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House rich, savings poor. What this means for retirement.

According to results from the most recent Manulife Bank Homeowner Debt Survey 26% of homeowners surveyed expect their home equity will make up more than 80% of their wealth at retirement.  A further 18% indicate home equity will make up between 61% and 80% of their wealth at retirement.

Many homeowners are spending most of their money on mortgage payments and living expenses while saving a disproportionately small amount for retirement outside of their home.

The research also indicates nearly half of Canadians aren’t prepared for emergency expenses.  About one quarter of the homeowners polled said they had less than $1,000 available to them if an emergency arose.  Furthermore, 38% of homeowners with mortgage debt indicated they have some difficulty affording their mortgage, utilities and home maintenance expenses on a regular basis.

It seems we have quite a few Canadians over-extended with mortgage payments and living expenses and living pay cheque to pay cheque without enough retirement savings or a cushion for emergencies. 

As a result some Canadian homeowners are heading into retirement house rich but savings poor.  Furthermore, fewer than 2 in 3 surveyed expect to be mortgage-free at retirement, which means on top of it, they will still be carrying mortgage debt into retirement too. 

House rich, savings poor, and still paying a mortgage.   What does this mean for your retirement?

Homeowners who are in this situation will need to re-think their retirement plans.  Having the majority of your assets tied up in your home creates a retirement lifestyle with less liquidity.  There are also continued living expenses and home upkeep costs to consider.

Here are some considerations:

Delay retirement

You may consider delaying your retirement date.  This will give you a few more years to focus on paying off your mortgage and saving additional funds for retirement.

Get a part time job

Another option is to work at a part time job in retirement to bring in the additional cash flow you need to stay in your home and cover any shortfall needed for your retirement living expenses.

Lower your standard of living

You may need to re-consider all of your living expenses and lower your standard of living.  Take a look at your budget and where you are spending your money.  What percentage of your expenses are fixed, and connected to your home and basic living needs and what percentage are discretionary?  Take out the discretionary costs and figure out if you can reduce your standard of living to this level or not.

Downsize your home

You can downsize your home.  This can be a tricky one but it’s possible.  As an example, a retiree with a home value of $400,000 could downsize to a home with a value of $250,000.  This would free up $150,000 in cash, lowering home expenses and creating liquidity.  Many retirees in recent years have tried this, some were successful and some were left frustrated.  Depending on your home value and amount of equity on your home it can sometimes be a challenge to find a true downsize that works for you.  With the high price of condos and smaller homes some retirees have found their downsize efforts had only a marginal effect on their finances.  In some cases they have trouble finding a home in their price range, or their ideal retirement home carried a higher ticket price than they were willing to pay.  They key is to put some future thought to this and figure out what an acceptable downsize would look like for you.

Borrow against your home

You can borrow against your home.  If you have a home equity line, you can gain some liquidity from using some of that equity for your lifestyle expenses.  A reverse mortgage also works on this basic premise.  This can be a good plan for some people but do so with caution.  Keep your eye on your balance and interest payments you are making.  Also keep a pulse on the market value of your property and make sure this strategy still makes good number sense as time goes on.  While this provides liquidity, it also removes a portion of the foundation of your security.  Monitor to make sure it continues to be a good fit for you.

Sell your home and rent

Some homeowners may think negatively about the idea of selling their home and renting, but in many cases this can make good sense.  It can even be liberating for some; especially if you are still carrying a mortgage.  Eliminating interest payments and home expenses helps free up money each month.  The equity from your home can be turned into a lifetime income for you.  There are many options available when doing this.  You can draw income from your principal as needed, or set up regular payments.  You can even guarantee income for your lifetime with an annuity if you like.  You will want to make sure your regular income payments (Canada Pension, Old Age Security, work pension, home equity income) are all sufficient to pay your rent and lifestyle expenses, and leave you with a nest egg for emergencies.

You can find more information on the Manulife Homeowner Debt survey summary here.

Video summaries from Rick Lunny, President and Chief Executive Officer, Manulife Bank of Canada:

Highlights of this year’s survey (approx. 1 minute)

What was most surprising about this year’s survey (approx. 1 minute)

What can Canadians do to better manage their debt (approx. 1 minute)

Photo credit: Pixabay


Time to grow up and get your finances in order

Letter to 20 year old me.  Choices and financial lessons.

Stephanie Farrow, B.A., CFP.,  Stephanie has over 20 years experience in the financial services industry, a diploma in Financial Planning from the Canadian Institute of Financial Planning and a Certified Financial Planner designation.  Stephanie has been writing financial planning columns for local business magazine Elgin This Month since 2010.  Stephanie and her husband Ken Farrow own Farrow Financial Services Inc.  About our Farrow Financial Team.

Visit us on Facebook, follow Stephanie on twitter @farrowfinancial or connect on LinkedIn


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