• – By Brian Weatherdon, MA, CFP, CLU, CPCA

How long can you live on the value of your home?


“How long could we live comfortably if we sold our home and rented one?”

Such a question is often raised these days, and not without a fearful concern that future events could be inhospitable and unforgiving, should money ever run short.

I shared this question before in the words of Joe. When I visited him one spring morning there was a for-sale sign on the front lawn. He told me, “We have thirty-three months to live!” Joe had done his own math. He calculated that by selling the house, he would join his wife in a care home and the money would be gone in less than three years. “We’ll have to die then,” he said. My breath stopped at the horrible realization that money could dictate how long a person would live.

But that was several years ago. Let’s open this up and re-do the math. How long could money last if someone sold their home today to rent an apartment, for example?

We’ll suggest $600,000 is the value received from selling. Or it could be your net receipt after clearing mortgage or other debts. So here’s our question: How long could $600,000 last if renting would start at $1500 per month? We’ll also look at this if rental costs were $2000.

Three stories here can illustrate the results and help you consider your own circumstances.

Wayne and Pat used the proverbial “mattress” investment, putting $600,000 into their chequing account. It paid no interest, incurred no tax, and seemed risk-free to them. We’ll assume rental increases at 3%. By calculation, their lifespan paying $1500 a month rent could be 23½ years. (If rent were $2000/month the money could fail in 19 years.) Realizing they’d avoid house taxes and maintenance, twenty years of safety might feel okay for them. (If you find their option appealing, give it a thumbs-up but be sure and continue reading – you might find something even better.)

Pat’s sister Bev was facing the same decision but wanted to invest in guaranteed certificates. She figured 2% was the most she could get these days, so about 1½ % after tax. With $1500 monthly rental costs, Bev’s $600,000 might last her 46 years. She wasn’t sure she’d even want that many years! (If rent were $2000/month it could last 31 years.) Having thirty or more years of rental costs covered by GICs, Bev felt she could choose the apartment she wanted and safely keep her independence forever – and avoid having to ask help from her children.

Verna and Bert are our third household. They wanted three things: First, to reduce risks of outliving their money. Second, to preserve their investment capital. Third, to ultimately leave gifts for their family. In an approach we call “life income mandates” Verna and Bert settled on a plan aiming at 6%, which after tax for them was near 4.5%. They found it quite comfortable to pay higher rent for a quality and comfort. Rent starting at $1500/month would leave $1,150,000 after thirty years. Renting at $2000/month would leave $780,000. They liked that their nest egg would grow, protect against inflation, provide needed resources for future illness, and allow ultimate gifts to their children and grandchildren.

Pondering becomes personal, because in reading these three stories we would really be thinking about ourselves. As you’re thinking about this, no one is more important than you and your loved ones. So let’s consider . . .

Risk: In these stories who has the most risk? If money lasts 20 years, isn’t this more risky than expiring in 30 years? Or how would this compare to actually growing your money for later needs and family gifting?

Health care and comfort: Again, which household expects to have more in event of illness, frailty, personal care? Wayne and Pat will be empty-handed by that time in life, so let’s focus more in the other two stories. If both investment strategies could be called ‘safe’ over a thirty year period, would you choose Pat’s plan that runs her short of money, or stand with Verna and Bert whose investment managed to increase in value?

Blend and combine: To put it very briefly, we don’t have to choose just one approach. Imagine you have $15,000 in your chequing account, $85,000 in GICs like Bev, and the remainder invested like Verna and Bert. If we at least netted you 4% growth overall, you could plan on keeping your $600,000 in perpetuity*. When future needs arise, or the desire to share with your loved ones, you’d still have this value in your hands to use or to give as you choose.

Always in mind for your personal planning we include:

  • What will your investment pay over your life horizon?

  • How can we cut taxes that would hurt your net income?

  • If illness or other needs arise, how will this touch you?

  • Which plan is safest if you live longer than you expect?

A Certified Financial Plan must address all this and more to keep you safe, whatever the future may bring. Now, over to you! What are you thinking in regard to your home? Who have you heard discussing whether to sell while real estate is in the clouds? In speaking of such things, you need to clearly see how long your money can last, and what lifestyle and future it can provide for yourself and your loved ones.

*Perpetuity refers to an infinite amount of time. In finance, it is a constant stream of identical cash flows with no end.•

Brian Weatherdon of Sovereign Wealth Management Inc., is a Certified Financial Advisor, retirement coach, and consultant on wealth and aging. 905-637-3500 brian@sovereignwealth.ca

The information provided is general in nature, and should not be relied upon as a substitute for advice in any specific situation requiring appropriate legal, accounting, tax and other professional guidance. The views expressed are those of the author and not necessarily those of the issuer of any financial products for which the author may act as a distributor. Names and circumstances mentioned above are altered for confidentiality.

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Article originally appeared in our Silver and Gold magazine Winter 2017 issue. Click for more articles! www.silvergoldmagazine.ca

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