What do you do if, as retirement comes into view, you realize you don?t have enough money for the life you want? You?ve added up what you can expect from Old Age Security, the Canada or Quebec Pension Plan, company pensions and your own savings. All that done, there?s a yawning gap, more than you can manage just by cutting a few expenses.
The first thing to do is to estimate how far you are from your goals, advises Adrian Mastracci, head of KCM Wealth Management Inc. in Vancouver. Can you get by with less? If the answer is that you can?t, there are several strategies that can boost income.
Consider renegotiating your mortgage, Mr. Mastracci suggests. ?If you find that rates have dropped or that you get a better rate with a different loan or even from a competitive lender, which is often the case, then discuss it with your current lender. You may find that a floating-rate loan cuts your costs. Consider what you pay for the peace of mind for five-year and even longer loans. Often, that cost is very high.?
Next, considering borrowing against your home equity, Mr. Mastracci says.
You can get a home-equity line of credit and use the money for spending or use some or all of it for investment. If you borrow against your home to spend, you need a guaranteed way to pay off the loan. Perhaps an anticipated inheritance or a boost in available cash flow from an end to contributing to a child?s or grandchild?s RESP. If you borrow to invest, beware. It can work if the investment produces a positive return. But if you generate a loss, the loan can be a catastrophe.
Instead of borrowing against home equity, you can harvest it, says Don Forbes, a financial planner who heads Don Forbes & Associates/Armstrong & Quaile Inc. in Carberry, Man. ?Downsizing is a a common tactic for people who have houses too big for their retirement years,? Mr. Forbes says. ?It is a fairly common situation because, the older you are, the harder it is to maintain the house. And a sale produces a good return, for there is no capital gains tax on a principal residence. For most people, downsizing is a way to squeeze out a few hundred thousand dollars.?
For most people, downsizing is a way to squeeze out a few hundred thousand dollars
Downsizing affects both your personal balance sheet and spending. If there is still a mortgage on your house or condo, you can pay it off. That means no more mortgage bill every month. You gain cash to pay off other bills. There should be a lower cost of operating a smaller home ? lower water, electricity and heating bills.
Renting out rooms is a way to make home equity generate cash flow without much risk. There may be some cost in preparing a suite for a tenant but if it is done with control over expenses ? the home can generate cash to pay down a remaining mortgage or to add to cash flow for living expenses. But beware the effect of rental. If you take depreciation for the rooms you rent, you impair the tax-free capital gain you can take when the house is sold. And you have to keep good records of income and expenses for the rental rooms.
A more drastic tactic is to relocate. If you live in a high-cost city in which property prices are at nosebleed levels ? say West Vancouver, where average homes sell for $1.85-million ? the amount of money one can harvest by moving to, say, Winnipeg, where $500,000 buys a grand house and $1-million an opulent one, is huge.
Finally, consider going back to work part-time, Mr. Forbes suggests. The benefits are numerous. You gain income, of course, you have less time to spend money, and you can postpone the time or the amounts which you have to withdraw from savings. Further, part-time work provides structure to life in retirement. And that, though it is an intangible benefit, can make it easier to structure spending.
Source: http://business.financialpost.com/2012/10/27/what-to-do-if-you-havent-saved-enough-for-retirement/
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