FP Answers: Should I sell my house, invest the money and rent?

With a huge mortgage and strapped for cash, Rhonda, 59, plans to sell her home and retire in six years

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By Julie Cazzin with Janet Gray

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Q : I’m 59 and have a $300,000 mortgage on my townhouse, which is worth about $450,000. My net income is $3,800 per month and I plan to continue working for six more years. At that time, I will be eligible for full Canada Pension Plan (CPP) benefits. Right now I’m feeling strapped for money and I’m considering selling my house because I’ll never be able to pay off the mortgage. I just manage to break even from month to month. Should I seriously consider selling my house, renting it out and maybe investing the rest to have more retirement income? If so, how to invest this money? — Thank you, Rhonda P.

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FP responses : Your question is one that many future retirees are also asking. There is a saying – and you may have heard it – about being “rich in house but poor in money”, and this applies to many (if not most) people reaching retirement with the majority of their assets held in their home.

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You didn’t specify the amount of your expected retirement income, but it’s often less than what people received during their working years. There are several things to consider before deciding to sell.

First, can you reduce expenses further? Sometimes just cutting down on dining out, new clothes and haircuts, expensive transportation and vacations, and shopping around for more affordable home and auto insurance can save you thousands of dollars.

Can you work after 65? Maybe not in your current job, but somewhere where you can earn a little extra income. For example, some people take in boarders or rent out the basement or garage to help offset mortgage costs. Others will do a little tutoring or take on part-time jobs like walking their dog to help pay the bills.

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And, yes, some will sell their home in order to free up the equity in their biggest asset. Of course, selling your home may provide more choice once the real estate costs and the mortgage itself are paid off. It could make it possible to buy a more affordable house in a more affordable location. Or you might simply decide to move to a rental where your expenses (taxes, maintenance, utilities, and other costs) are minimal.

The first thing you need to do is get complete clarity on your situation. Prioritizing your goals and values ​​is the starting point. Staying at home is often an important goal for many retirees. If you find, on reflection, that this is what you want to do, then look for ways to stay where you are. As mentioned earlier, you may be able to split the house costs with someone. You may be able to start an independent business where you can deduct some of your home expenses as business expenses. You will pay less taxes and have more money in your pocket.

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These are all viable options to help you keep your home. After all, renting or buying/staying in a home is a lifestyle choice. You may find that a less expensive home where the upkeep is taken care of for you is a good option. In this case, a modest condo could help you maintain ownership, but minimize your retirement expenses. This might be an option to consider in your case, and after working out the numbers for such a scenario (vs. selling your home versus renting) it may provide some middle ground that would suit your style. lifestyle and your retirement goals.

Other options are also worth considering. For example, you may be able to delay receiving your CPP benefits after age 65. You could receive an additional 0.7% for each month carried over to age 70. by 42 percent.

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Similarly, you can also delay receiving Old Age Security (OAS) beyond age 65. You could receive 0.6% more per month until age 70, for a total additional benefit of 36%. Of course, you give up these benefits during the five-year period between age 65 and 70, so you want to be sure you can continue working or using your savings in the meantime.

You talked about retiring with a mortgage. It’s not an ideal situation for many, but your budget may be able to keep up with the payments quite easily given that mortgage rates are at record highs. Make an appointment with your mortgage lender to see if there are other borrowing terms that will suit your current and retirement income. They may be able to offer you a lower interest rate or extend the amortization period so the payments fit your budget. This would allow you to stay in your home for a few more years, so you could live in your home in a neighborhood where you might just feel right at home.

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Finally, calculate what your retirement expenses will be before you sell your house, buy a smaller space or choose to rent. If you plan to rent and invest the profits from the sale of your home at a reasonable rate of 4.5%, what income will that provide you annually until age 95? This will give you an idea of ​​what you can afford to rent and whether you should consider working longer.

Ultimately, if you decide to sell your home, you may want to consult a financial planner who can do the math and put together a financial plan to guide your finances over the years. You may also want to get some basic investment advice from a fee-for-service advisor so that any money you save for investment in the future is invested in a simple, inexpensive, and balanced portfolio. equities and fixed income securities.

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Remember that if you decide to sell, the money you make from the sale should last you 30 years. A good advisor will ensure that money is invested in the most efficient and tax-conservative way possible, while providing you with the extra income you need throughout retirement to live a comfortable life. and worry-free.

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Janet Gray is a fee-for-service certified financial planner and financial coach in Ottawa.

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