Hang onto your houses, baby boomers.
An expert on retirement says you'll be happier than if you move to a condo or rent. "I get a lot of questions about retirement because of my background as an academic actuary," said Rob Brown, now retired in Victoria after decades teaching at the University of Waterloo. "People ask, what's your way to achieve retirement security? I say that one way is to have a home that is debt-free in retirement. That's a huge step in the right direction."
We talk a lot about the importance of saving money for retirement, about planning for a long life and about the benefits of working past the normal retirement age. But the matter of what to do with your house is also important, especially if you've owned for decades and are sitting on a massive amount of home equity.
There are two post-retirement approaches to housing. One is to get out of houses entirely, either by buying a condo or renting. The other is to either stay in the family home, or downsize to something smaller. Mr. Brown likes owning a house. "My attitude toward retirement is to try and achieve financial security," he said. "That means keeping the volatility down and knowing what you're going to have each month both in terms of income and expenses to a fairly high degree."
The fixed expenses of running a house are fairly predictable once your mortgage is paid off, with property tax and utility-cost increases being your biggest unknown. But what about maintenance costs and upkeep? Mr. Brown argues that these expenses are less volatile than rental costs for the renter, and maintenance fees for the condo owner.
He may have a point about condo fees. Talk to condo owners and you're bound to hear stories about annual cost increases well above inflation. Worse are the special assessments for $20,000, $30,000 or even $40,000-plus to address exceptional costs not covered by monthly fees.
I'm not sure about Mr. Brown's argument that home ownership costs are less volatile than rents, but he's certainly right about one thing. When you own a home, your shelter needs are met and there are no worries about having to find a new rental unit because your landlord is selling.
"Owning a house is a little bit more under my control and, whenever I'm in control, that's within the world of being secure," Mr. Brown said. "The feeling of security is extremely important."
Actuaries are numbers people and Mr. Brown is one of the country's eminent practitioners. He has advised the Ontario government on pension matters and is currently president of the International Actuarial Association. But in addressing home ownership, Mr. Brown admits he's gone a bit off script by talking up the emotional benefits. For him, it's all about the satisfaction of owning a place that provides "a roof over my head and a hot shower in the morning."
Mind you, Mr. Brown also has some economic reasons for keeping your house. For one thing, it's every person's hedge against inflation. Long term, expect houses to rise in price at roughly the same rate as the cost of living.
Houses can also be turned into cash through reverse mortgages or home equity lines of credit, Mr. Brown said. While both have drawbacks, they do allow homeowners to convert a measured amount of equity in their homes into cash that can be used toward exceptional expenses such as recovery from an illness.
When you finally do sell your home, it becomes a block of money that can finance the next phase of your life. Mr. Brown's mother moved into a retirement residence at age 93. "The equity she got when she sold her home could keep her going a whole long time in that residence."
A critical point in Mr. Brown's thinking about home ownership in retirement is that a house is owned debt-free. This comes back to his argument about control. If you owe money on a mortgage, you're vulnerable to having your payments increase as a result of rising interest rates.
Mr. Brown believes security in retirement is so important that he's trying to arrange funding for a study on whether it actually contributes to longer lives. He'd like to compare the lifespans of people with defined benefit pensions – benefits for life and thus very secure – and defined contribution plans. They're less secure because they're subject to market returns and the rate you withdraw money over the years.
Could owning a house help you live longer? If shovelling snow from your driveway doesn't get you, maybe so.
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How much for maintenance?
Actuary Rob Brown believes retirees are more financially secure when they own their own home, even with home maintenance and upkeep to contend with.
Here are methods of estimating the ongoing costs of looking after a house:
- By value: On average, these costs will amount to at least 1 per cent of the value of your home per year.
- By size: $1 in annual maintenance per square foot, on average.
- By age and build quality: Older houses and those built with lower quality materials or workmanship need higher estimates.
- By major systems: How new are the roof, furnace, driveway, electrical wiring, plumbing and so forth?
Rob Carrick