Is downsizing for retirement right for you?
As Canada’s baby boom generation moves into retirement, downsizing is becoming increasingly common in word and practice. Over the next few years, many of the country’s nine million boomers will be deciding whether to stay in their homes or transition to a smaller residence or relocate entirely to a new city, town or even to a new country.
Although downsizing may seem like a straightforward move, there are several factors to consider before actually doing it.
“Even if downsizing may be years away, it’s important not only to think about all of the factors that can affect your decision, but to maintain an open dialogue with your loved ones,” says Dr. Amy D’Aprix, a life transition expert with BMO Bank of Montreal. “Being proactive will help you remain in control rather than having to deal with an unexpected move when you’re not prepared.”
A recent BMO Retirement Institute report found that an overwhelming majority of Canadians 45 and older plan to stay in Canada when they retire. The main motivators for staying in the country were weather, finances and family considerations in that order.
One of the first considerations in deciding whether to downsize or move is your health.
“Although health matters are hard to predict, it’s important to think about what you might need to do if your health status changes in the upcoming years,” D’Aprix says. “Could you retrofit your current home? Where might you consider living if your current home no longer makes sense? And would you feel comfortable receiving professional assistance in your home.”
Selling the family home could result in a financial windfall that could be used to finance the purchase of more modest accommodations or be invested for returns to supplement existing retirement income.
“Emotional attachment aside, a house is more than a financial asset,” says Jack Courtney, assistance vice-president, advanced financial planning, with Investors Group. “It can be an income generator paving the way to retirement in many ways.”
Options could include renting out rooms or space that you no longer need, selling your home and downsizing to a smaller one or a condominium or townhouse, or taking out a reverse mortgage, which allows you to obtain cash and staying in your home until you die or decide to sell.
You may want to move to where your children are, but it’s important to remember that they might move. So ask yourself whether you’d want to uproot yourself every few years?
A smaller home is generally easier to maintain with lower costs and taxes, but the capital you put into it might be more profitable if it was put into investments that increase your income flow.
“Condos are appealing for those with health concerns because they are low in maintenance and easier to navigate, and travel buffs might opt for rental accommodation with no worries about home security when leaving town,” Courtney notes.
Laura Parsons, a mortgage expert with BMO, says downsizers need to consider many financial factors, including costs related to property maintenance and the possibility of renovations to adapt to changes in lifestyle.
“Many boomers heading into their retirement years may be looking for the lockand-leave lifestyle,” Parson says. “But with convenience comes significant cost considerations, including maintenance, general upkeep and repairs – important factors for preparing yourself financially.”
BMO suggests you make a list of the items you consider to be important in your current and future lifestyle and which of those you want to maintain in your retirement. Assess where your social network is and whether your move will affect it.
Then examine your financial situation and the costs involved in staying put or moving, think about possible next steps and how they will affect you, keep the lines of communication open with loved ones and determine how important it is that the home remains in the family.
“Finances are necessarily the determining factor in making this important decision,” says Courtney.
“Lifestyle considerations are equally important. Examining your goals and the range of possibilities will aid the decision-making process.”
Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors.