Sell Your Home To Retire? Fuggedaboutit!

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The popular belief of every homeowner is that the house will become a great investment and that it will be the asset they can rely on to help them retire. The truth? Quite the opposite. Homes have an emotional attachment. On top of that, there is a prestige to being a homeowner that you can’t get by owning a box in the sky or God forbid, that evil word, renting.

It comes to no surprise then, that a recent study in Canada shows that 9 in 10 seniors believe that staying at home is important. That means no downsizing, no sales and a continued shortage of detached homes in popular Canadian cities.

Opinion from the naive young kids that just bought their homes don’t feel the same way about home ownership in their later years. However let’s wait 10 years, after numerous kids and the memorable house parties, they too will have sentimental attachment to their homes.

Are The Kids Ready To Take Care of Mom and Dad?

This reluctance to sell their homes have led to a whole new breed of financial problems for seniors. Despite achieving home ownership, owning a home doesn’t generate the cash flow necessary to be financially independent. In fact, it eats up monthly cash flow.

The lack of options means many awkward conversations with parents might happen like this at the dinner table:

Yes, this is an advertisement targeting seniors to do a reverse mortgage on their home to take out equity. It’s essentially a way to draw money out of your home, while paying interest of course, to pay for the cost of living. When the parents pass away, the can sell the house to recuperate the balance that was borrowed.

This is becoming all too popular. Becoming a slave to the bank. Not only are home owners buying homes with expensive mortgages, but they are taking out expensive loans to fund their retirements. So throughout their whole lives people have been dedicated to paying interest to the bank. No wonder Canadians suck at financial literacy!

Perhaps the more realistic question for retirement is asking the the Millennials and Gen Y folks , “Are you ready to help mom and dad financially in retirement?” Over the last decade, the Bank of Mom or Dad have been fueling the real estate boom in Canada by helping their children get into the real estate market. This has created a problem for seniors because they have neglected their own financial needs for retirement. So are the kids ready to step up to help in reciprocal?

Failure To Reach Financial Independence

The unfortunate fact of our previous generation is that many didn’t save enough and achieve financial independence with their savings. In facts, many didn’t invest at all and made an assumption that their homes and their Canadian pension from the government would be enough to help them retire. Unfortunately, seniors don’t want to leave their homes and many overestimated just how much their pension would give them.

The maximum pension that a senior can receive in Canada in 2018 is $1,134.17. That’s barely enough to cover property taxes, utilities and insurance in expensive cities. The average pension that Canadian seniors receive is just a paltry $666.56. Meaning, unless the individual was in the highest tax bracket throughout her working years, she will never reach the maximum benefit. This means there is a huge gap that seniors need to make up in order to live comfortably in major cities across Canada.

Just where is this extra income coming from? Most seniors wouldn’t dare touch the stock market at this point in their lives. GICs pay a paltry 2% interest. There are no safe investments out there!

Some seniors may qualify for OAS or GIS, but even then, the amount a senior can receive is very minimal. That’s why it might be up to the kiddos turn to help out!

Are We Ready?

Many young Canadians are already feeling the pressure of having to pay off huge student loans, taking longer to get into their careers and now the prospects of having to bail out their parents in their twilight years means that there might be even leaner years ahead.

The only unknown answer is whether the parents have even told their children of their financial predicament? Since financial matters have always been kept secret like nuclear launch codes, many children of elderly parents might not be aware of the dire financial situations that their parents are in until it’s too late.

If you really want to know if your parents are financially independent then it’s time to have that talk. Question their budgets. What is their cash flow? Are they still able to live in their home without selling it for funds? Remember that cash flow is more important than having a home to live. You might have a roof, but you can’t eat the hardwood floors.

If you’re a senior reading this, then let your kids know your financial situation. Swallow your pride and ask for help, or refuse further financial assistance if you are feeling the pinch. Information needs to be shared. Living under a shroud of secrecy will only lead to future financial disasters and broken relationships.

 

 

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