Summer — the season for home sales — is here! With real estate prices continuing their rise, it may be tempting to see your home’s value as a potential source of retirement income. However, when supporting clients in planning for retirement, it’s generally not recommended to factor in a home’s value as a primary part of that plan. While some homeowners consider downsizing as a way of unlocking retirement funds and others may look to borrow against their homes, there are reasons to exercise caution in relying on home equity for retirement. Here are a handful:

You may not move — If you are planning to sell your home and downsize, there is a good chance you may eventually decide not to move. Recent reports suggest seniors are now less likely to sell their homes before age 85; the sales rate among those ages 75 or more has been trending downward since the 1990s.¹ This may not be surprising. Selling a lifelong home can be more emotionally difficult than many anticipate. Many seniors remain in their dwellings to stay close to family, friends or their community and to maintain their sense of independence. Some have instead chosen to “downsize from the inside,” using only a portion of their homes to reduce costs like heating.

Low housing supply — Even if you do plan on downsizing or renting, will you be able to find suitable accommodation? While selling a home in this market may be easy, finding a suitable replacement may be more challenging given low inventories, including rental properties.

Moving can be expensive — The costs associated with moving homes may be greater than anticipated: real estate fees, lawyers’ fees, land transfer tax, staging and other expenses can add up to be significant. There may also be other unanticipated expenses that come with a new dwelling, such as maintenance, renovations and, if you end up in a condo, monthly management fees. All of these costs can erode the net financial gain by downsizing.

Higher interest rates — Recent reports suggest that around 25 percent of retirees carry mortgages as individual wealth has shifted to real estate.² Many mortgage holders have seen mortgages reset at higher rates, leading to lower disposable income, especially for those on fixed incomes. While it’s possible to access home equity for retirement, consider that this has become more costly with rising rates. Reverse mortgages, although not common in Canada, may allow you to borrow against home equity (usually up to 55 percent) with minimal proof of income. Yet, reverse lenders charge very high rates and there are few large providers. More commonly, a home equity line of credit, often secured prior to retirement when income is high, allows you to draw on the line as needed and pay interest only on what you borrow.

These are just a handful of reasons to exercise caution when considering home equity for retirement. For a deeper discussion on this, or any other aspects of retirement planning, please call the office.

^{1. “Canadian seniors not downsizing, partly owing to lack of options,” S. Peesker, Globe & Mail, 02/12/24; 2. “Wealth tied up in real estate can hurt your retirement,” R. Carrick, Globe & Mail, 11/30/23, B10.}

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