THE UPSIDE OF DOWNSIZING
DENISE DEVEAU POSTMEDIA CONTENT WORKS
Betty Maclean says it’s time to downsize again. She went through the exercise once when she was widowed a decade ago. Now, at 85 years of age, she’s moving from her townhouse condominium to “just a plain old apartment” in Halifax, she says.
It’s all part of adapting to her lifestyle and needs. “I don’t need all the space. I don’t have as many comings and goings as I had in the past. And I don’t want to leave all this stuff to my kids to take care of. I want to get organized.”
Maclean is also facing some health issues, which may mean extra care costs. “I don’t know where that will go,” she says, “but I do know I can always leave an apartment easily if I need to. I think it’s best to move before you are forced to make the decision.”
Downsizing is something that many retirees and people approaching retirement consider at some point or another. Some may find they have too much space once the children are gone. For others, it’s a chance to free up resources to finance a more comfortable retirement — away from the upkeep and taxes that go with owning a property. Or perhaps it’s just a matter of making life simpler.
The key challenge is planning it right. Jason Kay, president and broker with My Mortgage Master in Toronto, says he is seeing a significant number of people downsizing their homes as they look to simplify their lifestyle or lower their cost of living.
“You may have a house that is free and clear, but it could still be costing you $1,500 a month when you calculate your utilities, property taxes and maintenance,” Kay says. “That’s a lot of money. With downsizing, you might be able to cut that amount in half.”
Gabrielle Loren, founding partner of Loren Nancke and Company, a Vancouver-based accounting firm, says she already has her downsizing plans in place. She and her husband will be moving into a new condo in the spring of 2019 as part of their early-retirement plan.
“It’s so hard to figure out when to downsize your house,” she says. “We figured three years out was a good plan. We’re not waiting until we get to the point we can no longer do stairs.”
The escalating real estate market in Vancouver has allowed them to build up sizable equity that could be put toward funding an early retirement. While she will miss her home, Loren says she will be glad to give up expenses such as gardening, cleaning and property taxes. “When I take away all the costs, including repairs and maintenance, it’s possible for us to get the condo we want.”
As an accountant, she is well-positioned to ask all the right questions about her decision. The first step, she says, is figuring out what you want to downsize to: “Do you want a townhouse, a condominium or a smaller home? What square footage would be comfortable for you?”
She also advises taking the time to check out prospective neighbourhoods before committing. “When we picked out a condo, we asked ourselves, Was this an area we could see ourselves spending time in?” In an ideal world, your choice should “hit all your wants,” including places to exercise, local restaurants, grocery stores and other amenities or necessities.
Once you pick the type of residence and location, the next question is, Can you afford it? “When we met with a realtor we were talking about downsizing and retiring at the same time,” Loren says. “So we had to work out what kind of income we needed to earn to make it all happen.”
Downsizing can often put substantial money in your pocket for reinvestment. So it’s important to have an investment plan that makes sense. Loren took the time to meet with a financial planner to look at expected returns and work out how long their funds would last if they didn’t earn any income moving forward.
When you do get the equity in hand, Kay advises talking to a financial planner first. “You may want to give a portion to your children to help them buy a home. Alternatively, a lot of people approaching retirement have hundreds of thousands of dollars in RRSP contribution room. They can maximize that with their equity and reduce their taxes. Some will also take advantage of RESPs for their grandchildren. Just make sure you understand the tax implications of your investment decisions.”
One final piece of advice: involve the family in the decision process, Kay says. “People can get too analytical and forget the emotional side, such as where your family and friends fit into the picture. Make sure everyone is on side and understands what is going on.” THIS STORY WAS CREATED BY CONTENT WORKS, POSTMEDIA’S COMMERCIAL CONTENT DIVISION, ON BEHALF OF TD RETIREMENT PORTFOLIOS.
Downsizing can often put substantial money in your pocket for reinvestment. So it’s important to have an investment plan that makes sense.