Many Canadians consider downsizing during their retirement years. Once their children have left the nest, the choice seems obvious: relocate to a smaller residence or a more affordable town and capitalize on the price difference. For many retirees, the funds from the sale of their home can significantly impact their overall lifestyle and financial well-being.

However, there are downsides of downsizing you should be aware of before you call your realtor.

Downsizing in Canada: A Cost Analysis

The cost of moving is probably one of the biggest downsides to downsizing. To give you an idea of the figures involved, we conducted a cost analysis for a typical downsizing scenario using an example of selling a home in Toronto for $1,000,000 and buying a condo for $700,000.

Theoretically, this would free up $300,000 in equity while moving you into a smaller home. According to Ratehub, you need a nest egg of $450,000 if you want to retire comfortably in Canada. The money from the sale of your home could have a meaningful impact on your retirement finances. But how much of that chunk will you get to keep to boost your nest egg? Below is an estimated list of cost considerations when choosing to downsize:

As you can see, downsizing could cost you between $72,175 – $94,875.

If you live in a big city like Toronto, $300,000 of equity could shrink to just $205,125* after considering these downsizing costs. However, these costs are not the only negative effects of downsizing to consider.

The Downsizing Dilemma 

Many Canadians underestimate the financial and emotional costs of downsizing, overlooking various aspects:

• Home Improvements: Before selling, homes often need upgrades, from simple fixes to major renovations like kitchens or roofs. Also, many invest in staging their homes.
• Belonging Decisions: Downsizing means deciding which possessions to keep due to space constraints, often leading to emotional challenges and storage expenses.
• Leaving Family Homes: Leaving a home that carries so many joyful memories, especially if someone is widowed, can be challenging. Relocating might disconnect you from communities and loved ones.

An Alternative to Downsizing in Canada: The CHIP Reverse Mortgage 

The CHIP Reverse Mortgage by HomeEquity Bank can be the ideal alternative to downsizing. Unlock up to 55% of your home’s equity in tax-free cash while staying in your beloved home without leaving the neighbourhood you love. This money improves your retirement finances and can be used to renovate and retrofit the home for accessibility and livability as you age. With no required monthly mortgage payments to make, the CHIP Reverse Mortgage is becoming a popular solution.

Contact your Dominion Lending Centres mortgage expert to learn how the CHIP Reverse Mortgage can help you save on the stress and expense of downsizing and live the retirement of your dreams.

*Based on $300,000 of equity minus $94,875 (the highest downsizing cost).

If you are reading this you probably have a keen interest in improving your financial situation — but how are you going to measure your progress?

The easiest way is by setting and achieving a goal. This could be short-term and focused, like wiping out a credit card debt. On the other hand, it could be a long-term goal like burning the mortgage five years ahead of time after twenty years of scrimping and saving.

Achieving either of these goals is a great accomplishment, but they may not tell the whole story. The problem with both of them is they are independent from all of the other factors that affect your financial standing. What if the value of the house you just paid off has dropped 20% over the last year, or you eliminated one credit card balance only to see another card or line of credit head in the opposite direction?

No single metric tells the whole story of your financial progress. Paying yourself first and diligently putting $300 from every paycheque into your RRSP will definitely help you hit your retirement goals. However, you also need to monitor the growth from investing your RRSP as well as any other assets that are contributing to your retirement fund and ensure the total value is steadily tracking towards your goal.

Cash flow is another common measure of financial progress. Tracking your income and expenses helps you understand how much money you have available after covering your costs. Positive cash flow is a surplus that can be used for saving, investing, or paying down debt — but it doesn’t measure how effective you were at putting that cash surplus to work. You may think you are making progress, but if you let the cash sit in a bank savings account instead of a GIC in your TFSA, then you actually made comparatively poor progress.

If you want to keep it simple and look at only one metric to get a holistic view of your financial health, measuring your net worth can provide you with valuable insights. It’s an easy-to-understand concept that will help you analyze your financial health and overall progress towards your financial goals.

Calculating your net worth isn’t all that difficult and although it represents only a snapshot in time, the main advantage is that it provides a comprehensive snapshot. It takes into account all of your assets (such as cash, investments, real estate, and valuable possessions) and subtracts your liabilities (such as debts and loans). Monitoring your net worth forces you to be aware of all your financial accounts and can help you make more informed decisions about your spending, saving, and investing habits.

As you work to increase your assets and reduce your liabilities, your net worth should show positive growth. This signifies that you’re making smart financial decisions and accumulating wealth over time. Seeing your net worth increase can be motivating and reinforce positive financial behaviors. On the flip side, if you notice a decline, it can signal that you need to reevaluate your financial decisions and make necessary adjustments.

Monitoring your net worth helps you understand how effectively you’re building wealth. Although the market value of assets such as stocks or real estate fluctuate, comparing your net worth to previous periods can still help you evaluate the effectiveness of different financial strategies you’ve implemented. This allows you to refine your approach and make changes as needed.

Your net worth is an essential factor in assessing your retirement readiness. It helps you determine if you’re on track to maintain your desired lifestyle during retirement and whether you need to adjust your savings and investment strategies. It can also influence your estate planning decisions. It’s important for determining how you want your assets distributed after your passing and for considering strategies to minimize potential estate taxes.

There are lots of ways to measure financial growth and no one method is perfect, but keeping an eye on your net worth is a relatively easy task that will do wonders for your motivation — why not give it a try?