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moneysense.ca, 19/12/06
A Nest, Not A Nest Egg
I’ve been of the opinion that paying off the house is a big step towards retirement but many Canadians seem to think that it is the only step according to a recent survey. The survey, sponsored by RBC, found that while 12% of retirees are actually using their home as a source of retirement income, 34% of those who plan to retire in the future expect to do so. The really scary part is that more than half of those who plan to tap into their homes expect it to provide anywhere from 26% to 100% of their income in retirement.
How realistic is the plan to tap into home equity in retirement? Not very according to Robert Smith, financial advisor and author of Dollars From Change, who notes that he knows of one client in his fifteen years of experience who actually managed to downsize and use the proceeds to enhance their retirement income. Most people are left with very little after moving costs, land transfer taxes, decorating fees and an unwillingness to downsize to a home in a lower price range.
moneysense.ca, 19/12/06
“an unwillingness to downsize to a home in a lower price range”
I personally have seen this is the true killer for most people who plan to use their home for retirement funds. You can’t expect granite tile and a perfect paint job in your house when your downsizing. Also when you do fix it you have to keep in mind that your home is still an assest and you don’t want to invest too much of your downsizing cash into it.
CD
Those statistics explain the popularity of the reverse mortgages that Gordon Pape is now busy peddling. I always used to ask myself what moron would allow themselves to be taken in by these home equity loans? What they’re doing is essentially buying a futures contract on your house. They give you half of what your house is worth, then wait for interest to eat up the other half and then toss you out on the street.
What I think you’ll find is that people are tapping into the equity in their homes because they haven’t prepared for retirement. They worked and worked but spent just as fast. Now they own their home but have nothing to live off of in retirement. So they start pulling money out of the equity in their home to survive. I agree it’s a horrible idea and I’d never do it; I’d rather go back to work.
[...] Mr. Stanford may not have noticed but workplace pensions are going the way of the dodo, replaced either by defined contribution plans (for the lucky employees of a few big corporations) or none at all for the majority of Canadians. For many of us, our RRSPs, not our homes, are our pension plans and having one doesn’t have to mean lining Bay Street’s pockets at our expense. [...]
[...] prices trending upward year after year, a lot of investors fell into the trap of thinking of their home as an investment that could somehow be used to fund a retirement. The collapse of home prices in the United States is once again a reminder that homes are not [...]