When you’re planning for retirement, there are a number of strategies you can use to ensure that you’ll have enough savings or investment income to support you and your lifestyle.
You might already have a company pension you can depend on. You could put your money into an RRSP, a TFSA, stocks, mutual funds, term deposits or a GIC. Or invest in real estate. But once you finally reach your planned retirement age, what if you don’t quite have enough to fund the life you’ve dreamed about for years?
One option is to use the equity in your home to offset the shortfall. It’s not uncommon for retirees to sell their home then downsize to a smaller home, condo or apartment, or move into a seniors’ community. Doing that can provide you with a windfall of cash that was tied up in your home; you can then use that to fund your life, your plans, your travels in retirement. But rather than keep drawing on your principle, the key is to take your excess equity and invest it, so that the interest earned can be your retirement income. For instance, if you can earn 5% return on your investment and you only withdraw 5% to live on, you won’t be draining money from your principle investment.
The most important piece of advice to remember, is to invest that equity from the sale of your home wisely, with the goal of earning modest returns. By investing in something that is “too safe”, you won’t be able to earn enough of a return and that’s not beneficial from a financial standpoint. But on the other hand, you don’t want to take on too much risk and then lose your money. The smart approach is a balance between risk and reward that allows you to live the retirement life you’ve dreamed of during the day and then sleep soundly at night without worrying about finances.
In summary, I recommend that you be savvy about your retirement, and don’t underestimate the importance of planning for it, now. Be proactive and seek out a financial planner who can assist you with your retirement plan, build your savings and help you find that investment sweet spot that’s a balance of risk and reward. Smart planning now will help you be safe and secure in your retirement, no matter what changes the market brings.