These days, with the costs of housing at or near all-time highs – as well as the cost of mortgages – it’s not that surprising that some folks consider their home to be their biggest asset.
Some experts recommend that people “downsize” in retirement – this means you sell your existing home, and then either buy a cheaper one with the proceeds, or rent. Save with SPP took a look around to see what the pros and cons for such a strategy might be.
At the Boomer & Echo blog, the pros of selling your existing home and “buying a newer, less expensive property” include reduced expenses and maintenance, and the possibility of having “money left over from the sale to invest.”
The new home will still appreciate in value, building your equity, the blog reports. You’ll have the ability to leverage the home’s value for a reverse mortgage, the home is an asset that can be left to heirs and “owning is more predictable – there’s no landlord to increase your rent or tell you to move.”
However, Boomer & Echo notes, there are downsides to downsizing too. Buying a new home with assets from a prior home means “your money is tied up.” If you move to a new town or city, you might be buying when prices are high. There can still be unexpected maintenance costs, and even if you don’t have a mortgage taxes and property insurance are still costs, the blog advises. Prices can go down in real estate, a risk, and if you do need to sell “you are at the mercy of realtors, buyers, and market conditions, plus selling takes time and effort,” the blog notes.
So what about renting?
The folks at Sun Life asked a couple of experts about the pluses and minuses of ditching home ownership and becoming a renter once you are retired.
In the Sun Life piece, real estate broker Marie-Hélène Ouellette notes that “the biggest difference (for renters) is in the level of responsibility and freedom. You’re obviously freer when renting since you can leave when your lease is up, and you have less responsibility because the owner takes care of the maintenance work.”
Another advantage of renting, the article notes, is that “you won’t have to pay any property taxes,” although the landlord’s property taxes are factored into your rent. Assuming that you have sold your home and are now renting, the renter will be able to invest the proceeds of the former property to generate retirement income, the article notes.
However, there are problems to be aware of when renting – particularly if you haven’t done it in a long time, the Sun Life article notes.
“Renters can also have less control than owners over things like decorating, repairs and renovations and even pets, and when you’ve been a homeowner for a long time, that’s not always an easy thing to handle,” the article advises.
If you’ve been mortgage free for a while, paying rent again may take some getting used to, the article notes, quoting financial planner and tax specialist Josée Jeffrey. She states that “while you can cover your rent with the proceeds from the sale of your house, you can expect your rent to increase over time, taking an ever-greater bite out of your savings.” Finally, she notes that if your money is essentially invested in your home, and you take it out to invest in the markets, you may run into unexpected volatility.
“A financial crisis can take a big bite out of your investments,” she tells Sun Life.
Both articles conclude by saying there is no single right answer – it all depends on you, as an individual. Be sure to seek out advice before you make this kind of big decision.
Those who have built up sufficient retirement income through a workplace pension plan or personal savings may have more flexibility in the choice of whether or not to leverage their homes in these ways. If you have access to a workplace pension plan, be sure to sign up for it and maximize your contributions. If you’re saving on your own for retirement, consider joining the Saskatchewan Pension Plan . They can efficiently and effectively grow your savings over time and can turn it into a lifetime income stream when you retire. That extra income will provide much needed extra security, no matter where retirement takes you.
|Written by Martin Biefer
|Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock. He and his wife live with their Shelties, Duncan and Phoebe, and cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22|