Your Home and Retirement Planning

Due to the rise in home prices over the last few years, many people consider their homes an important part of their financial planning. However, to temper this inflated optimism, it's good to remember a few "home truths" if you want to be truly financially autonomous when you retire.

The ABCs of Financial Planning, Your Home, and You

  • The success of any retirement strategy depends on a well-diversified portfolio. Don't let your home take up too much of your budget.

  • If you're looking for a larger, more expensive house, it should be because you want more comfort or more room—not because you hope to turn a profit when you sell it.

  • Whatever type of home you live in, housing always comes with a price. For instance, the number one expense you incur with a $300,000 single-family home is not your mortgage and taxes, but rather the opportunity cost, or "shadow price." Invested at a rate of 4%, that amount would bring in $12,000 a year or $1,000 a month.

    As retirement approaches—and even more so after retirement—you should pay particular attention to the "shadow cost" if you're trying to make your expenses fit your income.

  • The closer you are to retirement, the more highly recommended it is to pay back your main debts, including your mortgage.

  • Do not remortgage before you retire. The repercussions could be serious if interest rates rise and prices fall, which would take a big bite out of your main asset.

  • Once you've accounted for your needs and desired quality of life, keep your housing costs as reasonable as possible.

Taxes and Your Primary Residence

Since 1982, families have only been able to declare one primary residence at a time. The word "family" is defined as the taxpayer, his or her spouse, and any unmarried children under the age of 18. Contrary to popular belief, your primary residence does not have to be the house where you spend the most time or the one where you receive your mail. Generally, this residence should be inhabited by you, your spouse, or your children. Your primary residence could be a house, a cottage, or an apartment.

As Retirement Approaches—Should you Keep or Sell Your Home?

Each situation is unique, so there is no "one-size-fits-all" rule. You may want to move into a smaller home, or you might prefer to rent. Whatever you decide, it's important to plan your budget accurately. Consider the following:

  • Your health and your spouse's health
  • Whether you wish to move closer to your children
  • How close services are (doctor, home help, supermarket, government services, etc.)
  • Your current financial situation and your estimated finances at retirement
  • Whether you want a safer living environment
  • The location of your home—If you're a "snowbird" with a secondary residence in the U.S. you may be subject to American taxes if you sell, in which case we strongly recommend you draw up a will in English in accordance with American laws.

To find out more about the options available to you, we recommend meeting with a financial planner or tax expert.

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