Retirement Showdown: Renting or Owning The Result May Surprise You!

Approaching retirement can bring a mix of feelings — excitement and a bit of stress. After handling work, family, and all sorts of responsibilities for many years, the idea of finally having the freedom to plan your own schedule is pretty appealing.

Imagine saying goodbye to the daily work hustle, no more crazy hours, and the chance to focus on what really matters to you. You enter a new phase where you get to decide how you spend your time. Sure, it involves some decisions, but the thought of creating a schedule that fits your preferences is exciting heading into retirement.

BUT! As you go through this transition, keep in mind that the excitement of having more freedom is ahead — does come with some major decisions.

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With the recent surge in inflation and the subsequent rise in interest rates, the essential cost of living has seen a significant increase. Your money isn’t stretching as far as it once did, and you might be questioning whether you’ve saved enough to truly relish your retirement years.

Running out of money is a genuine worry. Numerous retirees depend on an income, which could include government benefits, a company pension plan, and perhaps RRIFs or annuities. While some income sources are adjusted for inflation to cope with increasing costs, the fact remains that in retirement, you’re using up your savings rather than accumulating wealth as you did during your working years. No one wants to face a shortfall that might lead to adjusting retirement plans or, worse, financial insecurity. One question may cross your mind more often than not.

Should you sell your home?

As you step into retirement, one potential solution is to sell your home and opt for renting. While owning a home is often a long-term goal, it may not be a great fit for everyone in retirement, and we should explore the potential advantages of considering this strategy.

Real estate values in Canada have seen a slight decline due to higher mortgage rates lately, which has tempered the enthusiasm of potential buyers. However, if you’ve owned your home for several years or even decades, it’s likely that you’ve accumulated significant equity in the property, given the steady rise in housing prices over time.

Selling your home and opting to rent during retirement can unlock a substantial cash sum. A portion of this can be allocated towards day-to-day living expenses and discretionary pursuits, such as vacations, a new vehicle, or hobbies. Additionally, you might consider investing for the future. Collaborating with your Investment Advisor Portfolio Manager allows you to strategically distribute your funds across different investment products. The potential for asset growth through investing can be a well-established method to enhance the longevity of your finances during retirement.

Historically, the stock market has generally demonstrated higher returns over extended periods compared to real estate (as exemplified by one study). Thus, solely relying on the value of your home might not be the optimal choice for long-term growth. Diversifying your investments across a range of securities offers exposure to various sources of growth potential. This strategy can potentially mitigate overall risk, especially if one or more of your investments experiences a decline in value at a particular time.

Conversely, concentrating the majority of your assets solely in your home may expose you to a significant decline in wealth if the real estate market undergoes a downturn.

Three Other Benefits of Renting

1. Owning a home comes with a slew of expenses, including maintenance and repair costs, property taxes, insurance, utility bills, and various other outlays that can accumulate rapidly. The older your home, the higher these expenses may become. Moreover, as you age, the appeal of dealing with maintenance and repairs may diminish. Opting to rent shifts the responsibility for these matters to your landlord.
2. Property taxes tend to rise annually, posing a challenge to your retirement savings and cash flow. Selling your home offers a way to somewhat sidestep these property taxes, and the capital gains from the sale of your principal residence are usually tax-exempt, leaving you with more money in your pocket.
3. Beyond financial considerations, selling your home also affords you the flexibility to choose where you want to live. Whether it’s a desire for a warmer climate, proximity to children and grandchildren, or being close to parks and golf courses, selling provides the freedom to relocate to a location that suits your preferences. Additionally, it opens the door to downsizing from a larger house to a condo or apartment, offering a more carefree lifestyle with fewer hassles and responsibilities.

In The End

The retirement showdown between renting and owning is not merely a financial decision; it’s a lifestyle choice. Selling your home can be a gateway to newfound flexibility. As you navigate this pivotal juncture, consider the advice of your Investment Advisor Portfolio Manager, who can provide personalized guidance, helping to ensure that your retirement years are not just financially improved but also tailored to the lifestyle you envision. Embrace the possibilities, and embark on your retirement journey with confidence and purpose.

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We’ve assisted our clients through every stage of life. Even when you’re not aware that something might impact your financial future, it likely will to some extent. Engaging in a conversation with your investment advisor about any financial changes is an excellent approach to keeping your financial goals in focus.

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For more information or to connect with me, you can reach out via email at macekadmin@iaprivatewealth.ca or get to know me better by exploring my engaging video content on YouTube https://www.youtube.com/@joemacek.

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Don’t hesitate to reach out today at 1–888–324–4259 to discover more about how we can help you achieve your investment milestones.

Joe A. Macek, FMA, CIM, DMS, FCSI

Investment Advisor, Portfolio Manager

iA Private Wealth | iA Private Wealth USA

Toll Free North America: 1–888–324–4259

Email: macekadmin@iaprivatewealth.ca

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