Practical example
5.5 room detached house 150 m2, year of construction 1996, partly renovated, single person, 70 years old
Sale and relocation to 4.5 room flat 106m2 same municipality, agglomeration Basel
| Purchase price in 1996 | CHF 760,000 |
| Value/sales price as at 2024 | CHF 1'200'000.- |
| Mortgage | CHF 560,000 |
| Property gains tax | CHF 100,000 |
| Liquidity after sale | CHF 540,000 |
* Indicative value as at March 2024, BS agglomeration / ** Tax savings for these refurbishments were not taken into account
If we now look at the overall comparison, we see that the difference is not particularly large. For those who took out or extended their mortgage in 2019-2022, the difference is even greater, as some have fixed at 1% or less. As at March 2024, long-term mortgages are back at 2% or 5 years at around 1.8%. Depending on the system, the heating and ancillary costs may also be lower than in our example.
But let's go one step further. The newly acquired liquidity does not normally remain dormant in the savings account, where it loses purchasing power, but is divided into different pots so that you can draw on it for as long as possible and, in the best case, pass something on to your children.
Example
* rough example and is to be customised. Consumption is calculated up to age 96.
Pot 1 should not be exposed to any major fluctuations, as this money will be needed over the next few years. In pot 2, you can pursue a cautious strategy with an admixture of equities. In the third pot, which in our example will only be needed in around 16 years' time, you can increase the equity allocation. Of course, this is only one variant of a possible allocation. Here too, individual needs and circumstances must be taken into account.
In our practical example, in addition to the pension, there is now also a consumption from the capital, which can be used to cover the small additional burden in the rental flat scenario without any worries.
The following aspects must also be taken into account:
Flexibility in inheritance planning
In many cases, if a sibling takes over the property, the mortgage must be increased in order to finance the settlement. Or a takeover is not possible for precisely this reason, as the imputed affordability is too high. Now that the funds are liquid, the division in terms of estate planning tends to be easier to organise and divide among the heirs.
No major reserves required for refurbishments
After retirement, it is often not possible to finance a major renovation because most of the assets are not liquid but are tied up in the property and the bank cannot increase the mortgage due to the affordability rule.
In the new rented flat, the landlord pays for major renovations and a large item in the budget is eliminated. There is also no need to worry about unforeseen or major renovations.
Diversification
Before the sale, almost all of the assets were in the property and therefore there was no diversification. The liquid funds can now be used for broad diversification in order to provide a little more security in the portfolio.
Quality of life
65 is the new 40! At today's retirement age, you can enjoy another big trip, pursue your hobbies or do something with your grandchildren. But the most important thing is that you can treat yourself to something without feeling guilty.
The other side of the coin
However, there are also disadvantages that need to be mentioned. One of the most drastic is probably the fact that you are no longer allowed to make your own decisions about your own four walls. You are dependent on a landlord and first have to ask permission if you want to get a pet or paint the walls the colour of your choice. In addition, it is always a very emotional decision to let go of the house that you have looked after, furnished and spent a large part of your life in for over 30 years.
A widespread option for keeping the property in the family or living in it for a little longer is therefore usufruct or right of residence.
Usufruct or right of residence
One option with advantages for both parents and their descendants is to transfer the home in advance and live in it for as long as possible. This approach involves a comparison of the differences between usufructuary and residential easements.
Under hausinfo.ch you will find a comparison of the most important advantages and disadvantages of both variants.
In conclusion, it can be said that, as is usually the case in financial planning, there is no one-size-fits-all solution. This is because every family has different needs and wishes when it comes to estate planning, or has a different financial situation and the house remains the better option. In any case, it is advisable to examine all options early on and discuss them together with those involved so that a solution can be worked out that suits everyone.
Are you in a similar situation or do you know someone who is? We would be happy to show you the individual options during a personal consultation and help you implement your plan.
How your financial planner can help you
Your financial planner is able to draw your attention to various aspects, including the topic of home ownership in old age, as part of a holistic financial planning process. They will point out possible risks or opportunities based on your personal circumstances and help you to prepare for them in the best possible way.
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