Downsizing for retirees

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Scott Boyd

June 13, 2019


There are many key milestones in life: that first job, marriage, the birth of a child – even retirement. These events all bring about changes, and can lead to lots of questions. For those actively saving and planning for retirement, these questions are typically along the lines of “how much money do I need to retire?”, and “what kind of lifestyle can I expect?”.

Another common question for recent retirees, and those preparing for their retirement, is what to do with the family home. For many retired “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. For those fortunate enough to be in a market that has seen substantial real estate gains, there’s a potential financial benefit as well.

Lifestyle considerations

If you’ve made the decision to downsize and sell your home, now's the time to consider what kind of retirement lifestyle you wish to have. Do you want to be part of the downtown action? If so, a condo in the heart of the city core might be the place for you.

Fancy a quieter retirement away from the hustle and bustle of the city? Smaller towns certainly have their charm for those who might enjoy a more relaxed pace, but you may also find that entertainment opportunities and public services are somewhat limited. There’s also no escaping the fact that as we age, we need more access to health care, so be sure that any smaller place you're considering can provide the health services you’ll likely need in the future.

Also keep in mind that if you relocate some distance from your current home, and depending on how spread out your family members are, it may be difficult to see children and grandchildren as often as you’d like. If your home has traditionally been the holiday gathering place, moving into a smaller home may also make it more difficult to host family get-togethers.

Easing the workload

One of the attractions for many who downsize is that a smaller property generally means less time and effort is required to maintain the yard. However, if you’re looking for the ultimate in low-maintenance, you might consider moving into an adult lifestyle community.

Unfortunately, planned communities catering to older adults are seen in a negative light by some people. These communities are designed specially for the active retiree, and typically offer a host of services including health and fitness centres, and other popular amenities.

In addition, these neighbourhoods often include additional security measures. Having a service that keeps an eye on your property is a tremendous benefit for those who plan to travel extensively, and is ideal for “snowbirds” who spend several months at a time outside Canada.

Cut the clutter

One downside to moving into a smaller home is that there'll be less space, and you may have no choice but to get rid of some of the items you’ve accumulated over the years. However, this may actually be a good thing, as this will give you chance to declutter and eliminate anything that you really don’t need. In fact, once you start packing you’ll likely be shocked by how much you’ve collected, and this is a great time to eliminate items.

This may be easier said than done, of course, as some things are certain to have sentimental value and hold special meaning for you. To help make this process a little easier, an entire industry now exists that is dedicated to decluttering , and helping you organize and make the most of your available storage space.

Financial benefits

As noted earlier, selling the family home and moving to a smaller house can also make good financial sense. For those that have experienced a considerable increase in their home’s value, money left over after purchasing your new home can help support your retirement years. Best of all, unlike other assets that appreciate over time, you will not be required to pay capital gains tax when you sell your current property.

Thanks to the Principal Residence Exemption (PRE), you can sell your home and pocket the proceeds of the sale with no tax implications. There are conditions, of course; the exemption is only applicable if you lived at the address the entire time the property was in your name. Also, if you claimed part of your home expenses as a business expense and received tax credits, you could be required to pay capital gains on that portion. Note as well that, in 2016, rules around the sale of your principal residence were changed and you are now required to record the sale of your home on your income tax return. You must also complete a compulsory form, and failure to do both could subject you to penalties.

This brief summary of the Principal Residence Exemption is informational only and is not intended to serve as tax advice. If you are selling your home and need more information, be sure to consult with a tax expert. You can also read more about the PRE at this Government of Canada website.

One additional benefit to downsizing is that 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 is more energy efficient.

You may not feel that this is an important consideration, but 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. Being able to save a bit on your heating and electricity usage will help reduce your overall expenses.