Many people dream of their retirement. Freedom to travel and spending more time on enjoyable hobbies and beloved grandkids are just a few of the reasons many of us are looking forward to those years.
But popular retirement advice would have you believe that there’s only one path: work long hours for most of your adult life and put all your extra money toward your mortgage and other debts, then move to a smaller residence and use the difference to fund your desired lifestyle. But is that really true?
We think it’s possible to maintain your current lifestyle in your home, while still being able to afford your ideal retirement.
Start by ignoring the following three popular retirement tips:
The truth is, Canadian home owners nearing retirement don’t want to downsize. Going through the time-consuming, stressful and expensive process of selling your home, only to buy a new, smaller property in an unfamiliar area is NOT the only way to access funds. A better way for some to tap into the equity of your home is by getting a reverse mortgage. A reverse mortgage allows you to access the equity in your home without moving. HomeEquity Bank can loan you up to 55% of the value of your home, either monthly or in a lump sum. The best part: the loan can be paid back from the proceeds of the home when you eventually decide to sell or move. Without having to make monthly payments, you’ll be able to free up cash flow and use them for renovations to make your home more suitable as you age — allowing you to live in comfortable and familiar surroundings for as long as possible.
2. Pay off your mortgage
Paying off the remainder of your mortgage for retirement sounds like solid advice, but it fails to take in account that it prevents you from investing in other ventures that could have a higher rate of return and reduces your cash flow. Instead of scrimping and saving to get rid of your mortgage, why not use the money you’ve already paid toward your mortgage to help you pay off the rest? Yes, it can be done! Let’s say you have a $500,000 home with an $80,000 mortgage remaining. Instead of allowing that $420,000 of equity to sit there, you can put it to work. By taking out a reverse mortgage of up to $231,000, you can use that cash to pay off your monthly mortgage and living expenses. With all these bills paid for, you’ll be able to spend your precious income and pension on more important things, like planning a getaway to Niagara Falls, taking your grandchildren to front-row seats at a baseball game or maybe even redecorating the living room.
3. Avoid all debt
Let’s face it, it’s almost impossible to enter your retirement years with zero debt in today’s day and age. Instead of working overtime and clipping coupons to pay off your debt, why not instead decide to handle debt smarter? One way to do this is to take out a loan with a lower interest rate, and use that to pay off your higher-interest loans. This way, not only will you be able to pay down your debt faster, you’ll have a lot less paperwork to deal with. One way to consolidate your debts is by getting a reverse mortgage on your home and taking the sum all at once. Since there are no conditions on how to use these funds, you can easily use the money to pay off your smaller debts at one time. Now you’ll only have one debt, likely at a much lower interest rate, that you don’t have to pay off until you sell your home. Imagine having no more credit card bills come to your door!
By rejecting these three popular retirement tips —downsizing, paying off your mortgage, and avoiding debt — you’ll actually be able to maintain, supplement or increase your desired lifestyle in your retirement, and you may still make money off the eventual sale of your home.