Canadians are living longer, which can mean funding a retirement that lasts decades. Surveys show that as people age, they also want to remain in their comfortable family homes and familiar neighbourhoods as long as possible.
Both of those realities can create a conundrum for clients. They don’t want to have to liquidate some retirement assets in down markets, take a large tax hit when tapping into certain income sources, or grudgingly downsize in order to unlock the equity built in their homes.
Fortunately, they don’t have to. There’s a way for clients to turn their homes, which are often their biggest assets, into a steady tax-free stream of funds to supplement retirement income. “This money is theirs, available to use, making their home an active asset,” says Theo Kyriakopoulos, director of mortgage products at Manulife Bank.
Can your clients live solely off their RRSPs, TFSAs, and non-registered savings in retirement? It’s time to look at real estate as a key component of their retirement income.
People can’t sell just a portion of their home, so they don’t tend to think of real estate as an asset that can help deliver consistent retirement income. Yet with a Manulife One account, clients can unlock (up to 65%) of the equity in their homes.
They can use the cash from their home to cover ongoing expenses, unforeseen ones such as home repairs, renovations needed to stay in place, or any other purpose. It’s a quick way for clients to access tax-free cash, and help extend the life of all their other investment assets.
The money removed through home income withdrawals is considered a “good debt” – it’s tax-free equity the clients have earned and built through years of home ownership.
Unlike Management Expenses Ratios (MERs) charged to their entire investment portfolio, the cost they incur here is the interest charged on the outstanding balance in addition to the monthly account fee, if applicable.
“This can help provide a great cash flow solution, and can make real estate part of a fully diversified plan,” says Kyriakopoulos. When the home is eventually sold, any outstanding debt is repaid, and the rest is paid out tax-free to the client, if it’s the primary residence.
The more that clients tap into the equity of their homes, the less they need to draw down from other sources of potentially taxable income. For example, a $25,000 withdrawal from a RRIF might incur $6,000 in tax, and a lost opportunity cost of almost $15,000 (4% growth for 10 years). In contrast, the same $25,000 in home equity using Manulife One would be tax-free and incur only $1,000 in annual interest. And, any money going back into a Manulife One account offsets the money withdrawn against the equity.
You can be a valuable resource by letting your clients know that their market assets actually have more time to grow. Because once withdrawn, any money from other investments can no longer produce future income.
Even if you know Manulife One, you may not be aware that it also offers a good lending solution to clients for retirement. This option is much less costly than a reverse mortgage, and is more flexible than a HELOC (home equity line of credit), which is still a separate product.
“Manulife One is an all-encompassing banking solution and, for home-owning retirees, is a retirement income tool that offers easy access to their own accumulated wealth,” says Kyriakopoulos.
For advisors, discussing this option with clients can make sense 10 to 15 years before they plan to retire. But it’s worth a conversation at any stage, pre- and post-retirement.
Over time, using Manulife One for retirement can evolve. It can be a retirement income buffer, a tool that offers the luxury of time to review the financial plan to make the best decision, and a cash flow safety net.
It can also be a wealth transfer vehicle, whereby clients can make gifts to their children and grandchildren using any portion of their equity. That enables people to see and enjoy the impact of their gifts while they’re still around.
Clients shouldn’t look at this option as taking on more debt. Instead, they should think differently about how to potentially make their full range of assets work for them.
Kyriakopoulos notes that, in retirement, people tend to consolidate advice channels and assets. Other financial institutions would love the chance to poach that business. Manulife One is a versatile product that can support your clients into and through retirement. By referring Manulife One to your clients in retirement, you can help better meet their income needs and increase client loyalty.
“By helping your clients to take a holistic look at their retirement income options, unlock their home equity, and have a solid banking solution,” says Kyriakopoulos, “you can help protect and strengthen the full financial relationship.”
Learn more about the benefits of Manulife One for retirement.