Should Your Home Also Be Your Retirement Plan?
Do you plan to sell your home to fund your retirement? If so, you’re not alone. A 2017 OSC poll found that 45% of Ontario homeowners aged 45 and older, who are still working, are relying on rising home prices to fund their retirements. Such a plan has risks. Among several factors you should consider is timing. For example, Albertan homeowners who were hoping to sell homes and retire last year would have been playing a waiting game, as oil prices weighed on house prices. That situation shouldn’t be considered unique, due to Canada’s cooling housing market in the face of tougher mortgage rules, foreign buyer taxes (B.C. and Ontario), and higher interest rates.
A tamer pricing environment is expected in 2018 and 2019, according to an RBC housing forecast report. The bank projects the increase in Canada’s housing prices to slow in 2019 and slow even further in 2020. Stress-testing on uninsured mortgages, effective this year, will have larger and longer-lasting dampening effects on resales than previously assumed, and most of the drop in sales will come from Ontario and B.C.
The headwind of rising rates is expected to leave the level of housing activity below the 10-year average in 2019. Rate hikes will make it even harder for first-time buyers to qualify for a mortgage and increasingly impact existing owners as well. Funding a retirement with a home assumes the home is paid off. Indebted households can include seniors: 66% of retirees carry credit card debt, and 20% still make mortgage payments, which shows that selling a home isn’t an option for some. How will retirees handle these payments when they don’t have the same cash flow as in their working years?
While a home can be a good investment for your future, it is no different than any other asset, and diversification is key. Relying solely on your home for your retirement plans can leave you short when the time comes. A complete plan should include a wide range of investments and risk management. Langlois Financial Services specializes in building, maintaining and reviewing complete financial plans. We strongly suggest reviewing investment plans annually.
If you have not reviewed your plan recently, please contact us to book an appointment.