Annie is 56 years old and single. Her two daughters have left home and she plans to retire in four years. Will she be able to carry out her project and also keep her cottage?
The future retiree owns a house worth $450,000 and also inherited a cottage worth $385,000. She likes to spend vacations and weekends there, but the associated maintenance costs are around $20,000 a year (repairs, snow removal, electricity, grounds maintenance, etc.). In addition, he does not want to rent it short or long-term because he wants to enjoy a carefree retirement.
She is wondering if she will be able to keep the cottage and maintain a good standard of living, given that she wants to leave the job market very soon.
Financial security advisor Jean-François Rémillard of Gestion de Patrimoine Squito explored different scenarios for her.
Scenario 1: keep chat as long as possible
Annie estimates her living expenses at $65,000 a year. Under these conditions, he will exhaust his capital at the age of 70 and will have to sell his cottage. “If we take into account the average increase in property values of 4%, she should be able to get around $500,000 net,” estimates Jean-François Rémillard.
Once the cabin is sold, Annie would like to spend a few winters in the South and estimates her needs at $55,000 by age 75. Subsequently, the annual sum of $45,000 seems sufficient to him. “In this scenario, Annie will deplete her equity at age 82 but retain the full value of her residence,” states the financial security advisor.
Scenario 2: sell the cottage immediately
If Annie sells her cottage now, she could create a net surplus of $350,000. “He uses it to max out his TFSA and invests the remaining amount in an investment account,” explains Jean-François Rémillard.
At the same time, she will save $20,000 a year, which she would normally have to spend on the maintenance of the cottage. If she puts that amount into her RRSP until retirement, in addition to the refund, that $80,000 will also allow her to get a tax refund.
“Annie wants to enjoy a nice retirement, and since she won’t have the cottage anymore, she wants to be able to spend a few winter months down south. Therefore, he estimates his living expenses at $55,000 a year, and from the age of 75 he will reduce his budget to $45,000,” explains the consultant. By choosing this strategy, she will deplete her assets at age 92 and retain the full value of her home.
“Owning a cottage is nice, but it requires a significant influx of cash year after year, not to mention the time you have to spend maintaining your second home. It’s a reflection on that. For a carefree retirement, Annie is therefore very interested in deciding to sell the cottage immediately. With the amount obtained, he will be able to pamper himself a little and hibernate in warmth,” concludes Jean-François Rémillard.
HER FINANCIAL SITUATION
TFSA: $42,000
RRSP in worker fund: $103,000
RRSP: $352,000
Locked-in Retirement Account (CRI): $91,000
Salary $110,000
Annie contributes $6,000 to her TFSA and $5,000 to the worker’s RRSP each year.
Jean-François Rémillard used a rate of return of 4% for TFSAs and 4.5% for RRSPs and LIRAs in his calculations.
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