The Commonwealth As A Retirement Location

The Commonwealth As A Retirement Location

The Commonwealth makes an appealing location for a limited number of non U. S. citizen retirees from Japan and elsewhere. The area offers many amenities for those whose days of working are over: a tropical climate, abundant recreational opportunities, the availability of domestic help, no inheritance tax and no real estate tax together with reasonably adequate medical facilities for all but the most complicated health problems.

All combine to make retirement in these beautiful islands and away from crowded cities an appealing prospect. The Commonwealth offers reliable banking and communication facilities as well as convenient air transportation schedules. As an added incentive several airlines offer reduced prices to people over sixty two years of age thereby making it cheaper to return to their homeland at reduced air fares.

Retired people don’t compete for jobs. In fact they create jobs in stores, restaurants, travel agencies, automobile service stations and many other businesses. They are ideal consumers as those with relatively high, fixed incomes spend money on a wide variety of life’s necessities. Ideally, an interested developer could lease a large tract of land and construct a planned community complete with roof water catchments to relieve the pressure on ground water resources .

A person of, say, sixty five years of age could arrange for a lease of fifty five years or less within the retirement community. Assuming they live another twenty years after which the remaining period on the leasehold would pass to their heirs. Chances are these surviving relatives would still be employed with the possibility that the estate would be of little use to them, thus the developer might offer them some sort of “buy back” providing them the option of selling their remaining years on the lease to someone else. Certainly as the period remaining on the lease continues to decline with the passing of years, the value of the asset to the lease holder declines accordingly.

There are many details to work out none the least being the establishment of a type of retirement entry permit which would allow a retired person to remain in the Commonwealth for an extended period. Currently there is no immigration mechanism to permit such an extended stay. The closest thing being the long term business entry permit which requires a minimum of $150,000 investment in a business and another $100,000 placed on security deposit. This type of entry permit was not established to accommodate retired people and, at any rate, residential homes don’t qualify in meeting the investment requirement. Legislation would be necessary to establish a new, special retirement entry permit procedure would be required. If such a program is of interest to the local community perhaps an added incentive would be to permit retired people to import personal effects, household goods and an automobile duty free.

While the following is an over simplification, a long term, fifty five year lease for a house and lot valued at $100,000 results in the lessee’s investment declining by $1,852 per year or $154.33 a month, (quite reasonable for rent). By the end of the fifty five year period the initial $100,000 will have been reduced to zero with no residual benefits remaining for the original lessee. Conversely, and assuming the property has been well maintained and appreciated at the rate of two and one half percent per year compounded, the house and lot would have a value when returned to the indigenous owners of this asset of $379,400. Assuming the individual retiree lives another twenty years after entering into the lease, the value of the leasehold will have been theoretically reduced to $64,815 at year twenty. The question to be resolved, and an issue no doubt of concern to the retiree, is the matter of the potential loss of the $64,815 in residual value. While the remaining lease period can go to the heirs, if any, ideally an alternative should be devised where the option of recovering a sum equal to the remaining residual value can be offered to the retiree at the beginning to assure him or her that any heir will receive their just recompense and this is the reason for offering the possibility of a “buy back.” It is at this point at year twenty, for example, that the appreciated value of the property to the indigenous land owner is $159,965 or $95,150 more than the remaining thirty five years on the lease.

Still another way in which the retiree may view the matter involves dividing the initial investment of $100,000 by his twenty years of expected life which results in an equivalent of annual rental payments of $5,000 per year or $417. per month, still an amount for rent that is quite reasonable. Of course a person retiring when in their sixties doesn’t need a fifty five year lease as actuarial tables will testify. In 1994 the average life expectancy for all races was 72.3 years for men and 79 years for women. A Japanese male at age sixty can be expected to live another twenty years while a Japanese female has another twenty five years. In two or three years projections indicate that 21 percent of all Japanese households will be headed by members of the "silver generation" (people 65 years of age or over).

Still another approach would be to lease a house and lot for the life span of the retiree with no term mentioned, a period much less than fifty five years with the understanding that when it’s over – it’s over and there would be no residual for the heirs. The ideal situation, of course, is to buy a house and lot and not pay rent by owning it in fee simple – but that is not possible in the Commonwealth for people who are not of Northern Marianas decent. In conclusion, it was only a few years ago before the “bubble” burst in Japan that the average savings for all Japanese households equaled 1.5 times average annual earnings, Japan's skyrocketing land values in the late eighties made home ownership a distant dream for many.

At that time individual home ownership was so expensive that many faced the prospect of a mortgage that would have to be passed on to a child and perhaps even a grandchild for final payment. The recent banking difficulties in Japan changed all that to the point that those Japanese that financed their homes with bank loans borrowed when land and house values were high and now see the value of their home decline. This is forcing some into bankruptcy. I am told that the price of a home in Japan runs the equivalent of one million dollars or more, perhaps a million and one half and situated at a distance from Tokyo equal to a two hour commute one way.

A comfortable home in the Commonwealth can be acquired for far less. (1) Author’s note: It is unlikely that a house and lot suitable for marketing within an upscale retirement community could be leased for $100,000 – the figure is used in the example for conceptualization purposes only. If the investment was $200,000 just double the monetary figures indicated above.