The definition of a Baby Boomer is “a cohort of people born between the ages of 1946 and 1964. They are preceded by the Silent Generation and followed by Generation X.” When society looks at the Baby Boomer generation, they tend to view a group of people who have amassed fortunes and will retire with a large amount of wealth. However, when you dig into the group somewhat, you will notice that the 1% of income earners have done well, and the median earners have not been as fortunate.
From 1979 – 2007 the 1% of the income earners had a wage increase of 278% whereas the middle-income earners group managed only a 35% increase in wages. Not all Baby Boomers are retiring rich.
Let’s begin with the middle-income group in a town like Oshawa. The average home in Oshawa is selling in the $900,000 range and if we look at a couple who own a semi-detached home worth in the $700,000 range with a mortgage of $150,000, their home equity, once sold, would be around $500,000.
Selling and purchasing would be challenging as the choices to downsize and purchase locally offer few options. If they choose to rent, the average rent for a 2-bedroom unit is in the $2,200/mth range. The life expectancy in Ontario is around 80 years, so if a couple were in their mid-60s, they would need enough income to support their lifestyle for 15 years. If you look at the equity from their home sale and divide it by 15 (years), they would have $33,000/year to live on. Rent of $26,000/year leaves little left over. This calculation is based on living on their home equity only with no retirement savings and/or pensions.
If the same person decided to, like one of our recent clients, move out of the area, they may be able to purchase a home and have lower carrying costs. The client we worked with bought a home in New Brunswick and doing some research, I found homes in their area that are selling for $275,000. If the Boomer sold their semi and purchased in NB, they would have $225,000 left over to live on with carrying costs of $300/mth for insurance and taxes and the cost of utilities. Again, with a 15-year plan, they would have $15,000 yearly for their lifestyle.
Individuals in the higher income group have more options, with higher value homes that will deliver more equity once sold and typically more assets like retirement savings, stock market investments and investment properties. I have found that most people who downsize from (again using the average of $900,000 for a home) a higher value home, such as $2,000,000, will downsize to a home locally and purchase rather than rent. Renting a premium apartment in the Durham Region will cost between $2,800 – $3,500/month. In many cases, it makes financial sense to purchase rather than rent if the couple has enough equity.
When discussing downsizing with any client, I have found it valuable to complete an exercise by determining the assets the client has built up, the income they will have for the future and any liabilities they have accumulated. It is not uncommon to chat with people in their 60s or 70s who still have mortgages and loans, which can impact the downsizing decisions. Each situation is individual and requires looking at different options. For some, moving out of the area or out of province makes the best sense to provide a comfortable lifestyle, whereas other people have the means to downsize and stay local.
Something I have learned from selling homes over the past four decades is that when a couple decides to downsize, it is best to move quickly. The market can turn overnight and if a downturn happens, it can be devastating when a couple are using the equity in their home to fund their retirement. When a couple are in their 30s and a downturn happens, they have decades to recover. This is not the case when people are selling due to retirement.
One determining factor that comes up regularly with people downsizing is staying close to their doctors or to a hospital. One of the benefits of southern Durham Region is that wherever you live, you are always close to a hospital or medical centre. There are reasons to remain local, even if the costs of retirement are larger, mind you there is a certain appeal to a small town lifestyle.
If you are looking at downsizing, it is best to meet with a full-time Real Estate professional and discuss your options. You may be surprised at the available options.
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