â€œIdeally you should start to save for retirement the moment you get a job,â€ says Nat Busa, retirement income specialist at Canada Retirement Information Centre Inc. â€œThe more years that your money is working for you, the better.â€
There are several funding options available that will help ease the worry of financing your golden years. Canadians are entitled to receive government funds such as old age security (OAS) and guaranteed income supplement (GIS). Also, individual employers offer their employees pension plans (CPP).
Many people depend upon their RRSPs, which in most cases roll over into Retirement Income Funds (RIFs) or Locked-in Income Funds (LIFs), and are generally used to fund ongoing living expenses after retirement. Although itâ€™s possible to withdraw from your RRSPs before you retire, finance experts warn against it.
â€œWe wouldnâ€™t generally advise clients to cash in their RRSPs as they would be subject to the maximum tax penalties by the Canadian Revenue Agency,â€ says Helen Azevedo, manager of financial planning at RBC.
Investing in retirement
According to recent statistics, many people are purchasing a retirement home before they actually retire and then renting out that property until they are ready to live in it.
â€œThere are a number of Canadians who do buy their retirement homes earlier in anticipation of retirement,â€ says Azevedo. â€œInterest rates have been the lowest weâ€™ve seen in many years and carrying a mortgage seems more affordable and comfortable to maintain.â€
This influx is also because people have noticed that real estate prices continue to surge each year, no matter what the area. Purchasing a property before retirement could save them big bucks in the long run. Plus, the added benefits of a tenant covering the mortgage costs and increasing equity are not too shabby either.
However, coming up with the cash for a down payment to invest in this home could be a problem. If you wait until retirement to purchase a property, then the sale of your current home will provide the needed funds for your retirement home, but purchasing beforehand is a bit trickier.
Azevedo suggests setting up a monthly savings plan where you automatically put aside a set amount of money each pay, and this can be used later as a down payment. Historically, certain investment vehicles such as Mutual Funds generate a higher rate of return over time when compared to a Guaranteed Investment Certificate (GIC) or term deposits.
An equity loan is also a viable option. This type of loan is backed by your current property and the funds can then be used to purchase a retirement home.
â€œEquity loans can be a great way of securing low cost financing for a second home as long as the borrower has the ability to service the debt without putting themselves in financial risk,â€ says Michael Cameron, mortgage planner at Axion Mortgage.
Cameron warns that when youâ€™re nearing retirement you need to make sure your debt is structured as wisely as possible to minimize tax implications and take into account any estate planning considerations.
Another investment option is using a Home Equity Line of Credit (HELOC) against your existing home. When applying for a HELOC, it doesnâ€™t matter whether you have a mortgage on your primary residence or it is free and clear, as long as you have a fair amount of equity to either purchase or put a sizable down payment on the retirement property.
â€œBecause itâ€™s positioned as a line of credit, not a mortgage, it has an open term so you pay it off when you have extra cash or sell the existing home without penalty,â€ says Krista Rumberg, mortgage specialist at Integrity First Mortgage Solutions.
After sorting through the financial aspects of buying a retirement home, deciding where and what to buy comes next.
For once, you have the luxury of living where you want, and not having it depend on where you work. The world is truly yours to discover, although many people still do choose to reside close to their family and friends.
â€œWhen people start to think about retirement, they should consider the type of lifestyle they want to lead and how they want to address health issues in the future,â€ says Jane Udell-Jones, gerontology expert and marketing consultant at Kim Graham and Associates.
Due to the number of Baby Boomers in todayâ€™s population, builders have taken action and developed many active lifestyle communities across the nation to fit each individuals needs.
â€œBuilders are finding requests for amenities such as 36-inch doorways, ramps and lever door handles for those who want wheelchair access or are thinking ahead just in case,â€ says Mark Lummis, real estate agent at Sutton Group Professional Realty. â€œAdditionally, ensuite baths are a must, often with a whirlpool tub and stand up shower with a seat for easy access.â€
Itâ€™s also a great idea to downsize and de-clutter. Lummis recalls his clients who sold their large home of 30 plus years that included a lifetime of accumulated belongings and antiques. They scaled back to less than 1,400 square feet by liquidating the clutter in a huge yard sale, and kept what fit in their new place.
â€œRecently they told me that it was their best decision in years and fit perfectly with their health needs and upcoming retirement lifestyle,â€ he says. â€œSeniors often donâ€™t want all the worry of taking care of a large home with unused levels.â€
Popular spots in Canada
Where you decide to spend your retirement is completely in your hands. Something to take into consideration if youâ€™re planning on investing is that some areas wonâ€™t allow you to rent out a property thatâ€™s located in a retirement community, so be sure to check beforehand. There are some areas in Canada that are more sought after than others. Each of these cities offers something unique that will be sure to grab your attention.
With some of the mildest temperatures in Canada, Victoria offers retirees a way to stay warm throughout those frosty winters. Typically, wintertime highs and lows reach 8.2 and 3.6 degrees Celsius, and snowfall averages 26cm annually.
Also, Victoria provides easy transportation and is close to all amenities, says Scott Piercy, real estate agent at Sotheby's International Realty Canada. Residents can maintain their security of a smaller city, but have international travel hubs like Vancouver and Seattle at their fingertips.
James Bay, Fairfield and Gonzales make up the neighbourhoods where Baby Boomers and retirees flourish. â€œThe most popular properties are oceanfront and ocean view homes with entry level main floor living,â€ says Piercy. â€œCondominiums are also very popular because of the easy maintenance.â€
Detached bungalows in Victoria are $425,000 on average, and standard condominiums are $292,000 according to Royal LePage fourth quarter 2007 results.
Located in the southwestern area of the province, Stratford is a charming little city that offers retirees who enjoy culture and arts something special. Each year, tourists flock to Stratford for the Stratford Festival, a collection of contemporary plays with a focus on Shakespeare. For music lovers, Stratford hosts the Stratford Summer Music Festival and for art buffs, Stratford is home to the Gallery of Stratford.
â€œI think people are looking to retire in Stratford because itâ€™s such a pretty town with a great downtown area,â€ says Barbara Hiller-Thibeault, broker and owner at Royal LePage Hiller Realty. â€œAlso, itâ€™s a very touristy place, and weâ€™re close to all amenities and major cities.â€
The Stratford General Hospital is being constantly updated and developed, notes Hiller-Thibeault. Having a healthcare facility just minutes away is another reason that retirees choose Stratford.
The city offers gated community living for retirees. These are detached homes in a segregated area that offer special services such as lawn cutting.
Bungalows and condos are the number one choice among seniors due to convenience. â€œRetirees prefer property where they can live mostly on the main floor,â€ says Hiller-Thibeault. â€œThis way, things such as laundry are close at hand.â€
An average 2-bedroom bungalow is about $250,000. Condos tend to be slightly more expensive and start at about $300,000 according to Hiller-Thibeault.
Nova Scotia encompasses one of the highest percentages of senior citizens throughout the nation, and itâ€™s no wonder why. Halifaxâ€™s beautiful waterfront, abundance of amenities, friendly environment, and low prices attract retirees from all over.
â€œPeople looking to retire near the sea and enjoy a moderate climate can do so sooner here for less,â€ says Lummis. â€œSeniors can sell their home and move here with quite a lot of left over money in their pockets or just live mortgage free.â€
Condos tend to be the most sought after due to size and available amenities, and Summer Gardens is one of the most desirable buildings in the city. Primarily senior citizens, including doctors, judges and the former Premier of Nova Scotia, occupy the building. Also, Summer Gardens is walking distance to the regionâ€™s two main hospitals.
â€œAnother popular home style is the moderate 2-bedroom bungalow with open floor plans,â€ says Lummis. â€œSometimes this will include a third loft-style bedroom or bonus room for visitors and often a 2-car garage.â€
The average price of a condominium in the southwestern area of Halifax is $170,000, and for a detached bungalow is $235,000 according to Royal LePage fourth quarter 2007 results.
No matter where you buy your retirement property, the most important thing to remember is to stay active and involved with other people on a daily basis. â€œAgeing can be about loss and so itâ€™s important to maintain social interaction, to keep happy and positive in order to keep functioning,â€ advises Udell-Jones. â€œRetirement can be one of the best times of your life!â€
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Buck Lake, Picadilly, Palmarolle, Carmanville, Kaministiquia
After 40 years of hard work, there is nothing as enjoyable as retirement. But before settling into your recliner, consider whether or not youâ€™ve got the funds to live comfortably.