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Retirement PlanningThe Downsizing Myth


This article was reviewed by Jay Brecknell, CFP®.

The Myth

Did you know that the World Health Organization (WHO) recently reported our global average life expectancy increased by 5.5 years between 2000 and 2016? This is the fastest increase since the 1960’s. When compiling retirement plans for our clients, we now use age 95 as the factor for both men and women. This means your retirement could last 30 years or longer! Does that seem excessive to you? Perhaps, but we would rather plan with longevity in mind since running out of money in your old age is not usually a desirable outcome.

When wondering if they have enough money saved to last through retirement, often there is a thought in the back of people’s minds linked to the booming real estate market here in BC. It’s the idea of selling the family home and downsizing if money starts to get tight. But is it true that this is a good strategy to access some excess cash, or is it actually a myth?

Unanticipated costs associated with downsizing

People usually start with a purchase price in mind for a property they would be willing to downsize to, then start working with a realtor. While it is common to start looking at homes in that price range, it’s easy to go a little higher, and then even a little higher. Before you know it, you’ve fallen in love with a home that is only slightly less expensive than your current home.

Plus, moving typically costs more than you anticipate. It is easy to forget all of the little modifications and additions you’ve made over the years, not to mention furniture and other necessary purchases needed to make a house your home.

Another common misconception is that home expenses (e.g. maintenance, heating, etc.) will be lower in a smaller home.  And don’t forget strata fees can average anywhere from $250-$600 per month in addition to regular items you’ll still be responsible for such as property taxes, home insurance, hot water tank or furnace replacement, etc.

Despite these potential pitfalls, it is true that sometimes the end result can be a substantial amount of cash earmarked for retirement savings. Just be aware, it is more likely that it will be less than you had hoped for.

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