Should your home be part of your retirement plan?

Posted by Justin Havre. on Monday, January 11th, 2016 at 2:15pm.

With money tight and very little left over for savings, it’s no surprise that a survey by Alberta Treasury Branches released today says that nearly 50% of Albertans are falling behind when it comes to stashing cash for their retirement.

ATB’s Investor Beat, a quarterly newsletter issued by the institution found that 48% of Albertans are finding it difficult if not impossible to put money away for a retirement.  That is 8% more people than what was reported last summer in a similar survey.

Most respondents said that every day expenses combined with unexpected surprises are the primary reasons why they can’t seem to save, not only for retirement, but for a rainy day.

The president of ATB’s Investor Services was quoted in a release to the media on January 11, saying that Albertans are certainly feeling the pinch.  Chris Turchansky went on to advise other financial institutions in Alberta to come forward and help people navigate the new financial reality in this province by helping them focus on building their investment portfolio or readjusting budgets to help Albertans reach their savings goals.

Of those who participated in the ATB survey, 45% said they have been personally affected by the downtown.  At least 41% say their salaries were either frozen or decreased and 19% of respondents said they lost their jobs completely.   This has resulted in reduced spending, a halt to regular contributions in RRSPs and even RESPs.  Many have starting using whatever funds are in savings or are cashing in investments.  Surprisingly, just 10% of those polled said now is not a good time to invest.  At least 31% of those said that it’s still a good time to invest, even if they don’t have the cash to do so.

In planning for retirement, 34% of respondents were not aware of what kind of money they would need every year to live in when they do retire.

Turchansky urged Albertans through his media release to establish a clear vision of what the future should look like even though today it seems bleak and unattainable.  He recommended talking to a financial advisor to establish priorities about putting money away for the future.

The poll was conducted in  October with just over 1,000 Albertans.

Your Home as a Retirement Plan

Part of the issue, and rightly so, of putting money away for retirement is that very high mortgage payments are making Albertan’s house poor and take home pay poor.  There is often very little left for putting in an RRSP.  Which is why many think the equity in their home, especially if they can pay it off prior to age 65, is their retirement plan.    A home is usually a good investment because real estate is one of the most stable investments out there and should be included in a retirement portfolio.  Canada Mortgage and Housing states that over the last 40 years, home prices have risen by 5.2% annually.  That’s across the country.  It pays an indirect dividend, in that you can live in it and avoid paying rent and when you go to sell, you don’t have to pay taxes on the money your earn if the home is your primary residence.

A house can be a bad investment if it goes the opposite way and loses value in the marketplace.  That last thing you want is to owe money on an expensive mortgage, the amount of which is higher than the value of your home.  If the value stays low it could spell the end when it comes time to renew your mortgage.  Banks don’t often renegotiate a mortgage when more money is owned that what can be recovered.  A mortgage can always mean an added layer of risk.

Or rising mortgage rates, the like of which was seen in the early 1980s, can mean exorbitant interest rates and huge monthly payments.

Real estate is important but it’s not wise to put all your eggs in one basket.  Just as you shouldn’t put all your investments in one fund, make your home a part of your retirement plan but work with an advisor to spread whatever wealth you can set aside around. 

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