The financial pitfalls of downsizing

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The financial pitfalls of downsizing

It’s counterintuitive to the advice that is generally given to retirees, which suggests that once the kids move out, it’s best to sell your home and free up some cash. If you’ve owned your home for more than 20 years, chances are you stand to make a huge profit. However, there can be unforeseen financial challenges when downsizing that can end up costing you more money than you anticipated.

A survey of Canadians over the age of 50, by Ipsos* and commissioned by Home Equity Bank, found that 27 per cent of those who downsized said that the costs were more than they expected. Another four in 10 said that they were skeptical about the savings as it related to downsizing.


Of course, you can expect to pay fees and taxes when you sell your property, as well as the real estate commission for your agent, which can be as high as four per cent, plus moving costs, and the land transfer taxes when you buy a new home. If downsizing to Toronto, you can expect to pay two land transfer taxes – one to the city and one to the province – which could be tens of thousands of dollars.


A smaller living space would mean that your utility and maintenance costs would be lower.

Monthly expenditures, like groceries, travel, transportation and entertaining can take up a big chunk of your budget. In retirement, most people spend between 40 and 80 per cent of what they spent per month when they were working. According to a recent CIBC poll, Am I Saving Enough to Retire?, the vast majority of Canadians were not aware that the magic number of what they need to retire is $756,000. The same report found that Canadians have saved approximately $184,000. Even with selling your home, you may not raise the capital that you need for retirement.


If moving from a large family home to a smaller bungalow or condo, there won’t be extra space to create income. If in a larger home, you might consider creating a long-term income suite, or use sites like airbnb or HomeAway for short term rentals. The extra income could help to balance your budget.


The Canadian Institute of Health Information indicates that Canadians over the age of 65 make up approximately 16.1 per cent of the population, but 46 per cent of the health expenditures are directed to this demographic. If downsizing away from your family doctor, or other key health services, you may spend more in order to get to the health care that you need.


After selling the family home, you may have a strong urge to spend more, now that there’s a large balance in your account. After all, we’re only human. If you inflate your spending habits, you can burn through that money very quickly. Have a plan to invest it properly, so that it will last through retirement.

Timing is everything. If you have to move quickly, last minute decisions often cost more. Weigh your options to determine if you should downsize – or stay put.

In August 2018, HomeEquity Bank reached out to 25,000 older adults in Canada (aged 55-plus, among which 1,870 were home owners) through an omnibus survey, completed by IPSOS. IPSOS Research Details: the poll is accurate to within 19 times out of 20.

Rubina Ahmed-Haq is a journalist, personal finance expert and HPG’s finance editor. She appears on CBC TV and radio, CTV Your Morning, Global Toronto, and writes for Follow her @alwayssavemoney.


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