No home doesn’t mean no retirement

Shannon Lee Simmons said retirement planning is just easier when she has a client come into her office who has a pension plan or owns their own home.

“Whenever one of those crosses my desk, I say, ‘This is going to be easy,’” said the certified financial planner and the founder of the Toronto-based New School of Finance.

“The reason is a pension is inflation-protected and guaranteed income for life. You are done. Great. Amazing. And a homeowner, if that person is mortgage free, it means they can live cheaper in their retirement, or they can downsize. They have that ace up their sleeve.”

Simmons said a lot has changed in the 15 years since she started working in the industry. Home ownership is now out of reach for many Canadians, there is the rise of the gig economy and self-employment, and less employers are matching benefit and pension programs.

“I rarely see a person who is not in their 50s with any sort of pension. I haven’t seen a private pension plan in a long time, and most of them are government, health or teachers — that is a big shift from 15 years ago,” she said.

Still, that doesn’t mean that if you are missing a home or a do not have a private pension that you can’t have a good retirement, it is just easier to get their sooner. Instead, you need to be creative about it, said Simmons, especially in your 30s and 40s.

“Some of the creative things I have seen is that people who are priced out of a home where their job is will buy a home in an area that is affordable and use it as a rental property,” Simmons said. “One day you could live there when you are done working or you keep renting and when it is mortgage free it creates a pension-like income for retirement.”

She said other things she has come across are people opting to co-own a property with friends or family to keep initial costs low and then, once the mortgage is paid, splitting it into units to live in or selling the property.

Frederick Vettese, a Canadian financial expert who is the author of the book “Retirement Income for Life,” said a lack of home ownership means you will have to save more. His retirement model assumes people will own a home and pay down their mortgage before they retire so there is a significant drop in their expenses.

“I come up with a retirement income target of about 50 per cent of your final gross earnings, but it is a lot closer to 70 per cent if you are still paying rent after retirement,” he said. From age 30 or 35, people should be saving around 12 per cent of their gross income a year up until retirement age, Vettese said. But without buying into the housing market, he said you should be saving about 15 per cent.

Coasting to retirement

Simmons said another thing she has encountered is the concept of prolonged semi-retirement.

“I am almost 40 and I often think about this for myself,” she said. “I giggle a little bit because I don’t think I can retire, not because I am addicted to work, I just don’t know if I can. What a lot of what my clients in their 30s, 40s and early 50s fantasize about is ‘What if, when I am 55, I could earn less and just coast through for years until 70 and then start using my assets.’”

Under this plan, she said, the goal would be to work and earn less for longer, but with the goal of not accessing your retirement income until you are ready to do so.

“The goal is that I want to enjoy my life while I am able to, and, I may be tired, but I get that I can’t just stop working. So, how low can I earn — I figure out that number all the time for my clients — for an extended period of time.”

She said for many, 65 is still associated with retirement, but the idea you can just turn off your earnings at that age is no longer expected. Some are working to support adult children, want additional funds to travel, or realize they needed more money to retire more comfortably than they planned. She said even those with savings are hesitant to just live off that money — especially with people expecting to live longer than previous generations.

“I think the pandemic opened up a whole realm of semi-retirement opportunities,” Simmons said about the current reality around remote work or working from home. “People can go to the place where they plan to live when they are done working and work from there. So, some can leave the city, work part time, and can live were they want to live in their retirement sooner.

“I feel like retirement is a hybrid situation now,” she said. “The only people that I see who are kicking back are the ones who are super wealthy or have pensions that are protected for life, so there is no anxiety.”