Right Size Your Retirement
Retirement planning has been on my mind a lot over the last few years, and rightfully so! I celebrated my 55th birthday last September. For decades, I have been brainwashed by the “freedom 55” ad campaign convincing me that retirement was possible at the age of 55. I have also witnessed the huge shift of Baby Boomers (those born between 1946-1964) and some early Generation X’ers making significant real estate moves to facilitate retirement, and in some cases, early retirement. For many, it has been made possible because of the huge family wealth transfer that is happening throughout Canada, while others have been using real estate to facilitate a “freedom 55” retirement plan.
This then begs the question… how much money do you need to retire? A Google search on this question brings up hundreds of scenarios, plans, and endless amounts of advice. Add real estate to your search and the list grows exponentially.
The real estate cycle over the last few years certainly has created a super cycle of retirees moving into the eastern part of the Valley—a direct result of Vancouver and Fraser Valley home values doubling. The market has essentially given homeowners the opportunity to retire early by using the equity boost in their homes and telling their bosses to take this job and shove it and start a life of retirement. Many of these new retirees are selling an older home and then moving down the Valley; in many cases, 3-5 communities away from their current home. This allows these people to be mortgage free and put a sizable amount into their retirement nest egg, and in return, gain a larger and more luxurious home.
So, how much money do you need to retire and how does real estate fit into the equation? If real estate is part of the equation, one needs to ask the questions, what is retirement right sizing? The “halfers,” as I like to call these new real estate retirees, cash out, spend half the equity on a new home that is 3-5 communities down the Valley, and bank the other half. These halfers are thrilled; they are retired or semi-retired, live in a beautiful new home, and have plans for new hobbies, travel, and lifestyle. Sounds exciting and expensive… and it is!
Long-term real estate retirement solutions for me are all about right sizing. If one right sizes their real estate for retirement, they will be financially comfortable throughout their retirement in regards to managing expenses. However, I see many of these halfers getting caught up in buying the large luxury home and dread that their retirement may be short lived. Why short lived? Because the luxury home brings on many lifestyle costs and expenses: maintenance of the home, new furniture, luxury cars, big people toys, new expensive social circles, and even clothing.
I recently read an article on how much you need in order to retire comfortably. It was suggested in that article that you take the value of your home and multiply it by 0.3. This number you end up with is the income that you will need in retirement. Then take this income number and divide it by 0.04. This is the value assets you need to retire with.
Let’s do an example. The average price for all property types in the Fraser Valley for March 2019 is approximately $700,000.
$700,000 x 0.3 = $210,000 — the yearly income to retire according to the article.
$210,000 / 0.04 = $5,250,000 — required assets to retire.
What do you think? Does the average retiree need north of $200,000 and assets of $5.25 million to retire? Personally, I think one can retire with far less, or can they? Does the retiree’s home value drive the sustainability of their retirement? How important is right sizing for retirement? Does size matter? The numbers above show what you need for retirement, or at least according to the formula, right?
F.I.R.E. (Financial Independence, Retire Early) is a term used in the early retirement community. Retirement is based on knowing exactly what you want from retirement and knowing exactly what it will cost. If retirement is jetting off somewhere every month, driving a luxury car, and living in the choicest neighborhoods—all traps for halfers—the amount of money that you will need may be found in the above formula. Do your own math. Is this the time to right size for a sustainable retirement? Please reach out to me if you have questions or would like to discuss right sizing.
A quick look at the “STR” (Sell Through Rate) stats reveals how two markets next to each other can be so different. The Vancouver market is struggling with most of the property types and communities in a Buyers’ market. The more affordable locations, such as Port Moody were in a balanced market. While much of the Fraser Valley enjoyed a solid balanced market in m and throughout the property types. Affordability or “drive until you qualify” is certainly driving the market today.
Please reach out to our team for more information or help with all your real estate needs.
Click Below To See The Fraser Valley Stats For February:
Click Below To See The Vancouver Stats For February:
STR (Sell Through Rate) Formula = Sales ÷ Active Listings + Failed Listings + Sales
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