bit selfish? Please can you just look after yourself? Your children do not want to see you unhappy and miserable and struggling. What they want to see is you in a place that really works for you.”

So there are many conversations that come in, and they often involve children. They obviously involve the spouse, and then it is like a team effort. That is why, many times, we are calling family meetings as opposed to just meetings with the couple, just to encourage them that what they are doing is all right and they are not being negligent.

Then we know they have got a place for the rest of their lives. We know they are not going to run out of money, and that becomes really important. I think Jace will talk to it as well. There are also options where you can borrow against your investment in these estates, and sometimes clients have to use that money because they start running out. Jace, I am going to hand to you on that one.

Jason Appel

Yes, that is a very important aspect of life rights, which makes it very attractive. If you own your property outright, the only way you can access equity in that property is to sell it. And then you have to go somewhere, right? Whereas if you have a life rights agreement, the amount you pay the life rights company, let’s just say you pay three million rand to live there, on your death, your family will get back the three million, maybe less a levy stabilisation fee or percentage. All the contracts differ.

But that amount that you get back, most life rights companies allow you to access that amount to pay your levy. So when you start running low on money, you can fund your levy or your frail care fee, etc., from that amount. They basically start to deduct it, but you can use it before you die. For me, that is a major advantage because it is one of the few instances where you have a non-liquid asset that has a bit of liquidity to it.

It offers that added security. I have my home, I am secure, they cannot kick me out, but I can start accessing this. I have seen some life rights companies be very flexible. Even where people are not running out of money, they have approached people in life rights contracts to say, “Actually, we will discount your levy. We will not charge you a levy anymore if you reduce your life rights repayment back down to, let’s say, half of what we negotiated upfront.”

You have got to run the numbers, of course, to see what is going to work in your favour. But there is a lot of flexibility that life rights can afford you. So that is a big part of looking at it as well. It does seem as if you are giving up capital, but you are gaining a lot of other benefits too. So it is not something one should simply overlook and not consider.

Michael Avery

Right. There is no transfer duty, there are no bond costs, and your maintenance is largely covered. Often, I think we underestimate the lifestyle value that peace of mind can give you too, to be able to put your head on the pillow at night and say, right, that is absolutely covered. It is almost like a guaranteed annuity versus a living annuity, if you think of some of the peace of mind elements that one gives you.

When you look at the economics of owning, when does it make sense? The appeal is obvious. You get asset growth, you have legacy and all of those things. But I think there are hidden costs that people underestimate. Does owning property in retirement still make sense in South Africa, where we have low growth and a very high cost administered price environment? We know the property market has not been great, depending on where you are. There are pockets of growth, mostly in the Western Cape. So when does it make sense to you to actually own in retirement, Jason?

Jason Appel

I think it is an interesting question. It is also very nuanced from case to case. I would say that owning property comes with a lot of pitfalls and unforeseen costs. You have maintenance costs, the cost of damages and repairs, insurance and all that, and there are the additional levies you still pay when you are in an estate. So outright purchase still comes with a lot of costs, which people do not capitalise into the value of that property over time. They just go, well, I paid three and a half million rand for it, just to work out a figure, but they do not then add in all the maintenance costs they have spent over time.

So I think the average growth of a property in South Africa is inflationary at best. It is a hedge against inflation to own property. I will caveat that and say that retirement estates are slightly different in that you get better capital appreciation on those properties, but that is also because they sell at a premium. You are actually paying quite a lot, especially in the Cape, to get into an outright purchase place. You are paying a hefty sum to have the same size three-bedroom unit that you could get on life rights for, say, two-thirds of the cost.

Michael Avery

Well, if you looked at Val de Vie lately, and this is not an advert for the estate, but it is eye-watering what you are paying to get access to that lifestyle sometimes.

Jason Appel

Yes, and every asset class has its ceiling, and then these bubbles start to form. There is only so much retired people can pay for property. It is going to get to a point where the people who need to enter these properties cannot afford them, and then what is going to happen? The value of those properties is going to come down. It is just how market cycles work, especially in the property space.

So I think where you value capital growth, you are going to really struggle with life rights. But if you do the maths and you work out that life rights comes at a considerably cheaper cost, and you have a million rand left in the market that is growing at a rate above property growth rates, then it starts becoming a compelling argument. It sounds as if I am really arguing for life rights here, because there are cases where life rights do not work for you. But I definitely think it has to be addressed very specifically to your individual needs.

Michael Avery

So maybe, Kim, you could argue the other side. Where does life rights not make sense for a retiree?

Kim Potgieter

Again, Michael, I think it is very much case by case. Just as we talk about a living annuity and a guaranteed annuity, when clients do have enough money and they are not going to run out, and it is not going to make a big difference to their lives, they can own their houses and still think of leaving it to their children with the capital growth. We really do encourage it.

So I think what Jason is saying is that we do not have one leaning either way. We do not even have a leaning if we think a retirement estate is better than living in a different place. But what we do like is to have the conversation. We do like to go through all of this because we have often seen what happens when you are now being forced to go, and it is often by children.

Sometimes people leave it too long, and then maybe illness comes, or Alzheimer’s, dementia and things like that happen. Then you have the heartbreak. I have seen the heartbreak of children forcing their parents to go, and now their parents are unhappy, they do not want to go, and they put all this guilt onto their children because they have been forced to do this: “You are doing this to me.”

So, like everything, it is definitely much better to have these conversations beforehand. There is also good demand for these places. You do not just get in overnight. So when you need to go yesterday because something has happened, you cannot get in. Then, all of a sudden, you start getting into one that really does not suit your lifestyle and is not very appealing to you.

That is why the biggest advice I give people is to have options, and at least challenge their thinking to look into all the options. Once they have them, there is a plan in place if the what-ifs happen.

We even have many cases where people do move into a retirement estate, and I wanted to talk a little bit about frail care. They move into a lifestyle or retirement estate, and one of them or their partner gets ill. Now their partner needs to be looked after. We are often seeing that they are paying for the home they are living in, which is a big expense, and they are paying for frail care, which is a huge expense.

So we have to bring in these costs of frail care. But once you are in one of these estates and they have frail care, you have that option at least. In our planning, often we are paying for these two homes, and couples have never thought of that. They have never thought that potentially they are going to need different homes from each other, but then they can visit each other.

These are all just different scenarios. I always say to people in the meetings, let us just run the different scenarios. We know they are there so that if we ever need them, we can come back to them instead of you feeling like your children are now cruel to you because they are having these conversations.

Michael Avery

And you are not hit by a surprise that has not been thought of, or at least scenario planned through that process. Ask yourself questions. Everyone’s situation, we know, is different. Which is the option that might give me the most flexibility, if that is what I am looking for, or cost predictability, or protects me against longevity risk? All of those things mean that, at the end of the day, I can put my head on the pillow and go to sleep at night, not having this hang over me.

When you look, Jason, it is quite clear that we are not advocating for any one solution, but when people choose between these options, what are the biggest mistakes they tend to make? Is it that sometimes they do not read the T&Cs on the contracts carefully enough, or maybe they overestimate property appreciation? What do you see as the general mistakes that clients who come to you with these ideas tend to make?

Jason Appel

Yes, you have to be a bit of an expert in contract law when you look at a life rights contract because the contracts all differ from each other. You cannot actually say one life rights company is exactly the same as another. They have all got smaller and nuanced terms and conditions. So I would encourage a client to let their family attorney or a legal expert review their agreements and highlight any issues they might see.

I have seen people buy into certain life rights companies. I definitely cannot name them. I think some of them have already stopped operating because they do not have sound financials. You have to check the financial status of that company. You are basically investing in the life rights company. You are saying, “I am going alongside you for the rest of my life.” So do they have sound financials? What does it look like?

It is similar to any estate or complex you buy into. The same applies to outright purchase as well. You can buy into an estate that has very bad financial records or poor management. Your HOA or trustees might not be managing the estate correctly. Who is the managing agent of that estate? What is the maintenance like?

Because once you are in a life rights contract, you are in it. That is not something you just quickly get yourself out of. Similarly, once you have bought on an outright purchase agreement, you have paid all those transfer fees, costs and taxes. You cannot really unwind it.

So you need to do your homework and make sure you have assessed the quality of the property you are going into. And if it is a life rights company, what is the state of that company, and are they keeping up with the terms of that contract? Speak to other residents. I cannot highlight that more. Getting word of mouth from people who live there and have first-hand experience is also quite critical.

Michael Avery

And Kim, what would you say is the biggest non-financial mistake that you see people making?

Kim Potgieter

Sometimes just waiting too late. So again, we love to put our head in the sand. Many times people will say to me, “I do not want to live with the old people.” But it is just redefining for yourself what is going to bring you the most joy and what is going to give you less anxiety, because the anxiety of hanging on, keeping everything you have and maintaining it all often causes so much stress for people.

So again, as I said, I am not encouraging either way, but what I am encouraging is not to have your head in the sand. We do change as we get older, and I often look at it as the person you are when you are 50 wants a different thing from the person you are when you are 70 or 80. So it is about being open, being kind to yourself and looking after yourself.

Michael Avery

Well, if there is one thing that becomes clear in this conversation, it is that this is not just a property decision. It is a life design decision. Whether you choose to stay, downscale, rent or move into a life rights estate, you are not just looking at the structure. You are choosing how you want to live.

Perhaps the most important takeaway is this: there is no universal right answer. There is only the answer that aligns with your health, your finances, your family and your idea of what a meaningful next chapter looks like. So my thanks to Kim Potgieter and Jason Appel for helping us explore what is, for many, one of the most personal and consequential decisions they will ever make here on Life Chapters, Money Choices.