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May 14, 2014
Homes, C/QPP will fund the retirement of most Canadians, study says

For more than one-quarter of Canadians, their home is more than their castle:  it’s their retirement income.

Data released by Sun Life Financial indicates that 24 per cent of Canadians are planning for their home to be their primary source of income after they retire.

That so many people are relying on their home equity to fund their retirement caught researchers by surprise.

“It’s a bit of a surprise.  It’s not something we would recommend,” says Sun Life Global Investments executive Sadiq Adatia.  “People should be counting on their retirement savings and not really looking at their home.  A home is something you can have and carry forward with you.”

Using home equity to fund retirement requires selling of the property, re-mortgaging it or buying a reverse mortgage.  Any of those options could result in lifestyle, financial or, ultimately, estate complications.

While rising home values are cause for optimism, only those who have owned their home for years, perhaps even decades, could generate enough equity to support a person throughout retirement, Mr. Adatia suggests.

“If you’re 40 and bought your home five years ago, you can’t afford it,” he says.

The average value of a home in Canada is $388,553, according to the Canadian Real Estate Association.

The reliance of home equity for retirement income appears to underline the fact that simply putting aside money for retirement continues to challenge many people.  According to a BMO Financial Group RRSP study, 90 per cent of Canadians plan to rely on the Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) to cover the bulk of their income after they retire.

The problem: the maximum CPP/QPP benefit at age 65 is just over $12,000 per year.  The average CPP/QPP payout is $600 per month, or $7,200 per year.

“Given the amount that the CPP or QPP pay out, Canadians should not rely on them as a primary source of income to fund their retirement,” says BMO Wealth Planning Strategy Senior Manager Chris Buttigieg.  “They should focus on creating their own ‘personal pension plan’ by contributing to an RRSP on a regular basis.”

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