Situation: Woman wants to buy a home, worries about effect of spending on retirement income
Solution: Move out of rented home, insulate and improve debt-free family cottage, retain capital
A woman we’ll call Evelyn, 52, works for a local government in northern Ontario. She has about $1.1 million in two RRSP accounts, about half from years of saving and half from a former spouse, and a $60,000 Tax-Free Savings Account. Her plan is to retire in five years at age 57. Her issue — can she afford to move from a rented house at $1,300 per month with all utilities included to buying a house in a price range of $280,000 to $350,000?
She could buy the home in which she now lives for $359,000 and then rent out the basement for $1,500 per month — a sum sufficient to pay anticipated mortgage costs. She also has a cottage with an estimated value of $285,000. It would need much work to be a year round home. At present, her take home income is $4,500 per month.
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Family Finance asked Derek Moran, head of Smarter Financial Planning Ltd. in Kelowna, B.C., to work with Evelyn. “Her financial assets and her forthcoming civil service pension can support a comfortable retirement. The issue is balancing the capital cost of a home of her own with the effect of reducing her savings to buy it,” he explains.