To buy or rent a condo? Montreal couple search best route for saving towards retirement GlobeMoney
Ron and Rosemary are concerned about saving for retirement and contemplating if they should buy a condo or live on rent for the rest of their lives.To buy or not to buy, that is the question for Ron and Rosemary, a couple living and renting in the Montreal area.
We asked Matthew Ardrey, a vice-president and financial planner at TriDelta Financial in Toronto, to look at Rosemary and Ron’s situation.First, Mr. Ardrey looks at a scenario in which they continue to rent. They would move to a building with better amenities, increasing their rent by $500 a month to $2,500 a month, he notes. All other expenses would remain the same. The planner’s assumptions are based on a life expectancy of 90 for both.
Ron plans to retire at 65 and Rosemary at 70. When they do, they will receive Canada Pension Plan and Old Age Security benefits. Because Ron is an immigrant to Canada, the plan assumes he will get 80 per cent of maximum CPP and OAS. Rosemary will receive 100 per cent. In addition, her monthly CPP benefit will be 42-per-cent higher than if she had started receiving it at 65.
Offsetting the mortgage expense is the fact they would no longer be paying rent. Living expenses in retirement would be $76,000 a year after the mortgage is paid off, substantially less than if they were still paying rent. Any budget surplus is assumed to be saved to the TFSAs each year. “So of the two scenarios, the decision to purchase the condo is the financially preferred one,” he concludes. “In addition to the cash flow numbers being stronger, Rosemary and Ron would also have a real estate asset that in an emergency they could borrow against or sell if need be.”Finally, Ron and Rosemary should review their investment strategy to improve their investment returns and lower their costs, Mr. Ardrey says.
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