Using Your Home to Fund Retirement

Using Your Home to Fund Your Retirement Using Your Home to Fund Retirement
Using Your Home to Fund Your Retirement

More Canadians are planning to use their home to fund their retirement and rightly so. Many people have the majority of their net worth in their homes. Being equity rich and cash poor is common. Over time our housing needs change and your 2 story, 4 bedroom house may simply be too much house for your current needs.

There are several different ways to access the equity in your home to produce income. If you want to stay in your home but need income, consider a reverse mortgage. Depending on your age, you can access between 10-50% of your home’s equity. The minimum age to qualify is 55 and the older you are, the more equity you can access. You can borrow a lump sum amount or set it up to pay a monthly income. You do not have to make any payments and the mortgage doesn’t have to be paid until you die or sell the home.

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Another option would be a sale and leaseback arrangement. If you want to keep the home in the family but either can’t afford the property or need to access your equity you could sell it to one of your adult children and simply rent it back from them. This allows you to access all your equity while eliminating the costs of mortgage payments, property tax, and maintenance. You simply pay a set rent each month. You can then invest the equity to produce a monthly income.

If selling to a family member isn’t an option, then selling it to someone else is a third option. This would allow you to buy a smaller home, a condo or move to an apartment. Once the home is sold and you have received your equity you have many different options to invest the money to produce an income. While you should consult a trusted financial planner about investing the money, here are some options to generate income and lower taxes.

Top up your RRSP

If you or your spouse are under 71 and have an unused room in your RRSP you could contribute each year until you turn 71. This lowers your taxable income for each of those years.

Top up your Tax-Free Savings Account

You can immediately put as much as $52,000 per person into a TFSA and subsequently add an additional $5,500 per person per year going forward. TFSA won’t initially generate a tax deduction like an RRSP, but all interest earned is tax-free.

Purchase an Annuity

You can take a lump sum of money and purchase an annuity which will then pay you a monthly, quarterly, or annual income for either life or a set term (until age 90). This will give you a secure predictable income stream. There is also an option to have a beneficiary get a payout should you pass away before the end of the term. If you choose a life annuity you don’t have to worry about outliving your retirement income. If you purchase an annuity at age 71 when you are collapsing your RRSP, it defers income tax because you only pay tax as you receive the income.

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Looking to sell your home? Give me a call today. When you are buying or selling a home, don’t waste time. Give me a call for experience, market knowledge, correct pricing, and a sincere interest in helping you fulfill your real estate goals. If you are ready to sell your home for maximum value, the best place to start is by clicking here and scheduling an appointment.

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 Using Your Home to Fund RetirementRoy Thomas SRES® (Senior’s Real Estate Specialist) is a REALTOR® with Sutton Group Professional Realty. Since 1991 Roy specializes in helping retirees with their later in life real estate transactions. If you are contemplating a move and would like a complimentary copy of Roy’s guide to downsizing entitled “Preparing to Downsize” please click here