Annie is 56 years old and single. Her two daughters have left home and she plans to retire in four years. Will she be able to realize her project and keep her chalet at the same time?
The future retiree owns a home worth $450,000 and has also inherited a chalet worth $385,000. She loves spending her holidays and weekends there, but the associated maintenance costs are about $20,000 per year (repairs, snow removal, electricity, grounds maintenance, etc.). She also doesn’t want to rent it out for the short or long term because she wants to enjoy a worry-free retirement.
She wonders if she can keep the house and maintain a good standard of living, considering she plans to leave the job market soon.
Financial security consultant Jean-François Rémillard from Gestion de Patrimoine Squito examined various scenarios for them.
Scenario 1: Keep the chalet for as long as possible
Annie estimates her living expenses at $65,000 per year. Under these conditions, at the age of 70 she will have used up her capital and will have to sell her chalet. “If we take into account an average increase in the value of the property of 4%, it should be able to receive around $500,000 net,” estimates Jean-François Rémillard.
Once the chalet is sold, Annie plans to spend a few winters in the South and estimates her need for $55,000 by the time she turns 75. Afterwards, an annual amount of $45,000 seems sufficient to him. “In this scenario, Annie will exhaust her capital at age 82 but retain the full value of her residence,” the financial advisor mentions.
Scenario 2: Sell the chalet immediately
If Annie sells her chalet now, she could make a net surplus of $350,000. “She will thus maximize her TFSA and put the remaining amount in an investment account,” explains Jean-François Rémillard.
At the same time, she saves $20,000 a year that she would normally have had to spend on chalet maintenance. If she contributes this amount to her RRSP by the time she retires, that $80,000 will also allow her to receive a tax refund in addition to the tax refund.
“Annie wants to enjoy a comfortable retirement and since she will no longer have a holiday home, she would like to be able to spend a few winter months in the south. She therefore estimates her living expenses at $55,000 per year and from the age of 75 she will reduce her budget to $45,000,” explains the consultant. Using this strategy, she exhausted her assets at age 92 and maintained the full value of her home.
“Owning a holiday home is enjoyable, but it requires a significant influx of cash year after year, not to mention the time spent maintaining a second home. It’s a consideration. In order to have a worry-free retirement, Annie is therefore very interested in deciding to sell the chalet immediately. With the amount received she can pamper herself a little and spend the winter warm,” concludes Jean-François Rémillard.
HIS FINANCIAL SITUATION
TFSA: $42,000
RRSP in an employee fund: $103,000
MSRP: $352,000
Locked-in Retirement Account (CRI): $91,000
Salary of $110,000
Each year, Annie contributes $6,000 to her TFSA and $5,000 to a worker fund RRSP.
Jean-François Rémillard’s calculations assumed a return of 4% for TFSAs and 4.5% for RRSPs and LIRAs.
Would you like an expert opinion on your retirement planning? Write us a detailed message and we will refer your situation to a professional. The answer will then be published in The Montreal Journal And The Quebec Journal.