Dave's retirement journey

Why downsizing in retirement doesn’t always work

By Dave Dineen, BrighterLife.ca

Why downsizing in retirement doesn’t always workIf you’re planning for your retirement, you may assume that moving into a smaller home is an essential part of the process. But what looks good on paper may not work out so well in practice. Depending on your circumstances, it may turn out that downsizing isn’t the best answer for you, and you end up rethinking your living arrangements. That’s what happened to us.

Several years ago, I identified a big barrier between me and early retirement: Half our net worth was tied up in real estate and wasn’t available for generating investment income.

So we set out on a complicated, multi-year journey to ensure we had a nice home to retire in, with a nice retirement lifestyle to go with it:

  1. We sold our four-bedroom house. Our empty nest was too big for two people. A lot of our money was tied up in rooms we never used.
  2. We bought a 71-square-metre, one-bedroom condo. The downtown location was perfect, at 250 metres from work, with parking, the city’s best transit service nearby and the city’s best deli downstairs. We could walk to doctor and dentist appointments and shopping, and were just 500 metres from the big regional hospital.
  3. We did something unusual. Because the condo was too small to host family gatherings, we tore down our family’s rustic, 1950s-era cottage and in its place, built a four-season, three-bedroom home. The new “cottage” became the site of our big family get-togethers. We rented it out during peak season, earning rental income.

All this freed up some money for investing, increased our income and dramatically changed our real estate holdings and our lifestyle.

Problems cropped up

Sounds pretty good, right? But after a year or two of working and living with that situation, we discovered two problems were bigger than we’d predicted:

  • The cottage was expensive and difficult to maintain. Property taxes on lakefront property were shooting up. And though the cottage was new, it needed more maintenance than we’d expected. The to-do and to-pay lists were longer than we’d bargained for.
  • We were finding we couldn’t travel freely. After enjoying the old and new cottages for years, exotic travel destinations were beckoning, while we were cutting grass, weeding and trimming trees.

Our choice: travel or cottage?

We realized that once we retired, we couldn’t keep the cottage and travel as extensively as we wanted. (Read about our decision: The retirement road not taken.) So we boldly undid several big steps we’d taken:

  1. We sold the cottage. That was a tough decision! Oh, the stuff we got rid of … family treasures, everyday things we didn’t have room for and rarely used things like the roasting pan for big turkeys we seldom roasted.
  2. We sold the condo. It was too small to serve as our one-and-only home, so that was an easier decision, though it had offered an appealing lifestyle.
  3. We bought a new bungalow. But we told the builder we wouldn’t take delivery for seven months.
  4. We retired, put everything in storage and hit the road. We spent four months in Europe to kick off our retirement, then we moved into our new house.

It took many moves and lots of realtor and legal fees, but we reordered our priorities and landed in a very good place, literally, for achieving our retirement goals. We have a (reasonably) maintenance-free new bungalow with a great layout that’s ideal for entertaining. We live in the lovely, interesting community of Stratford, Ontario, which is famous for its theatre and restaurants. It has a great hospital, we’re close to a premium golf course and our neighbours are a healthy mix of young families, retirees and working people.

I doubt that many of the estimated 4.4 million Canadians who will retire in the next 10 years will go through all the real estate hubbub we did. But expect to see lots of changes in your local real estate market as baby boomers create their personal ideas of optimum retirement.

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Lori on

Thank you very much for your information. We, as well are on the cusp of retirement and debating selling our large home and relocating to a condo. We also own a cottage which is very inexpensive to maintain and run (seasonally accessible only). As we have moved prior (due to work) we really don’t have an emotional attachment to this home or most furnishings so feel the move may not be as difficult. The phrase mentioned earlier about keeping it less and simply really shines out to me. Appreciate reading all the comments and experiences people have gone through. We’ve put off travel for long enough – time to live!

Peg on

The real issue is you didn’t really downsize…you split one property for two. The way I see it, it would have made more sense to buy the one bed condo, and then rent a cottage for those times you needed space for the family events. Solution was simple, you made it complicated.

roland philcox on

Raising the age of O.A.S. payment eligibility from 65 to 67 years old was disgusting,deplorable move by the Harper Conservatives to delay payments from the most vulnerable pensioners who built this country,and require these payments to keep up with constantly raising cost of living increases.
Too many people in this country are not concerned about how our seniors are treated, but the reality is that these same young people are going to become seniors some day too.
We need taxpayers to vote in a government that has some compassion for our seniors and repeal this disgusting attack on seniors.There are many other areas where goverment can cut, for example politician’s own pensions and abolish the Senate.

    bill on

    roland, I think you’re confussing CPP and OAS. To earn a CPP “entitlement”, you would have had to be employed at some point and contributed into the plan itself (and in turn contributed to society by paying taxes on that income, etc). OAS, on the otherhand, is based on the number of years that you have been a Canadian resident after the age of 18. Depending on the scenario, this may or may not have anything to do with “building the country” or contributing to society. Also keep in mind that when OAS was updated to it’s current universal system in the 60’s (see: http://activehistory.ca/2012/11/a-short-historical-primer-on-canadas-old-age-security-debate/) the average age lifespan of a male was most likely only somewhere in the early 70’s, so the anticipated timeframe for this benefit (and cost to the goverment i.e. -> current taxpayers) was only approx 10yrs. Currently, as the average lifespan is now mid-80’s (with lots of people living beyond age 90), it’s no wonder why the govenment changed the rules to begin OAS at age 67 – the working population simply cannot afford to pay out this “entitlement” for an additional 15-20yrs (indexed to inflation) for every old age person in Canada. A lot of this has to due with the baby boom generation coming into their retirement years and not enough young people entering the workforce to compensate. Therefore, financially, it seems like a simple solution to move up the entitlement age. However, in effect, the younger generations are now being forced to work longer and build up their savings in order to help supplement their own retirement incomes (CPP included, with the new changes to that program). That said, I completely agree that politicians pensions should be brought in line with the average Canadian worker but that’s a whole other discussion.

margsviewr on

I am curious, if a couple are beginning to have health issues that required care for 1 year, are they candidates for downsizing to build a new but smaller compound housing unit with their daughters family? Seems smarter to either stay in their home at reduced living costs or invest the money from selling their home to pick an nice independent potentially assisted-living unit? Please comment. Thank you.

pat on

We’re in the same boat- 58, retired, big house in a cold city, want to travel. Was Stratford not your original home? If not, did you find it diffiult to establish a new life there- friends, connections etc?

    davedineen on

    Pat — no, Stratford is new to us. It’s a great place and a lot of people retire here from nearby farms and small towns. Our next door neighbours moved here from Oakville, ON after looking “from Victoria to Saint John” for the perfect retirement location. I’m a bit on the introverted side, so it takes me a while to make friends, but that’s coming along nicely. Local folks are very friendly!

Jun 6: Best from the blogosphere | Save with SPP on

[…] Many people believe downsizing in retirement will free up capital needed for travel and everyday living expenses. However, on Brighter Life, Dave Dineen explains why downsizing in retirement doesn’t always work. […]

damjan on

The famous rule in sailing applies here Go simple, go small, go now! Less headaches, less complications, less stuff to take care of, less…less…less.

    davedineen on

    Thanks, Damjan. I hadn’t heard that rule; I love it!

healthfulsave on

Came over from Canadian Budget site. This is just the info I have been looking for. Can I ask what made you choose a home over a second, bigger condo? I am not questioning your choice, but I just want to understand your pros and cons. To me, a small condo and travel sounds like just the sort of path we would opt to take. A rental would be even more ideal until we realized how quickly we would burn through the money from the proceeds of potentially selling our home….

    davedineen on

    Hi, healthfulsave. For us, moving back to a house had a lot to do with my wife’s love of gardening. But growing healthy home-grown veggies and conditioning soil with compost kinda remind me of my upbringing on a family farm. Like you, we feared that renting would eat away our cash too quickly for people who expect to live another 30-40 years.

Wing Wong on

Pragmatic, down-to-earth telling of a lesson in life
learned the hard way
But at the end
an happy ending comes

Arshes76 on

wow thats alot of buying and selling RE. Curious, Why not rent in your retirement?

    davedineen on

    Hi, Arshes76. I’m (just!) 56 years old and can’t picture renting the rest of my life. If I were older, I might be more tempted to rent, but renting for 30+ years seems like it’d be paying a lot of rent.
    On the emotional side, though I don’t enjoy buying things — I’m not a shopper — I find comfort in owning some things: our house, good books, decent furniture, a not-too-decrepit car. That’s about the end of the list, really.

      Arshes76 on

      Are you concerned about the RE bubble going on? Thats gonna have a huge impact on your net worth or do you have a pension?

      davedineen on

      No, not too concerned. I don’t see my house as an investment, so I don’t think of it in terms of the house value going up or down.

Canadianbudgetbinder on

While I was reading your post is sure did sound like life was good. I had to re-read the title because I wasn’t reading any negatives. When I read on it reminded me of a gentleman on our street who lives in a bungalow with his wife on a huge property. He wants to sell, he wants to travel and golf, she doesn’t. Their days have been filled with weeding and planting flowers but he has told me he is hiring someone to do this now as he just doesn’t want to do it nor has the energy any longer. I thought, I’m going to write about this. He told me that even though he wants to downsize the cost of homes in our city are expensive and what they pay for a smaller home or condo will be more than what they paid for the house initially. It sounds to me like planning is very important and hoping not to make mistakes costing money in legal fees and realtor fees etc should be priority. Glad to hear you got it all sorted out. My mum and dad did the same except they rent out their paid for homes and bought a fancy mobile home for cash and hang out with other seniors in a complex and they love it!! They travel for months at a time all over Europe and don’t have to worry if the plants will die or if the garden is weeded. Life doesn’t have to tear down the walls, we do that on our own. Thanks for sharing your story.

    davedineen on

    Hiya, CanadianBudgetBinder – yes, those real estate transaction costs can be a real killer. They don’t seem so bad when house prices are rising, but that is still money out of your pocket.

    Karen lister on

    Not surprised it didn’t work. Going from a four bedroom house to a one bedroom condo and a brand new three bedroom cottage doesn’t sound like downsizing to me. That new cottage must have cost you a bundle to have built. If you had that much money available, why didn’t you buy a three bedroom condo in the first place and keep the cottage as it was since it had obviously functioned pretty well for a long time? All you did was reshuffle the amount of stuff you had to pay for and look after. A one bedroom condo is only practical for those who live alone and never have overnight visitors or entertain more than 4 people. Downsizing can work very well, but you have to be realistic about what works for you and what doesn’t.

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