Finance BLIND SPOT: DEBT Assumption: Carrying a little debt in retirement is no big deal. Reality: Debt can be dangerous for anybody – but particularly for retirees. It’s one of the most basic pieces of financial advice out there: pay down your debt, particularly your high-interest, non-deductible debt. It’s solid, hard-to-argue-with advice that works for nearly everyone at any age. The trouble is, our society has developed a very casual attitude toward debt – and that includes retirees. These days, more and more of us believe that being in debt is normal. That it’s no big deal to carry a credit card balance at the end of the month. We’re nonchalant about financing a new car. And many of us think that taking out a home equity loan (sometimes called a “reverse mortgage”) is a smart financial decision. Sure, there are times when taking on debt makes sense – particularly when it allows you to purchase assets (such as a house) that will increase in value over time. But if you’re taking on debt to fund consumer spending, you should know how dangerous that can be, particularly for retirees. When your monthly income is largely fixed, an expense that gradually eats upmore andmore of your monthly cash flow can be a very real threat to your long-term financial well-being. If you’ve entered retirement with a little credit card debt, or a bit of the mortgage that you still have to pay off, there’s no need to hit the panic button. Interest rates are still historically low, and they’re likely to stay that way for the foreseeable future. But it behooves you to take debt seriously and try your best to pay it down quickly. And if you must tap into your home equity, make sure to investigate your options with a professional planner before you sign on the dotted line. Sure, a home equity loan can make sense for some people in some situations. But, if you’re not careful, it can eat away the equity you’ve built over decades. In addition, there are often fees and other costs to account for: property appraisal, administration fees, closing costs and so on. Long story short: shop around, and thoroughly check out the alternatives first. BLIND SPOT: DOWNSIZING Assumption: Downsizing will solve a lot of financial problems. Reality: Downsizing isn’t for everybody. A lot of retirees think of downsizing as the “silver bullet” of retirement planning: sell their larger home that’s increased in value over the years, move into a smaller condo and bank the proceeds. Such a move not only gets rid of any mortgage or other debt which you may still be kicking around, it gives a boost to your retirement savings and allows you to simplify and de-clutter your life. What’s not to like? But is downsizing really a good idea? That depends. If you’re selling a home which you’ve owned for a long time, one that’s appreciated dramatically in value since you purchased it (homeowners in Toronto and Vancouver knowwhat we’re talking about) then yes, such a strategy could pay off big-time. But for many other retirees, downsizing often doesn’t generate as much as they assume. If you’re downsizing from a $400,000 home to a $275,000 condo, your nest egg won’t be a whole lot bigger after factoring in transaction costs, legal fees, sales commissions and other costs that come along with selling a home and buying another one. From a lifestyle perspective, downsizing might mean compromising your ability to pursue your hobby or entertain guests at your home. It might force you to move to a different part of the city – to a condo downtown, for example, or to a townhome complex just off a major thoroughfare instead of the quiet cul-de-sac on which you currently live. That, in turn, could result in other changes: maybe visiting friends will require a lengthy commute across town. Or it’s no longer practical to visit that grocery store you love. Or maybe the doctor’s office is just a little further away than you’d like. Look, there are a lot of advantages to downsizing. But there are definitely some drawbacks to consider, too. Does downsizing make sense for you?That’s a very personal decision, one that requires some deep contemplation about how you envision your future. At the very least, it’s important to think of both the pros and cons before you assume that downsizing is the way to go. 30 | www.snowbirds.org
RkJQdWJsaXNoZXIy MzMzNzMx