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  • Writer's pictureAlisa Aragon-Lloyd

Paying off your mortgage: What’s your plan for retirement?

By Alisa Aragon-Lloyd, as seen in "New Home + Condo Guide" magazine, March 4, 2023

Is being mortgage free your plan for retirement? While this is a good strategy, it is also important to consider other investment opportunities to give you balanced diversification and protect you from fluctuations in the economy and in real estate.

As mentioned, paying off your mortgage is a good plan. By doing so, you will have minimal property expenses when you retire and 100 per cent of the value of your home in equity. But by putting all your eggs in one basket, you could be missing out on other options that could give you a higher return on investment and would help you achieve your retirement goals faster.

Three ways to make your money work for you

1. Putting extra and lump sum payments towards your mortgage or increasing your payments regularly will shorten the life of your mortgage, but you may not be able to then contribute into your Registered Retirement Savings Plan (RRSP). A best-of-both-worlds-solution could be: Invest in an RRSP. You would pay less taxes, get a refund and with that money, you could make a lump-sum payment on your mortgage.

2. Put the equity in your home to work by using a home equity line of credit (HELOC). This will give you access to your equity whenever you need it and would be a perfect investment vehicle to give you a higher return on your money and maximize your taxes.

3. The Smith Manoeuvre. This means using the HELOC for short- and long-term investments. If you do short-term, high-return investments, when cashed, it will help you pay off the line of credit. Any extra money you have made will allow you to make a lump-sum payment on your original mortgage.

Factors to consider when planning for retirement

Many people think of their current needs and not about retirement until the later years. According to Statistics Canada, men have an average life expectancy of 79 and women of 83. On average, there is an increase of two to three years of life expectancy for males and females every decade.

As a result, you now must save more for retirement than previously. In fact, four in 10 Canadians age 55+ say there is a serious risk they will outlive their retirement savings. An additional 40 per cent of seniors say they will still be in debt after the age of 65, according to The Vanier Institute of the Family.

Since life expectancy has increased, long-term care costs need to be taken into consideration. Pensions are low and most people are not saving enough for retirement. It is important to have a retirement strategy to explore different ways that work with your lifestyle and goals. A comprehensive plan can be put in place by working with a mortgage expert, financial adviser and accountant.

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