Retirement can sneak up on you and come faster than you had time to prepare for. You worked hard all your life and found it challenging to save. Life is expensive, the mortgage took a long time to pay down and the cost of providing for children and putting them through post-secondary education was high. Age 60 or 65 comes around fast and now what? You find out that the savings you have may not provide enough for the lifestyle you desire or are accustomed to.
What are your alternatives? Will you be required to continue working for several more years or will you take part-time employment throughout retirement? Will you need to downsize your home or relocate? You may have heard about reverse mortgages but you are not sure if this is a good idea.
I see a lot of these cases in my practice. This financial uncertainty will be the reality for many Canadians without a proper pension plan or who were not disciplined enough to save early and enough. Evaluating your options will be a challenging task requiring the help of a professional.
If your savings are really too low you may have to do a combination of some of the above-mentioned options. Fortunately, if you have a home in one of the major Canadian cities, you will likely have built up significant home equity. Downsizing is often the ideal quick fix. It will not only provide the capital needed to generate income but will also reduce your costs. A reverse mortgage is rarely a good idea especially in the early years of retirement. It is inflexible and costly. The future capital appreciation is partially lost for your estate.
If used responsibly, a Home Equity Line of Credit may be a better idea especially if the income short fall is low. If your needs are for a few thousand dollars a year for travelling for example and the interest rates are low, it will likely be ok for you to draw from your home equity. There are lines of credit nowadays which combine your chequing accounts with your home equity, allowing you to borrow only what you need when you need it and immediately see the outstanding balance decreased with each income flow. The interest costs are calculated daily saving you interest charges.
There is no “one size fits all”. Each case is different and requires careful calculations, conservative assumptions and periodic monitoring. Careful planning is essential for you to enjoy a comfortable and stress free retirement. Consider your options and let us help you in making the best decisions for the best chapter of your life!
Here is an article on the subject of Reverse Mortgages versus A Home Equity Line of Credit