Annuity models
2 min.
This article was published on May 5, 2022 and may contain outdated information.
The principle of annuitization is often explained as follows: senior citizens who annuitize their property receive a monthly pension payment for the rest of their lives and retain the right to live there for the rest of their lives. However, this is not entirely correct. There are actually several annuity and payment models. We present the most popular annuity options.
Life annuity and time annuity
First of all, a distinction is made in real estate annuities between life annuities and term annuities. While the payments for a life annuity are linked to the lifetime of the seller, a certain payment period is fixed for a time annuity. Both models have their advantages and disadvantages, which can be illustrated using an example:
A senior citizen sells her property at the age of 70. Statistically speaking, she will live for another fourteen years. With the annuity, this value is used as the basis for calculating the monthly pension. However, the senior citizen also receives the pension payments if she lives for another twenty years. However, if she dies after just five years, the payments are stopped at this point. In the case of a temporary pension, for example, it would be possible to agree a payment period of 20 years. After that, the senior citizen would no longer receive any pension payments from the buyer. If, on the other hand, she dies earlier, the payments go to her heirs.
The temporary annuity is therefore particularly suitable if you want to protect your heirs after your death. With both models, senior citizens can also choose whether they want a lifelong or a temporary right of residence.
One-off payment and monthly payments
However, senior citizens often decide against the monthly pension model and opt for a one-off payment. Roughly speaking, this is made up of the market value minus the usufruct value. 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 euros and could be rented out for 800 euros a month. If you extrapolate this to the statistical life expectancy of around 14 years, the usufruct value is 134,400 euros. The senior citizen thus receives a one-off payment of 265,600 euros.
However, senior citizens do not have to choose between either a single payment or a monthly pension. Fixed payments and monthly annuities can be flexibly combined. Many pensioners use the one-off payment, for example, to pay off an outstanding mortgage and have the rest of the value paid out as a monthly pension. Or they use a lump sum to pay it to their children as an early inheritance and live off the monthly pension payments themselves. Everyone can decide for themselves how large the one-off payment is compared to the monthly pension.
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