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How to Buy your First Rental Property and Retire Early

I discovered a scary fact about Canadian retirees last year and it’s a cause for concern.

It’s not just my responsibility, I believe it’s my moral obligation to give you this information and help you.

My dad retired at 50, in 2010, and is able to support himself without any worry. I know many other people in my dad’s age group who have also retired between 50 and 55. This isn’t the case for some of my friends who are headed towards retirement age in the next 15-20 years.

Scary Facts about Retiring Canadians

Here’s some scary facts that should concern you:

  • 64% of Canadians (nearly two-thirds) expect to work in retirement because of lack of savings, according to a 2019 TD Bank survey
  • 1 out of 3 retired Canadians are still working, according to 2018 Statistics Canada Survey, up from 1 out of 5 retired Canadians working in 2015
  • 64% of working Canadians don’t believe the Canada Pension Plan (CPP) will be there for them when they retire, according to a 2016 survey by the Canada Pension Plan Investment Board
  • Even our American neighbours are at risk – more than 6 out of 10 are working into retirement for financial reasons, according to 2019 poll by Provision Living
  • Cost of living in 2019 increased by 1.9% from 2018 (and increasing every year)

Why are seniors working in retirement?

Every year more seniors are working into their retirement, when they should be relaxing after a lifetime of work.

1 out of 3 retired Canadians were still working in 2017 compared to 1 out of 5 in 2015, according to Statistics Canada. This is approximately 13% increase in 2 years alone. These numbers continue to increase every year.

Here’s 3 common reasons why seniors are working in retirement:

  • Higher life expectancy
  • To keep busy or out of passion
  • Financial need

The last point is concerning because seniors are forced to work and I believe you shouldn’t have to work past your retirement age, unless you choose to.

Out of all working seniors, older than 60 years, nearly 49% worked out of necessity to support themselves or their family. 28% of seniors still worked after 70 out of necessity.

Canadians are working past retirement because they plan their retirement late in life and don’t have any savings or investments to support them in retirement.

Among seniors working out of necessity, 55% had less education (high school diploma or less) and were working entry-level or non-management jobs, compared to 43% who had higher education (Bachelor’s degree or higher).

If you don’t plan for 30 years of retirement income, you risk financial trouble after retirement.

Imagine being forced to work at 70 because you don’t have enough savings to survive for 20 years.

This scares me. It should scare you too.

Rising Cost of living

Cost of living is increasing every year, according to Statistics Canada cost of living in 2019 has increased by 1.9% from 2018. And it’s increasing every year.

What’s your retirement strategy?

Some people work on paying off their home mortgage so that they can start saving money afterwards. This is a responsible thing to do, but if it takes away from retirement savings, it’s not the best strategy.

You’re probably thinking that you will live off your pension after you retire. Canadians qualify for collecting CPP (Canada Pension Plan) at 65 (or 60 at a reduced rate).

The current maximum CPP benefit is just over $13,000, which may not cover your lifestyle or any unplanned expenses.

This isn’t a smart strategy because the government controls how much money you get when you retire. Leaving your retirement to government is very scary because you have no control over your life.

Did you know that 2 out of 3 Canadians either don’t believe or aren’t confident that the Canada Pension Plan (CPP) will be around when they retire, according to a 2016 survey by CPP Investment Board.

The other big government retirement programs are Old Age Security (OAS) and the Guaranteed Income Supplement (GIS), which are funded out of general tax revenue, and not funded by employer/employee contributions. A simple change in legislation could take that away.

What about Employer pension plans?

Most employees prefer Defined-benefit pension plans, also called DB plans, are the plan of choice for unions, because they provide a predictable amount of pension at little or no risk. These plans are dying in the private sector because not many employers are willing or able to take that much risk.

Private sector DB plans are expected to be almost gone by 2026, according to Statistics Canada.

Based on these numbers, we can safely say that the number of Canadians who can’t afford retirement is growing. Therefore, you should start thinking of smarter ways to plan your retirement right away to have a stress-free retirement.

Let’s plan a comfortable and safe retirement for you…

Let’s assume you have your house paid off. The first option for you is to sell this house and live off of that money, but then you don’t have your own home.

Second option is to use a reverse mortgage and stay in your house, and use that money for smart investments.

The third option is the most lucrative one – to purchase a rental property, and have passive income to support your retirement.

If you pay off your house first and then start saving for retirement, you could lose the opportunity to buy a perfect investment property because the cost of real estate continues to increase every year.

Instead of paying off your current home mortgage, I recommend making your mortgage tax efficient by converting it into a tax-deductible mortgage. This is done via HELOC (Home Equity Line Of Credit) to invest in safe investments such as RRSPs, investment properties or a combo of both.

How do you go around doing this?

Our company has helped many people at different stages of life become financially secure before their retirement. We can share our client success stories if you like.

With a Home equity line of credit, a financial institution lends you money using your home as collateral. Other home loans let you borrow a fixed amount that you pay back over time. HELOC gives you access to a larger amount of money which you can use as needed.

You can borrow any amount up to your credit limit. Then you can pay all or part of the balance back, like paying your credit card bill, and borrow more money as you need, just at a very low interest rate.

All HELOCs have a “repayment period” of interest only payments. You can also take out a HELOC on a home that’s fully paid off.

Some other advantages are, HELOCs come with a lower interest rate (Prime + small percentage) compared to other types of home loans, and you can pay off the full amount at any time without any penalty.

Don’t take this matter lightly. You need to start preparing for retirement right now. I suggest you start as soon as Today.

We are here to help.

Explore our speciality programs here or simply book a free consultation to jump start your planning.

Sources

Growing Number of Canadians Unprepared for Retirement http://td.mediaroom.com/2019-01-15-Growing-Number-of-Canadians-Unprepared-for-Retirement

7 Reasons Why You Should Buy a Rental Property
https://www.google.com/amp/s/www.avail.co/education/articles/7-reasons-why-you-should-buy-rental-property-become-a-diy-landlord

Reverse Mortgages
https://www.canada.ca/en/financial-consumer-agency/services/mortgages/reverse-mortgages.html

The extinction of defined-benefit pension plans is almost upon us
https://www.theglobeandmail.com/investing/personal-finance/retirement/article-the-extinction-of-defined-benefit-pension-plans-is-almost-upon-us/

Consumer price index, August 2019
https://www150.statcan.gc.ca/n1/daily-quotidien/190918/dq190918a-eng.htm

Labour Statistics at a Glance, Reasons for working at 60 and beyond
https://www150.statcan.gc.ca/n1/pub/71-222-x/71-222-x2018003-eng.htm

Working seniors in Canada
https://www12.statcan.gc.ca/census-recensement/2016/as-sa/98-200-x/2016027/98-200-x2016027-eng.cfm

Here’s the Number 1 reason why seniors work well into retirement
https://www.cnbc.com/2019/10/09/i-cant-afford-retirement-is-main-reason-seniors-continue-to-work.html

Retirees taking on part-time jobs to stretch retirement funds and explore new passions
https://www.theglobeandmail.com/investing/personal-finance/household-finances/article-retirees-taking-on-part-time-jobs-to-stretch-retirement-funds-and/

The truth about whether CPP will be there for you in retirement
https://www.theglobeandmail.com/globe-investor/retirement/retire-planning/most-of-you-dont-believe-this-but-the-cpp-will-be-there-for-you/article37412941/

Reality check: Is CPP going to be around when you retire?
https://globalnews.ca/news/4055668/reality-check-is-cpp-sustainable-canada-retirement/

Will the enhanced CPP be enough to live on?
https://www.sunlife.ca/ca/Tools+and+Resources/Money+and+Finances/Saving+for+retirement/Will+the+enhanced+CPP+be+enough+to+live+on?vgnLocale=en_CA

Getting a home equity line of credit
https://www.canada.ca/en/financial-consumer-agency/services/mortgages/home-equity-line-credit.html

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