Home ownership has many virtues from a financial point of view, but it doesn’t take care of your retirement. For that, you need your own savings or a pension to layer on top of the Canada Pension Plan and Old Age Security.
The extent to which Canadians believe their home will pay for retirement was documented in a recent retirement survey commissioned by the Healthcare of Ontario Pension Plan, or HOOPP. Overall, 38 per cent of survey participants somewhat or strongly agreed with the idea that selling their home would set them up for retirement.
This idea seems far more entrenched among younger people. Among people aged 18 to 34, 56 per cent strongly or somewhat agreed that selling their house would take care of their retirement. It’s easy to see why Gen Z and millennials might see their house as a retirement plan. At their age, most of their financial energy is sucked up by their houses. Homes can be relied upon to rise in value over the years, so this burden seems worthwhile. In retirement, you just have to tap into all the home equity you’ve acquired.
Here are the flaws in this reasoning: The easiest ways to access equity in a home is through a home equity line of credit or a reverse mortgage, both of which carry hefty interest rates right now. Downsizing is another way to unlock home equity, but you have to move somewhere substantially cheaper and not spend a lot of money fixing it up.
Home equity can set you up for the latter stages of retirement – you could use a HELOC or reverse mortgage to pay for home care or sell your home and use the proceeds to cover the cost of a retirement or long-term care home. But you might spend 20 or 25 years in retirement until that point. This is the period of time when you’ll draw on money in your tax-free savings account, registered retirement savings plan and, if you’re fortunate, a company pension.
Home ownership can be a big part of your overall personal financial plan. But for retirement, you’ll need more.
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Rob’s personal finance reading list
Now is a terrible time to buy a new vehicle
Nobody can be happy with what’s happening in the auto industry these days. Shortages and supply chain glitches have resulted in a shortage of new vehicles for dealers to sell. There aren’t enough vehicles to satisfy demand from buyers, which means long waiting lists and high prices. If you can postpone buying, do it.
These renos add the most value
U.S. data on the renos that offer the best return on investment when it’s time to sell. Two themes emerge here – improving energy efficiency and curb appeal are great ways to upgrade your home.
Is investing your hobby?
Stop it, says an investment writer who worked on Wall Street. He makes a great point – being smart about investing and finance does not make you a good investor.
They don’t trust you
CBC reports that some Loblaws grocery stores have been asking customers to show a receipt on their way out. Classy way to treat customers who are shell-shocked by soaring grocery prices.
Ask Rob
Q: With the high cost of car loans, and with my mortgage term coming up, is it a good idea to pay cash for a car and put the cost on my mortgage? I understand my new mortgage cost will be higher than it is currently when I renew, but it will still be lower than a car finance rate.
A: I’m seeing dealer financing for new vehicles at rates of 5 to 8 per cent these days, which means it’s possible to get a lower rate with a mortgage. Fixed rate mortgages can be had at rates that are roughly in the 5 to 6 per cent range. The down side of putting your car on your mortgage is that you’ll pay off the car on the same schedule as you’ll pay off your home. How long is that going to take? It’s normal, unfortunately, that most car loans these days have terms of seven or more years. If you have a fair bit more time than that left on your mortgage, you could end up with a bigger interest bill than if you used conventional financing for a vehicle purchase.
Do you have a question for me? Send it my way. Sorry I can't answer every one personally. Questions and answers are edited for length and clarity.
Tools, explainers, guides and charts
A guide for seniors on travel medical insurance, including credit cards that provide some degree of coverage as part of their reward packages.
The Money-Free Zone
A list of highly anticipated summer reads, starting with a book that I’ll be reading as soon as it’s available. It’s Crook Manifesto, Colson Whitehead’s sequel to the great Harlem Shuffle. What a ride that book is – a crime story with social bite told by one today’s greatest writers.
ICYMI
What I’ve been writing about
- 5-per-cent GICs for people who prefer to deal with banks they know
- Oh, great. Unaffordable Toronto and Vancouver are ranked as top cities for young people to live and work in
- The stark reality of life in a high interest rate world, as told in four snapshots
More Rob Carrick and money coverage
Subscribe to Stress Test on Apple podcasts or Spotify. For more money stories, follow me on Instagram and Twitter, and join the discussion on my Facebook page. Millennial readers, join our Gen Y Money Facebook group.
Even more coverage from Rob Carrick:
- 🎧 Catch up on Stress Test: Why millennials and Gen Z are Alberta-bound for a more affordable life • Rising interest rates brought pain for new homeowners – and opportunity for house hunters • Why more Canadians are choosing to be child-free or delay parenthood • Love in the time of inflation: How to manage rising costs when dating • You’re not bad at money – you’re suffering from money shame • Retirement might look different for Gen Z and millennials. Here’s how to plan for it • Recession-beating tips for the job market, housing, investing and the cost of life • Is the middle class dead for millennials and Gen Z?
- ✔️ The housing file: A house isn’t special. Get your head straight about the reality of home ownership • The good, the sad and the unaffordable: Saving for a home down payment in Canada’s big cities • Property taxes are popping in some cities – how worried should you be about other tax hikes? • Our other real-estate problem – people have too much wealth tied up in houses • Borrowers and savers, here’s how to time the eventual rollback of interest rates
- 📈 Investing: Canada’s top digital broker is TD Direct Investing, with an assist from the TD Easy Trade app • 2023 Globe and Mail ETF buyer’s guide part one: Canadian equity ETFs • For the ultimate in cheap investing, check out the Freedom .08 ETF Portfolio • Yes, there is risk in Canadian bank deposits for the unwary and complacent • CDIC covers bank deposits, but who protects your investments if your broker goes bust? • Answers to your questions about the low-risk ETF paying almost 5% • Happy fifth birthday to one of the all-time best investing products for everyday people • An investing strategy that wins cleanly over the long term by outperforming in bad years like 2022
- 💰 Your money: Mortgage holders, savers and GIC investors, it’s time to change your thinking on interest rates • How much debt is each generation of Canadians carrying, and how do you compare? • For the sake of their financial futures, young people should leave Toronto and Vancouver • This practical new spin on a savings account might just peel you away from your big bank • Rental fraud grows amid rise in fake, falsified tenant applications • Are Canadians worse off financially now than in the 1980s? • From groceries to auto loans, here’s how much more it costs to live right now • When saving for retirement, should you change your asset mix over the course of your career? • Do retirement income needs always rise alongside inflation? Not necessarily • When the bank suggests you lock in your variable rate mortgage, it has an angle
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