Canadians rely on property to fund retirements

By Staff | November 1, 2012 | Last updated on November 1, 2012
2 min read

Forget Caribbean cruises or golfing vacations in Dubai, most Canadians saving for retirement are aiming for a comfortable life when they do get there.

However, many are not confident they will save enough to achieve this, finds a BMO Retirement Institute report.

Titled Home Sweet Home or Retirement Nest Egg, the study also reveals one-third of Boomers will or plan to sell their home to help fund their retirement.

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“The reliance on home equity to fund retirement is no surprise, given that almost half of Canadians say that their home is their biggest financial asset and, on average, accounts for half of their total net worth,” says Marlena Pospiech, retirement strategist, BMO Retirement Institute. “While it is true that, in the past, Canadians have enjoyed a stable housing market and increasing real estate values, there is no guarantee that this trend will continue.”

Individuals, therefore, shouldn’t count exclusively on their homes to fund their retirement, but focus on saving for retirement, she adds.

The following factors will determine whether Boomers will choose to stay in their home or to sell it and downsize.

Market fluctuations: The majority (87%) have seen their homes rise in value; nearly half report gains of 50% or more. However, the rapidly aging Canadian population and more Boomers retiring and selling their houses could put downward pressure on home prices.

Attitudes toward home ownership: Canadians are torn between keeping their home versus treating it as a retirement asset. The study found 45% of homeowners do not intend to sell their home while 34% are unsure if they will sell it prior to or during retirement.

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Lending standards: Tighter lending policies and higher interest rates could motivate people to buy smaller, less expensive houses. In fact, those priced out of the market may decide not to invest in a home at all, which could impact the housing market.

Debt in retirement: Recent survey data suggests that many Boomers are carrying mortgages or other debt into retirement. Consequently, they may not have accumulated as much home equity as they would like and may be more vulnerable to an increase in interest rates.

“If your retirement is only a few years away, it is wise to try and pay off your mortgage before you enter retirement,” says Laura Parsons, mortgage expert, BMO Bank of Montreal. “On the other end of the spectrum, for younger Canadians entering homeownership, it’s important to consider options that will ensure mortgage debt can be paid down faster and well before their retirement years.”

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The staff of have been covering news for financial advisors since 1998.