Funding your retirement using your home

According to an OSC Investor Office survey, nearly half of pre-retired Ontario homeowners age 45 and over are relying on the value of their home increasing to fund their retirement.

It’s easy to see why—a home is the most valuable assetAsset Something of value that a company or an individual owns or controls. Examples: buildings, equipment, property, a car, investments, or cash. Can also include patents, trademarks and other forms of intellectual property.+ read full definition many households own, and if you purchased a home before the recent housing boom, you’ve likely earned a significant return on your investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition so far.

But owning a home isn’t a substitute for planning for retirement. There are some important questions you still need to think through to gauge how close you are to being financially prepared for retirement.

1. How Much Would I Need to Retire?

How much you need to save for retirement depends on, among other things:

  • Your age – When you start saving makes a big difference in how much you need to put away. The younger you are when you start, the less money you have to put aside, thanks to the power of compoundingCompounding A way to grow your money faster. Instead of spending the money you make investing, you reinvest it so it can grow.+ read full definition. Use our compound interest calculator to see how much you could save over time.
  • Your lifestyle – Do you plan to stay home or travel the world? The amount you’ll need to save will depend on the life you plan to lead when you retire.
  • Federal government benefits – You could be entitled to government retirement benefits like the Canada PensionPension A steady income you get after you retire. Some pensions pay you a fixed amount for life. Others save up money for you while you are working. You use that money to create income after you retire.+ read full definition Plan (CPP), Old Age SecurityOld age security Canada’s largest public pension program. You qualify if you are age 65 and you have lived in Canada for at least 10 years after age 18. You may pay tax on your OAS income.+ read full definition (OASOAS See Old age security.+ read full definition) and the Guaranteed Income Supplement (GIS)Guaranteed income supplement (GIS) Extra money from the government for people with low¬ incomes who get Old Age Security. What you get depends on your income or your joint income if you have a spouse or common-law partner. GIS is not taxable.+ read full definition. If you’re eligible for income from these government programs, you might not have to save as much. Learn more about these benefits.

According to Statistics Canada’s Survey of Household Spending, households 65 or older spent an average of $55,090 in 2015—about 53% of the average amount spent by households aged 40-54 in that year.

Learn more about maximizing your savings for retirement.

2. How Much Could My Home Be Worth When I Retire?

When estimating how much your home could be worth when you retire, it’s important to be conservative:

  • A House is an Asset, and Assets Come with Risk. Just like the prices of stocks, bonds, ETFs and mutual funds, home prices will fluctuate depending on market conditions. While house prices in some areas of Canada have increased significantly in recent years, there can be no guarantee that these trends will continue.

TipTip The sharing of important information about a company not known to the public.+ read full definition: One way to help minimize risk is by diversifying—holding a mix of investments with prices that don’t always move in the same direction. If you diversify, you’re less likely to lose a large portion of the money you’ve invested just because one part of the market isn’t doing well. Learn more about diversificationDiversification A way of spreading investment risk by by choosing a mix of investments. The idea is that some investments will do well at times when others are not.+ read full definition.

  • Take Emotion out of the Equation. For most of us, a house isn’t just a financial investment, it’s an emotional one. Our emotions can cloud our financial judgment by leading us to overestimate the value of our homes and be overconfident about how much we’d be able to sell our homes for on the market. To reach sound judgments about the role a home can play in supporting retirement, it’s important to take emotion out of the equation.

Learn more about assessing the value of your home.

3. How Will I Unlock the EquityEquity Two meanings: 1. The part of investment you have paid for in cash. Example: you may have equity in a home or a business. 2. Investments in the stock market. Example: equity mutual funds.+ read full definition in My Home?

  • Option 1: Downsize. One way to unlock equity is to “downsize” by selling your current home and moving into a smaller space. It’s important to think about whether you would be comfortable selling your home in retirement, and, if so, to think about how much it might cost to buy a downsized home in the area(s) you might want to live in. It’s also important to take into accountAccount An agreement you make with a financial institution to handle your money. You can set up an account for depositing and withdrawing, earning interest, borrowing, investing, etc.+ read full definition the closing fees and other costs that come with selling a home.
  • Option 2: Borrow Against Your Home. There are several optionsOptions An investment that gives you the right to buy or sell it at a set price by a set date. The buy right is termed a “call” option, and the sell right is termed a “put” option. You buy options on a stock exchange.+ read full definition for borrowing against your home, including a reverse mortgage. In a reverse mortgageMortgage A loan that you get to pay for a home or other property. Often the loan is for 20 years or more. You make a set number of payments for a set amount each year.+ read full definition, you can in most cases borrow between 10% and 40% of your home’s value, depending on what your home is worth, your age and interest rates. Borrowing against your home lets you free up equity without having to move, and may come with certain taxTax A fee the government charges on income, property, and sales. The money goes to finance government programs and other costs.+ read full definition advantages. However, you will need to pay appraisalAppraisal An evaluation of what your home or other property is worth today. Most often done by someone who is an expert or is certified by an organization or the government. The Appraisal Institute of Canada is one organization that designates individuals.+ read full definition and other fees, and the amount borrowed will accumulate interest.

It’s also important to do your due diligence when choosing a loanLoan An agreement to borrow money for a set period of time. You agree to pay back the full amount, plus interest, by a set date.+ read full definition provider—recently, a number of frauds and scams have targeted Canadians looking to borrow against their homes. Learn more about protecting against fraud

4. Okay, I Get it—I Need a Plan. Where Do I Go For Help? offers a number of resources that can help you learn more about planning for retirement and about how different savings and investing tools can help you meet your goals. Family and friends can be another helpful source of guidance on saving, investing, and planning for retirement. In addition, many people work with a financial advisor on their retirement plan—learn more about finding and working with an advisor.

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