Thinking About Downsizing?

Some thing that many retirees consider is downsizing from their current home, which they likely have a lot of equity in, to a smaller, less expensive, home, town home or condominium. But is this a good idea? Is it wise to downsize?

Realestate retirement plan

Many people consider selling their large family homes, which they have a lot of equity in as part of their retirement plans. When you are ready to downsize it’s important to think about where you will be moving to and which type of home to want to buy for retirement. Many retirees choose to move into condos. As a retired person living in a condo has many advantages that allow them to be worry-free such as no lawn care, snow removal, the availability of a fitness center and pool in some cases and also having the ability to travel at a moments notice since you have less responsibilities centered around your home.

After a decade of record breaking house prices in the greater Toronto area this is an appealing direction that many are moving towards there are endless possibilities. You could even choose to have a cabin near a lake or ocean in a more rural location, no more commute, less maintenance and beautiful quiet surroundings.

One problem with downsizing however is that it may it always work out the way that you would think that it would. In many cases home owners walk away with less money that they had anticipated. For example if you are downsizing from a $400K home to a $300K home there will be little left after real estate and legal fees.

This doesn’t mean that downsizing can’t work for you, if you do it right you can walk away with a nice nest egg that will allow you to do the things that you dreamed of such as traveling.

Be Honest About It

Why are you planning to sell your large family home? Financial reasons? Practical reasons? Have your kids moved away? Is your house just too big? Do you want to move closer to your grandchildren? Do you enjoy travel and it is unnecessary? – these are all good reasons to consider downsizing.

Assess Your Needs

How will you live your daily life? Should you consider a bungalow? Is the convienience of a condo appealing to your needs? Take a look at the activities that you currently participate in and those that you wish to participate in and go from there. Taking a look at what you need will help you determine what you do.

Location, location, location

Decide where it is that you actually want to live. What would you like your retirement to look like? Do you want to be in a rural or urban area? Do you want to be closer to your family? Do you want to downsize to a smaller home or condominium?

Smaller does not always equal cheaper

Depending on where you are moving to you may find that monthly expenses are higher than you currently pay. These trade offs can be difficult to quantify, for example if you are moving into an urban condo with many amenities you might find the condo fees can be very high.

Price it Out

If you are considering downsizing make sure that you have realistic expectations. The truth is that most people will walk away with less than they anticipated.

For example: Let’s say you are moving from a $600,000 home to a $400,000 condo. You would think you’d be left with a whopping $200,000 for your retirement. Then you factor in real estate commissions of $30,000, $2,500 in legal fees, $3,000 in land transfer tax, moving fees of $2,500 and outstanding property taxes of roughly $1,500.

Now subtract any outstanding mortgage you have on your property and factor in any new furniture you may need for your now smaller environment. You may find that your downsizing has left you with a modest $50,000-$80,000.

To get a better understanding of what you can expect real estate agents can be very helpful.

Make a Plan

Financial advisers are excellent people to consult when you are putting together a plan for downsizing your home. They will help you draw up a financial plan that will outline many potential scenarios that can help you meet your retirement goals.

The Top Countries to Retire to in 2013

Do you love to travel and have dreams of retiring abroad?

If retiring abroad, in a tropical paradise is something you are thinking about here are this year’s top destinations that are the most popular among Canadians and Americans looking to retire abroad.

Ecuador

ecuadorThe people are welcoming and friendly, and the location is a paradise. Ecuador offers temperate mountain villages, sunny beaches, historic colonial cities and towns with many cultural offerings. This country also offers many senior benefits such as 50% off international airfare, for when you want to go back home for a visit.

Above all, Ecuador is such an attractive choice for many retirees because you can really stretch your dollars there. For $1600/month you and your spouse could live a very comfortable lifestyle. These values extend from cost of living to real estate prices. A condominium of the coast of California for example might cost you a million dollars, while, if you chose to buy a condominium in Ecuador, you could be looking at paying as little as $150,000 for a spot on the northern pacific coast.

Panama

panamaPanama offers the world’s best incentive program as part of it’s commitment to attract foreign retirees. This makes it very easy and convenient to get residence so that you can retire here.

Panama city is a vibrant busy city with fantastic restaurants, and great hospitals. It’s a hub for banking and commerce so you will find a great deal of international community there. Like Ecuador you can live in Panama for a low cost. With a budget of $1,700-$2,500/month you can expect to live very comfortably. This price includes housing, entertainment and even housekeeping costs.

Malaysia

Retirement-in-Malaysia3A large percentage of of the population in Malaysia speaks English, which makes it very easy to transition in this country. Although this Asian destination is far away, it is very affordable. In Malaysia on a budget of $1,700/moth you could afford to rent a sea view apartment in Penang with a pool and a gym, have a housekeeper that comes once/week, own a sailboat and eat at restaurants almost every day.

 

Leasing vs. Financing a New Car

There is a lot to think about when purchasing a new vehicle. When you have chosen the car that fits you and your lifestyle, you then have to determine what type of financing options also work best. One thing that you might be thinking about is leasing this vehicle instead of purchasing it. Leasing is not for everyone, everyone’s personal situation is different and leasing gives car buyers an alternative option to financing that new car you’ve been eying. Let’s go over some of the benefits and drawbacks to leasing vs. financing a vehicle.
Ford Mustang Giugiaro Concept

Leasing

Pros:

  • Lower out of pocket costs when obtaining and maintaining the vehicle
  • Requires little or no down payment
  • Monthly payments are usually lower
  • Can allow you to get a more expensive car that you otherwise may not be approved to finance
  • May offer a tax advantage for business owners
  • Excitement of driving a new car every 2-3 years
  • Always have the latest safety features
  • Always have a new car warranty

Cons:

  • You will always have a car payment – requires predictable and consistent lifestyle
  • You will never really own the vehicle
  • Can only drive a set number of miles per year, if you go over you pay extra
  • Insurance usually costs more for leased vehicles; depending on your age, driving record and location this may not have that great of an impact on your rates
  • Have to consistently maintain your car properly
  • Pay more in the long run for lease benefits

Points of caution when looking into a lease:

  • When you lease a car you are paying for the most expensive years of that car’s life – depreciation for it’s first couple of years. So it’s important to consider a vehicle that retains it value well and not go for cars that will depreciate quickly, this low residual value may affect the rates that you pay for your car.
  • When entering a lease agreement pay attention to any additional costs that you may incur, there may be charges for extra wear and tear, including irrationally high costs for going over your mileage. When you lease, you want to make sure that any surprise costs you might incur are kept as minimal as possible.

Financing

Pros:

  • You will actually own the car some day – you will be free of a monthly car payment
  • The car is yours to sell at any time
  • You are not locked into any fixed ownership terms
  • Less limits on insurance than if you lease
  • You can drive as much and as far as you want without penalties
  • You can customize your car as much as you want
  • You can be better prepared for lifestyle changes if your car is paid off
  • No risk of hidden fees for wear and tear

Cons:

  • Higher monthly payment
  • Requires a down payment
  • Depreciation on the vehicle can mean that you ow more than it is worth for the first 2-3 years
  • In the first years of paying back your loan you will likely be paying down interest opposed to the actual cost of the vehicle
  • Warranty will run out, meaning you will be responsible for any maintenance and repair costs towards the vehicle
  • You will have to trade in or sell your used car

The choice to finance or lease is a personal one that will most likely depend on your lifestyle and financial circumstances. If your life style is predictable and stable and your main goal is to drive a shiny new car every couple years and keep the cost to a minimum then a lease will probably be in your best interest. Otherwise, if you are the type of person that looks forward to a future with no car payment and the freedom to customize and drive to your heart’s content then financing that vehicle is probably your best bet.

Saving for College and Retirement at the Same Time

Saving money for a comfortable retirement when the time comes is something that is very important to you, but, on the other hand, you also want to help your child go to college or university. Is it possible to save for both? What will you need to sacrifice to achieve this goal? How do you find balance? Saving for your child’s education at the same time as your retirement can be challenging, but it may be possible to do both if you take the right steps now.

DivGrad_340Know your Financial Needs

You will need to determine what your financial needs are for both retirement and college. The following points are a good start:

For your retirement:

  • When do you plan to retire? 10 years? 20 years?
  • Do you have a pension plan or employer sponsored retirement plan? Are you participating in it? If you are, what is your balance? What will your balance be when you retire?
  • What amount you expect to receive in Social Security benefits? (estimate this using your personal earnings and benefit statement)
  • What plans do you have for your retirement? For example: Are you going to downsize your home? Do you plan on traveling much? Do you have expensive hobbies? Will you need to buy a new car?
  • Are you planning on working part-time during your retirement?

For your child’s education

  • When will your child start college?
  • What is the expected cost of your child’s education? Do you think they will attend a private or public college?
  • How many children are you saving for?
  • Do you expect your child to receive any scholarships based on athletic, artistic or academic abilities?
  • Will your child qualify for any financial aid?

There are many calculators that can be found online to help you predict your child’s education costs and your financial needs in retirement.

Determine how much can you afford to put aside each month

Once you determine your financial needs, figure out how much you can afford to put aside each month. In order to do this you will have to put together a budget that accounts for all your expenses and income. Once you determine how much you can put aside you will need to determine how you will split up this money.


Your retirement should be the priority

Yes, college is important, but you need to focus on your retirement, especially if you find out that your funds are more limited than you thought they were. Social security bennefits can not be as depended on as they have been in the past which makes it your job to fundĀ  your retirement. The other side is that, if you wait until your child starts college to save you will miss out on tax-deferred growth and compounding your savings. It’s important to remember, worst case scenario, your child can always fund college by taking out loans or receiving scholarships but you cannot take out loans to fund your retirement!

If it is possible, go ahead and save for both

In the ideal scenario you will be able to finance both college and retirement at the same time. The more money you save for college the less debt your child will be faced with when they complete school. Even if you put away very little, it can be surprising how much it will grow by the time your child gets to college. For example, at 8% $100/month will grow to around $18,000 in 10 years time.

A professional financial planner can help you figure out how to divvy up your funds between college and retirement if you are having troubles.They can also help you pick adequate goals and diversify your portfolio. You should treat each goal independently even if you are saving for both at the same time.

Can retirement savings be used to fund college?

Yes, but this is not a good idea. Financial planners strongly discourage this because it can leave you financially strapped in retirement. If you think that this is still something that you should be doing you can withdraw money penalty free from an IRA even if you are under the age of 60. Using your 401k will cost you a 10% penalty on any withdrawls you take out before 60. You can also potentially be subjected to a 6 month suspension if you make a withdrawal and you may also have to pay income tax on this money. It is best to talk to a financial planner before tinkering with your retirement savings to finance your child’s education.