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Other Personal Assets
As more Canadians take charge of their financial future, personal savings are increasingly being used as a mainstay of retirement income or as a means to "top up" income from other sources.
Use some of these specific assets to help finance your retirement:
Non-registered Investments
A balanced portfolio of non-registered investments - including GICs, stocks, bonds and/or mutual funds - can provide regular interest earnings and/or dividends to supplement your retirement income.
Home Equity
Home-owners nearing retirement can use their home as a source of income.
If you're thinking of using the equity you've built in your home to help finance your retirement, explore these two options:
- selling your home outright
- negotiating a reverse mortgage
Alternatively, you could consider downsizing by selling your home and buying a cheaper home, so the difference could be saved for retirement.
Selling your Home
The decision to sell your home in retirement, and subsequently rent, is affected by a number of factors, some emotional, some financial.
People who choose this route usually do so for one of several reasons:
- to help reduce expenses
- to provide a capital base from which to generate retirement income
- to simplify their lifestyle
From a strictly financial perspective, the decision to sell a home is most often made when the income generated from the sale - combined with the elimination of any housing-related expenses - exceed rent costs.
Reverse Mortgages
A reverse Mortgage offers senior homeowners the opportunity to convert a portion of their home equity into tax-free money without giving up the comfort of living in their home. Determining how comfortably a reverse mortgage fits in with your retirement financial plan is a very personal decision, and one that you should consider carefully.
How it works
- Homeowners 62 and older may qualify for $20,000 to $500,000 in tax-free money from their home's equity.
- The specific amount you may qualify for is 10% to 40% of your home's current appraised value, based on your age and that of your spouse, and on the location and type of home.
Repayment
- No repayment is required while you or your spouse continue living in your home.
- The full amount only becomes due upon the death of the last surviving spouse, or when your home is sold.
- You have the option to repay in full at any time. (Prior to 36 months, a pre-payment fee applies. After 36 months, an interest rate differential payment may be applicable.)
- You have the option to pay accumulated interest annually on the mortgage anniversary date or, if you live in Quebec, on the interest re-set date.
Protection of home ownership
- You have complete freedom to sell your home or move at any time.
- Homeowners will never be asked to move or sell to repay the loan. Like other mortgages, up-to-date payment of property taxes, fire insurance, condominium/maintenance fees, and maintenance of the property is required.
Impact on your estate
- The loan amount to be repaid is guaranteed not to exceed the fair market value of your home at the time it is sold, protecting the balance of your estate.
- After the loan is repaid, your estate retains any remaining proceeds from the sale of the home.
Financial freedom
- There are no restrictions on how you choose to use the money from your reverse mortgage, with one exception. Any outstanding loans secured by your home or other home-related debts must be retired with the reverse mortgage proceeds, i.e. another mortgage or a secured line of credit.
Taxation Issues
- If the interest on the reverse mortgage is paid annually, this interest may be deductible if investments were purchased with the reverse mortgage proceeds. If the interest is not paid annually, then speak to a qualified tax advisor regarding the deductibility of the accrued interest when investments are purchased.
For more information on reverse mortgages, visit Canadian Home Income Plan (CHIP)
Other Sources of Income
You may have other sources of income to help you through retirement, including:
- part-time employment income, or income from a second career
- income from rental property
- business assets
- liquidation of personal assets such as cars, vacation properties, boat, etc.
- purchase of a prescribed annuity using non-registered assets
Prescribed annuity
If you're worried about generating a regular source of income from your assets, you might consider purchasing a prescribed annuity using non-registered assets.
Like other annuities, a prescribed annuity guarantees you regular income payments of a pre-determined amount over a specified period of time.
The payment amount is comprised of a blend of principal and interest, with the interest portion being equalized over the life of the annuity.
Each annuity payment is made of a principal and interest component. With a regular annuity, each year's actual interest would be taxable resulting in changing taxable amounts each year. However, with a prescribed annuity, each year's interest for tax purposes is a fixed level amount, so the tax cost is likely to be more level.
Find out more about different types of annuities that can be purchased with registered assets.
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