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Your retirement nest egg

Like most Canadians, my home is my biggest asset. And in recent years, as I watched my RRSP nosedive, I took some comfort in seeing the value of my Toronto house skyrocket: If my RRSPs flounder, at least I have my "nest" as my retirement nest egg.

And, I'm not alone: 41 per cent of Canadians consider equity in their home as a key retirement savings tool. However, a recent report from the BMO Retirement Institute, "Home Sweet Home or Retirement Nest Egg," calls this tact into question and warns against relying too heavily on residential real estate to finance the retirement years.

It comes down to not putting all your eggs in one basket, says the report's author Chris Buttigieg, a CFP and senior manager, wealth planning strategies for BMO. He calls the report an "eye opener," adding questions about the viability of home equity mean "a lot of our advisers are reviewing the financial plans they're creating for their clients."

Retiring comfortably
In a recent BMO survey, 32 per cent of Canadians said that living comfortably in retirement was the most important financial accomplishment to achieve over a lifetime. The definition of "living comfortably" is different across the board; however, there's no disputing there are three traditional means for funding retirement -- government pensions, RRSPs and workplace pensions.

That said, 40 per cent of Canadians are not confident in their ability to save for their ideal retirement lifestyle and 29 per cent anticipate having to delay retirement due to financial shortfalls. It leaves a huge and worrying gap.

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"There is a phenomenal lack of savings," says Buttigieg. "People are approaching debt differently. A lot of boomers are OK carrying debt into retirement."

Poor debt management is a growing challenge and one future retirees (that's everyone) need to address: Statistics Canada reports household personal savings is at an all-time low, while household debt continues to climb.

Plan B
It's a dire combination that has many turning to Plan B -- viewing their houses as a future source of retirement income.

It seems like a solid backup, especially given recent market conditions, but experts say it's a risky approach in isolation.

"People think they can't lose, but that's not the case," stresses CFP professional David Phipps, a senior financial adviser with Assante Capital Management in Ottawa. While many have watched the financial markets struggle and the housing market shine of late, the past does not guarantee the future. "An issue is people who have seen home prices go up and are choosing to use just residential real estate as their retirement strategy."

While he believes homes ownership should remain a goal for financial stability -- "it's like forced savings" -- he is so wary of clients relying on home equity to fund retirement that he removes it from the equation.

"We try to find out whether or not they'd have a decent retirement not counting on the home -- if they do end up selling or downsizing (during retirement years), that's gravy."

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-- Posted December 14, 2012
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