Wednesday, 26 September 2018


Retirees often get generic advice to downsize their home when their kids have moved out, as a way to free up some cash. In many cases, if you have owned your home for more than 20 years and have no outstanding mortgage, you do stand to make a huge profit.  But there are financial challenges that many seniors face when downsizing that can end up costing them more than they anticipated.
A new survey* of Canadians 55 and older by Ipsos commissioned by Home Equity Bank, finds 27 per cent of those who downsized say “the costs were more than they expected.” Another 4 in 10 who are thinking of downsizing say they are sceptical
about the savings.  Here are the financial pitfalls to consider when downsizing.

Real estate fees
When you sell your property expect to pay a number of fees and taxes. This includes a real estate commission that can be as high at 4 per cent for your agent, land transfer taxes when you buy your new home and general moving costs. If you’re downsizing to Toronto you will pay two land transfer taxes one to the city and one to the province. In many cases, this is tens of thousands of dollars to consider before you make the decision to downsize.  Consider how you could use that same amount of money to retrofit your home to make it more accessible and easier to continue living in.

Spending habits
Moving into a smaller home does mean your utility costs and maintenance costs will go down.
But if your spending habits remain the same you may find you’re not left with an extra money at the end of the month.  Monthly expenditures like groceries, travel, transportation and entertaining can take up a big chunk of your budget. Estimates of how much it costs to live in retirement run all the way from 40 per cent of what you spent when you were working to as high as 80 per cent. According to a recent CIBC poll called “Am I saving enough to retire? The vast majority of Canadians just don't know,” the magic number of what we need to retire is $756,000. That is how much it will cost to live a basic retirement life in Canada.  That same report finds Canadians have saved only $184,000.  Even selling your home may not raise the capital you need to have the retirement you desire.

Diminished income options
Often when seniors are downsizing they are moving from a large family home where they raised their kids into a condominium or smaller bungalow. This means the whole house will be occupied by you. With no extra space that you could use to create income. In a larger home, there may be an option to rent out a portion to tenants, you could create an income suite or use sites like Air BnB or HomeAway for short-term rentals. This can bring in extra income and save you the hassle of moving.

Medical services
Older Canadians have more health care needs.  The latest number from the Canadian Institute of Health Information shows the share of health expenditure spent on Canadians age 65 and older is and is 46 per cent and seniors make up only 16.1 per cent of the population. If you’re downsizing away from your family doctor or other key health services, this will mean you will be spending more time and money getting the health care you need.  Calculate the cost to go to and from your doctor on a regular basis.

After selling the family home you could see your account, for example, balloon from a few hundred dollars to several hundred thousands of dollars. Having such a large sum of money can create the temptation to spend. After all, we’re only human. By inflating your spending on everyday items you can burn through that money very quickly. Have a plan to invest it properly so it will last you throughout retirement.
Finally, timing is everything. Don’t wait too long to downsize and have to do it in a hurry, last-minute decisions often cost more. For many downsizing can be a good move if you plan properly for a long retirement, but for others staying put make more sense

*HomeEquity Bank reached out to over 2,500 older adults in Canada (aged 55+), among which 1,870 are homeowners, in August 2018, through an omnibus survey, completed by IPSOS.
IPSOS Research Details. The poll is accurate to within +/ - 3 percentage points, 19 times out of 20.

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