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Your home is not your retirement plan

Published on: August 12th, 2019

After a decade of soaring prices, many Canadian homes have appreciated considerably in value.  If yours is one of them, you may be tempted to be less vigilant in your retirement savings — on the grounds that your principal residence is turning a decent profit for you and will one day supply a large portion of your retirement income.

However, there remains compelling arguments for a robust and diversified investment portfolio, including growth investments like equities, as the foundation of a long-term retirement plan.  Consider the following.

Equities outperform over the long term.  Historically, equities have provided average annual compound returns superior to the returns of any other asset class, including returns on real estate.  In one recent example (see table this page) for the period between 1993 and 2017, the TSX Composite Total Return Index provided a return of 9.0% versus 5.5% from the hot real estate markets of Toronto and Vancouver and just 4.7% based on the national average of real estate values.1

You may be overweighted in real estate.  If your home has increased in value and you also hold other real-estate-related investments (such as a vacation or rental property or units in a real estate investment trust), your retirement plans will be vulnerable to a downturn in that sector.  It’s always wise to monitor your diversification across all investments and rebalance if necessary.

You may not want to move when you retire.  When it comes time to retire and sell up, you may decide you want to stay put. In fact, a survey by Ipsos in 2018 found that 9 in 10 Canadian seniors wanted to stay in their current home throughout their retirement.2  Many said they want to stay close to family, friends or their community and maintain their sense of independence.

Market timing can work against you.  House prices can go up or down, and there’s no guarantee you’ll receive top dollar when you’re ready to retire.

Housing is not a liquid asset.  It takes time to prepare a house for sale, and even after you sell, the closing date may be months away. Having more liquid assets, like market-based securities, means greater flexibility in your retirement and income planning.

Moving costs money.  Many additional costs are incurred when selling property.  Real estate fees, legal fees, land transfer taxes, and moving costs can all take a chunk out of your proceeds from the sale, eating into your retirement funds.

Professional advice can help you assess your current exposure to real estate and maintain a diversified investment portfolio designed to meet the needs of your unique retirement plan.



1RBC Global Asset Management Inc., with real estate information from the Canadian Real Estate Association (CREA). Data as of January 31, 2018.
2Ipsos poll conducted between June 15 and June 18, 2018, on behalf of HomeEquity Bank.

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