Totally Frenched Out

From the blogger formerly known as Samdebretagne

Sunday, April 1, 2012

Via what what?

So a while back I alluded to a big project that C and I were working on.  And that project is.....we are trying to find a way to save for retirement.  Exciting stuff huh?  And yes, I know we are in France and most retired people are currently living the high life, but I firmly believe that kind of money won't be around by the time we grow old.  Kind of like what happened to people my parents age - they always believe social security would be there for them and now many of them will have to work until they are 70+ because they don't have enough saved up.

So I spent a ton of time trying to figure out what is the best way to save here, and came up mostly empty-handed.  I'm pretty sure that the majority of French people haven't given their retirement a second thought, and so those kinds of products don't really exist yet in France (though some larger companies are now starting to offer a sort of 401K).  Talking to various banks though, they all just suggested I put money in some of the low-interest savings accounts (gee, you're going to give me a whole 2.25% and there's a max amount of 6000€? Sign me up -those 6,000€ will sure get me far when I'm 80!) or otherwise invest it in stocks and bonds.  Given the economy, that doesn't really interest me either, nor do the extremely complicated "assurance vie" plans offered by most insurance companies.

Another option was investing money in the US, or in an IRA over there, but with the way the US economy is, I didn't really find that too reassuring either.

So was does that leave?

Investing in La Pierre, or literally in "stones".

We aren't quite ready to buy the home of our dreams yet - but we do have enough money set aside to buy a smaller place.  The problem is, neither of us want to be landlords.  Given what we could afford, it just seemed like a lot of time and energy spent for not much money after taxes.

So now what does that leave?

Investing in a viager, which is sort of like a reverse mortgage in the US except it's between two people instead of one person and the government.  Basically, the viager process lets you pre-purchase a home owned by an elderly person.  You give them a lump sum called the bouquet, and then you pay them a pre-agreed upon monthly stipend until they die, at which time you become the full owner. And now's the part where you all gasp, or at least that's what everyone else has done every time we've mentioned it.

We've been accused of betting on someone's life, trying to take advantage of an old person, being greedy, etc.  (Thanks friends and family, btw). I am sure there are people who go into these things hoping the person will kick the bucket asap so that they get a great deal. But we are specifically looking at this as a long-term investment. FOR RETIREMENT.  Ie We are not hoping she dies anytime soon.  And at least this way, she has some extra money to live off of each month.

People's next comments are then - but what if she lives to be one hundred?  (she's 79).  Then you will have paid much more than the apartment is worth!  The most well-known example is that of Jeanne Calment - she signed a viager contract with her notary in 1965 at the age of 90.  Which normally should've been a shoe-in right?  Except Jeanne Calment lived to be 122 - and the notary died before her and his children were required to continue paying her each month in his place!

Obvious that's an extreme case, but that is why in a normal viager situation, people say you are betting on the person's lifespan, hoping they won't live a long time. But in our case, the apartment we are looking at is a second residence, used by a little old lady as a painting studio once or twice a week.  And once she can no longer paint, we will be allowed to rent the place out as long as we pay her 15% more each month.

So I am happy for her to paint as long as she wants.  And when she can't, we will either continue to pay the monthly stipend, or suck it up and rent it out, probably to American students (which would at least limit the risk that they end up squatting the place and not paying rent for two years).  It's a nice little apartment too - it has a great layout and is in a quite neighborhood, so we could fix it up to be pretty nice.

But the fact that we have the option to rent it out was the clincher for me - in my mind, if she does live to be 100+, at least the rent will cover the majority of the payment and there is very little chance we end up paying out-of-pocket more than the apartment is worth. And then we would either sell the place and explore any new retirement options out there or reinvest it in a bigger viager.

It just seems to be win-win - she gets a little bit better quality of life (and a tax break on that income) and we get to acquire a bien in an affordable way, without having to borrow any money and pay thousands of euros of interest to a bank.  And because the monthly rent is reasonable, we can still keep saving for our dream apartment at the same time.

So what do you guys think?  Am I a greedy capitalist influencing poor C (as his family seemed to insinuate) or is this a way for us to save for retirement while helping a little old lady out at the same time?



Blogger Crystal said...

I think it comes down to you guys and the little old lady. If she wasn't comfortable with the idea of someone "betting on her life expectancy", she wouldn't have signed up for the viager option. Clearly she knows what's at stake and what people might think, and doesn't care. She's thinking about her best interests for right now, and you guys are thinking about your best interests for the future. I don't see any harm in that. It sounds like a good situation too - don't let people make the decision for you. It's YOUR money ("your" as in you + C), and your retirement plan. Do what's best for you guys.

(Max and I have thought about it too. We'll wait a few more years because we might be moving again, but I'm totally open to the idea of the viager)

April 1, 2012 at 10:46 AM  
Blogger Megan said...

We've thought about it too, but for now are paying our mortgage, saving to buy a house, and putting some each month in La Poste retirement accounts.

April 1, 2012 at 10:57 AM  
Blogger Canedolia said...

I suspect that the idea of someone "betting on your life expectancy" is something you get to be much more sanguine about as you get older.I have to admit, I found the viager system a bit creepy when I first found out about it but the truth is that the old person can't really get a bad deal out of it - only you or the people who inherit their estate can. And nobody who inherits money can really say they earned it, so as long as you are happy with what you're takiing on, I don't think there's anything moral at stake here.

April 1, 2012 at 11:10 AM  
Blogger Amber said...

Sam, I think it's a great idea, especially if you're still within your 33% debt limit and able to save up on the side. I think the viager sounds like the best option for getting a foot in in Paris thanks to the craziness that is real estate there.

We've got an assurance vie for Victor, and had the same idea as you for retirement (although we also have a kind of 401k offered through P&G) -- we've got one short mortgage and one longer one, and we'll see how it works out. Our bankers have always said that investing in property is the best way to go in this country, so I hope it works out well for you and C!

April 1, 2012 at 11:12 AM  
Blogger Alison said...

I've always had mixed feelings about the viager (probably because of Jeanne Calment), but if both parties are willing, it does seem like a win-win.

Kudos to you for thinking about retirement now. So many people don't, and the system in France just won't be there for people our age.

April 1, 2012 at 3:11 PM  
Blogger L said...

Isn't there some French comedy about a family that buys with a viager, and then tries to knock off the old lady so they pay less? I think people are remembering the movie (except the part that it was a comedy...) when they say it's better against her life expectancy.

April 1, 2012 at 3:22 PM  
Blogger Canedolia said...

PS, just noticed today's date ... is this a return to previous form or a repeat of last year's double-crossing trick???

April 1, 2012 at 3:31 PM  
Blogger melinda said...

sounds good to do u go about finding a viager?

April 1, 2012 at 3:33 PM  
Blogger wcs said...

I have no advice nor any criticism, but your post reminded me of the movie "Le Viager" with Michel Serrault. lol!

April 1, 2012 at 4:47 PM  
Blogger meredith said...

April Fool's????

April 1, 2012 at 7:50 PM  
Blogger The Paris Chronicles said...

I think this sounds like a beneficial situation for everybody, and I'm not surprised your American family and friends did not understand it--the notion of a viager is so French-specific.

The fact you can rent it out is really great. (I can send you some nice students, when you get to that point.) Another option is to rent out via to visiting American tourists. It's a bit safer, in that you know the place will not get trashed (since you take a deposit) and the stay is not as long. It does mean more work on your part, but the revenue is better. Depending on where the place is situated, you can rent it out for 150E/night (be sure to have a "x night" minimum, as the short rental isn't worth your time).

If you ever need some advice on renting property, I'd be happy to share my experience with you.

April 2, 2012 at 10:14 AM  
Blogger Jennifer said...

Not greedy and IMO it is none of anyone else's business how you save for retirement.

That happens in Italy too, except you don't pay a stipend to the person. You buy the apartment/house at a significant discount with the agreement that they will continue to live there until their death, at which time you may do with it as you please. At first I was a little shocked but once I got to thinking about it, it doesn't seem like such a big deal. If I were a little old lady strapped for cash I'd probably consider it too.

And as long as you don't kill her off...

April 2, 2012 at 10:32 AM  
Blogger La Vie est Belle said...

The lady we bought our house from bought it on viager. The couple was old and didn't have any children . . . so the wife of the couple was worried about having money (they would sell off land for money initially, but then didn't have any land left!) and so she found Madame Nazarian to buy it from her. Then we bought it from Madame N.

I think it's a good idea!

April 4, 2012 at 5:20 PM  
Blogger purejuice said...

i think this is a win win. go for it.

April 4, 2012 at 11:35 PM  

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