If we had to guess, we’d say that probably close to one-half of our clients have moved to a new “home” of some kind after retirement. For some it was an easy decision, a financial one. They wanted to realize some of the equity in their city home. They may have purchased their home in the city 30 years ago and watched their property value increase many times over. Downsizing to a smaller home outside of the city, perhaps a cottage, or to a lower maintenance home like a condo, has enabled them to have extra capital available to produce extra income and improve their standard of living.
For others, selling the family home in retirement is more of a lifestyle decision. Perhaps they are interested in less maintenance and choose a condo, or they want to move away from the hustle and bustle of the city.
Is selling the family home for you? That’s a question that requires careful thought. It’s certainly not for everyone. In fact, even when downsizing, most retirees choose to live fairly close to where the family home was, or near other family members such as children. That makes it an easier decision. Why? Familiarity with the community and friends in the neighbourhood. Accessibility of services (like those of doctors and dentists) already being used. Future assistance from children or grandchildren.
The first question from a financial point of view is, do you NEED to move? Look at staying where you are versus moving somewhere else. Detail the cost of operating your current home, and investigate the expenses associated with a smaller home. Are you still ahead of the game? Not always. We know of people who sold a $500,000 house to move into a $500,000 condo apartment with a $500 monthly maintenance fee. Less work, but the condo fees were equal to or more than the cost of upkeep on the home.
Factor in the capital that will be freed up and invested to produce income. Assume that for every $100,000 left over after you change residences that you can create $4,000 of dividend income, less if you are conservative and invest in GICs and bonds. More if spending some capital is in your retirement income plan.
If it isn’t necessary to move for financial or health related reasons, then you’re in the driver’s seat. You can stay where you are or choose to live somewhere else when you are ready. Your decision will then likely be based on lifestyle factors. Do you enjoy the city and all that it offers? Or, do you prefer the quiet and solitude of living at the lake? Are your children and grandchildren spread around the country, or do they live near you?
Let’s look at living “somewhere else” because we all know the advantages and disadvantages of staying put. Common choices for downsizing might include one or more of the following:
1. moving to a condo apartment or townhouse.
2. moving to a smaller home.
3. moving to a less expensive location (eg. outside of Toronto or Vancouver).
4. moving somewhere you find more interesting (eg. Italy, France, New Zealand)
5. moving to somewhere where can you enjoy the outdoors (eg. your second home, cottage, cabin, or chalet).
6. moving to be closer to children or grandchildren.
7. renting instead of buying.
8. living in your RV or on your sailboat.
9. moving to a retirement community. (i.e. to find like-minded people and a range of activities).
10. moving to a retirement home.
All of these are alternatives should be carefully investigated before you pull up your roots. Living at the cottage in the middle of February might not seem as glamorous as it is in mid-summer. Quebec City might be a great place to vacation, but perhaps it isn’t your cup of tea on a permanent basis. Relocating to be near your oldest child and his/her grandchildren works out well until they are transferred to another part of the country. Or, you find that they’re so busy with their own lives, you still don’t see them any more frequently than before.
Be realistic about which one(s) will work best for you. Jot down the pros and cons as you see them. Talk to others who have made similar decisions. Test out your choice(s) before selling the family home. If you are thinking about moving out of the city, go visit that small town and check out the area, perhaps even rent for a month or two to get a feel for life there. Rent an RV for the summer. Live at the cottage during the winter. In a short time frame you’ll certainly find out whether it’s your cup of tea.
What factors should you consider if you plan to move to a new location? Here are just a few:
- Your health and the quality and proximity to health care.
- Availability of other services. We once owned a cottage that was 45-50 kms from the grocery store or pharmacy. You certainly had to think twice before making a run for milk.
- Cost of living. Compare what it’s costing you now with the potential cost of your new “home”.
the choice and affordability of housing.
- Your interests and talents (cultural, sports, hobbies, educational).
- Quality of life (safety, transportation system, weather, air and water quality).
Finally, make your decision to downsize based on an overall plan. Don’t sell only for financial reasons unless you understand the impact that the extra capital will have on your cash flow. Research your housing options. Enlist the help of a trusted realtor who can appraise and market your home. Speak to others who have made the same change. And above all, consult your CERTIFIED FINANCIAL PLANNER® professional at Polson Bourbonniere.