In a nutshell, buying a life right is similar to buying a home, but with some very important differences. When you buy a life right, you ‘buy’ a dwelling and the solution that comes with the dwelling for the duration of your life – and that of your spouse. You don’t take the title of the dwelling, and the solution includes the maintenance of the dwelling and surrounding facilities and, most importantly, access to comprehensive healthcare based on your needs. So, it is a hybrid product with the goal of facilitating a good quality of life that is accessible to more retirees.
There’s a lovely scene in the TV Series Doc Martin, where someone asks Martin about a patient: ‘is she going to die?’ and his response is: ‘yes, but not today.’ And that’s the ugly fact. You are going to die (but probably not today). And here’s an even uglier fact. Before you die, you will probably be sick and suffer from compromised mobility or mental acuity – maybe for a few days, maybe for a few months, or maybe for a few years.
Oh – and here’s another ugly fact. While we acknowledge that you will die, you could carry on living for a long, long time – especially if you’ve been eating your five veggies a day. You may survive your spouse and many of your friends, so you may get lonely. And if you’re living alone, and not quite as spry as you used to be, you may become more and more vulnerable to crime. And – possibly most frightening of all – you may outlive your investments, or your pension may fail to keep up with inflation and leave you with very little to live on. And it’s in response to many of these uglies that the life right model was developed.
But the life right model is not perfect, and – depending on how you look at it, and who you ask for advice – it could be considered a bad decision, and certainly – from a purely financial perspective – it’s not considered an investment. Here’s why.
The most financially challenging aspect of life right is that you can’t take advantage of the increased value of the property. When you move out of your life right home, which will usually be feet first, all you will get back is your purchase price. This is the most common formula, but there are variations. The property will then be sold again to a new resident at a market- related price that might be double what you paid (and what you get back). Now clearly, that is not a good return on investment from a purely financial perspective. So, yes, it is a disadvantage. And, of course, you will still have to pay levies.
Clearly, there must be some advantages, or no-one would buy into it. Yes, there are – and they are significant.
Life right is not necessarily the right choice for everyone, but it should certainly be considered. And when you do consider it, you need to weigh up all the pros and cons – financial, practical and emotional. Making decisions based on the fact that you are going to die seems morbid, but it’s important to think these things through while you are still fit, healthy and flexible enough to think clearly, and to settle into a new environment without too much stress and trauma. And, of course, the younger you are when you buy a life right, the longer you are likely to get to enjoy it, so you end up with a bit of a financial advantage, too.