According to the Rob Carrick at the Globe and Mail Relying on your home to spit out cash is a recipe for disaster. With increased living expenses people have a lower percentage of their income to invest in their retirement, but increasing property values have led some to believe that their mortgage could be their retirement plan.
The average house price nationally in September was $277,470, which is about 50 per cent higher than it was five years ago. In cities like Toronto, Calgary and Vancouver, the average price was between roughly $350,000 and $527,000. It’s rapidly becoming clear that certain financial sacrifices are inevitable when you buy a home at those prices, and one of them may be putting enough away in a registered retirement savings plan.
The average price for a house in Canada is under $300k? Isn’t that quaint? With our high real estate values, I bet we all get to retire early! Unfortunately the article goes on to outline some of the reasons that housing is not the best bet for retirement planning:
Everyone loves the housing market during a boom — it’s no big deal as long as you regard your home primarily as a place to live. The harm is in getting grandiose ideas about how your home will help finance your retirement. In the Investors Group survey, 51 per cent of participants said they are relying on their home as one of their sources of retirement income. Among the baby boomers in the survey, 55 per cent said their home will be a source of funds in retirement (a total of 2,170 people participated in the survey, which was conducted last month).
The problem with using your home as a source of retirement income is that it’s a very inconvenient source of funds — you can’t take cash out unless you either sell or incur some debt through a home-equity line of credit or a reverse mortgage. “You have to be realistic,” Ms. Ammeter said. “The question to ask is, how are you going to realize on your investment in your home?”
Rent it out to the luge team for two weeks! Sell it to wealthy foreigners! Take out a giant home-equity loan and pass the debt on to your kids! I mean come on, it’s not rocket science, what with global warming I’m sure it will be quite comfortable to sleep in the parks year round in 10 or 20 years, so you sell the house and live for free in Stanley Park! If you hunt and trap squirrels for food you can probably live quite comfortably off the interest from your nest egg and have the confidence and joy that comes from being self-sufficient.