Rightsizing your retirement home
One of the factors shaping Canada’s future is that we have an aging population. Since 1960, the percentage of seniors has increased from 8% of the population to 14% in 2010 and is expected to reach 25% by 2036. This will raise the country’s national median age to 45 years of age. This is expected to have wide-ranging impacts on Canada in the coming years particularly for housing needs.
For many people approaching their retirement years, and who are still living in the home in which they raised their family, one of the things to think about is how to deal with the family home. For the majority of “empty nesters”, there’s little need to continue to maintain a large home, and moving to a smaller, easier-to-maintain home can result in substantial savings.
Downsizing and lifestyle considerations
Selling your home is a major undertaking that comes with many considerations including taking a realistic look at your future needs and financial situation. For instance, if you enjoy a downtown lifestyle with lots of activity, a condo in the centre of the city core might be an ideal arrangement. You won’t have to worry about looking after a large yard and you’ll never have to lift a snow shovel ever again.
Of course, you are paying for these conveniences through your condo fees and, depending on your location, condo fees can represent a significant cost each month. There is also the very real possibility of an increase in your monthly fee as fees are controlled and managed by a board comprised of condo owners in the building. You may also be required to contribute to repair and maintenance costs for common areas shared by all condo owners.
For those looking for a quieter lifestyle, smaller cities and towns can provide a nice alternative to big city life. There may be a trade-off, however, as some of the amenities including entertainment and restaurant options may be less plentiful.
Keep in mind also that access to medical services may also be limited when you travel outside a major city. This could be a concern as medical care needs tend to increase as you age.
For those fortunate enough to be in a market that has seen substantial real estate gains, there could be a considerable financial benefit to downsizing, particularly if you’re looking to move to an area where real estate prices have not increased at the same rate as many of the larger cities. If you can move into a smaller, less expensive home, the money you have leftover could even help fund your retirement.
Thanks to the Principal Residence Exemption (PRE) the money you earn from the sale of your home is exempt from tax. There are conditions, of course as the full exemption amount is only applicable if you have lived at the address the entire time the property was in your name.
Downsizing to a smaller home may also lower your monthly expenses as it generally costs less to heat and cool a smaller home. This does depend somewhat on how well your home is insulated and the efficiency rating of your heating and cooling systems, but all else being equal, a smaller home will require less energy to maintain a comfortable environment.
Keep in mind that you’ll likely be spending more time in your home during the day than you did when you were still working. With time of use energy costs in effect in many places in Canada, energy costs are at their highest during the day so being able to save a bit on your heating and electricity usage will add up over time and help reduce your overall expenses.
Setting aside the lifestyle and financial considerations that come with selling your home and relocating, it’s important to also think about the social changes that this could mean for you. For instance, you may be moving away from a circle of friends that you have known for years; even other seemingly trivial relationships such as your hairdresser or garage service advisor, may all change as well and these losses could, at first, be quite unsettling.
There’s a lot to look at when thinking of a major life event such as selling your home. But by taking all these things we’ve discussed here into consideration, you can plan the best way to “right size” your home to help you make the most of your retirement.
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