Planning to retire on home equity?

Since the family home is often your largest asset, you might think that its equity could cover your future retirement expenses. However, this seemingly easy solution literally puts all your eggs in one basket, reducing financial diversification and peace of mind.

Home prices, interest rates and inflation can shift over time, making it difficult to predict the future value of your house and income potential.

Keep in mind that you will still need a place to live and will continue to face housing costs, thereby potentially minimizing what is actually available at that time. You may not relish the stress of moving or downsizing during your senior years. Also, if you still have a mortgage at retirement, this will reduce your available home equity.

Try to view your home as simply the roof over your head

For these reasons, it may be wise to avoid tapping into your home equity when you retire. Instead, try to view your home as simply the roof over your head. Then, you may wish to develop a financial plan that includes saving regularly for retirement through a registered retirement savings plan (RRSP) and tax-free savings account ( TFSA). A qualified financial advisor can help create a diversified portfolio that matches your risk tolerance and includes a mix of cash, guaranteed investments and mutual funds.

Your advisor can also identify ways to pay down your debt, with the goal of being mortgage-free by the time you retire. That way, you can continue to enjoy your home in the golden years, on your terms, without the worry of posting a “for sale” sign to pay for your retirement needs.