Home downsizing

When Jeff and Wendy turned 60 a few years ago, they made the decision to sell their family home in Caledon, Ontario, and move to a condo in an active retirement community just north of Toronto. “It was quite a change,” Jeff recalls. “When we lived in Caledon, our house had a modest mortgage, reasonable property taxes and low maintenance costs. We lived well as a result. We wondered if we could achieve our retirement goals with the assets we had on hand.”

Jeff and Wendy’s concerns revolved around the combined costs of a condo purchase in a retirement community, maintenance fees and many of the traditional costs associated with active retirement living. Jeff wanted to maintain an active, independent lifestyle, enjoying golf, skiing and water sports. Wendy, while active in her own right, preferred to leave fishing activities to others. High on her list of priorities were entertainment and travel, which meant additional housekeeping and security services while they were vacationing away from home. Both Jeff and Wendy also recognized the fact that they might one day need assisted living services that included nursing care, physiotherapy and occasional treatment from a visiting doctor.

Using the net proceeds from the sale of the family home plus $40,000 from savings was enough to purchase the retirement condo. Secondly, Wendy’s spousal Registered Retirement Savings Plan (RRSP) was converted to generate enough cash to offset the monthly income shortfall of $1,000. Thirdly, in three years' time, they will transfer Registered Retirement Income Fund (RRIF) assets back into Wendy’s spousal RRSP and begin collecting Canada Pension Plan (CPP) and old age security (OAS) benefits at age 65. Jeff will defer taking CPP and OAS benefits for as long as possible to reduce his annual income tax liabilities.

With this plan, at age 65, Wendy’s RRIF would be worth about $70,000 if it earned five per cent per year from age 62 to 65, after withdrawing $1,000 per month from the plan. When it is converted back to an RRSP, these assets would grow on a tax-deferred basis until the end of the year in which she turns age 71, at which point the RRSP must be converted to another RRIF. Wendy’s combined pre-tax CPP and OAS income at age 65 would amount to approximately $1,425 per month (based on 2009 rates).

Jeff and Wendy's financial breakdown