Tips for home sellers
In most cases, our homes will be our largest financial asset, and at the same time our biggest expense.
Often homeowners won't even consider selling their home until they're well in to retirement, but if it makes sense to sell earlier, why wait!
Financially making the move earlier could have a significant impact on your retirement nest egg. Especially if your income is low, and you're willing to rent your next living accommodations.
Let's look at an example...
Jim (66 years old) and Carolyn (63 year old) are a married couple with limited retirement income. They purchased their detached Toronto home shortly after being married in 1974. With home values being what they are presently. They could sell their home, and net $680,000 after expenses.
If they were to invest the proceeds of the home sale with the goal of generating a conservative 6% annual return. Their $680,000 dollar investment would generate $40,800 in annual income, or $3,400 per month, which they could direct all of, or part of towards the expense of their new rental accommodations.
By moving to a rental unit. Jim and Carolyn would also be offloading other significant expenses including...
$5,000 annual maintenance fund ($416.66 per month)
$6,350 in property taxes ($529.16 per month)
$1,860 heating bill ($155.00 per month)
$1,740 electric bill ($145.00 per month)
$380.00 water bill ($31.66 per month)
For an annual savings of $15,330, or $1,277.50 a month.
Combining the $3,400.00 per month in income generated by the sale of their home, and the $1,277.50 in housing expense savings. Jim and Carolyn would effectively have a $4,677.50 monthly budget (before any income tax implications) to work with to find a rental unit that meets their needs.
If a $2,400 per month condo met their housing needs. Jim & Carolyn will have gone from paying $1,277.50 in monthly housing expenses, to no housing expenses at all, and having $1,000 in additional funds per month to use as they see fit, all while their nest egg remains untouched and very liquid.
Over a 20 year period, without taking inflation into account. Jim and Carolyn would potentially realize a $306,600.00 savings in housing expenses, and a gain of $240,000.00 in income, which could go a long way in making their golden years truly golden!
Find yourself in a similar situation? This article is only designed to be food for thought!
Please speak with a financial advisor to see how it could apply to your specific situation before making any decisions.
Posted: March 25, 2014
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