the-retirement-leverage-strategy:-using-home-equity-to-build-a-safer-nest-egg
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The Retirement Leverage Strategy: Using Home Equity to Build a Safer Nest Egg

ByStan S.

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For many Canadians entering retirement, the math feels tight. Savings do not stretch as far as they once did and rising costs can eat into even the most carefully planned portfolio. But for homeowners, there is often a six figure asset sitting idle: home equity.

That is where the Retirement Leverage Strategy comes in. It is a way of using a reverse mortgage to unlock tax free income, extend the life of your investments, and maintain your lifestyle while keeping other assets invested.

Why It Works

  1. Tax Free Access to Cash Reverse mortgage proceeds are not considered taxable income. That means every dollar you unlock is worth more than a dollar withdrawn from a taxable account. For retirees trying to keep CPP, OAS, or GIS benefits intact, that tax advantage is powerful.
  2. Preserve Your Investments Tapping home equity allows you to leave registered and non registered accounts invested longer. By reducing the need for early withdrawals, you give your portfolio more time to grow and recover from market dips.
  3. Cash Flow Relief Unlike a traditional loan, there are no monthly payments required. Interest accrues against the property value, freeing up monthly cash flow for living expenses, healthcare, or even discretionary spending like travel.

Putting the Strategy into Practice

Here is a simple example:

  • A 70 year old couple with $500,000 in retirement savings and a mortgage free home worth $800,000.
  • Instead of drawing $35,000 a year from their investments, they unlock $15,000 annually through a reverse mortgage and withdraw only $20,000 from their portfolio.
  • The reduced draw keeps their investment balance higher, extending portfolio longevity by several years. That can make retirement income more sustainable.

Risks and Considerations

Like any financial strategy, the Retirement Leverage Strategy is not one size fits all. Key factors to weigh include:

  • Compound Interest: The loan balance grows over time, reducing eventual home equity.
  • Inheritance Planning: Heirs may receive less property value.
  • Eligibility and Costs: Reverse mortgages come with setup fees and rate considerations that should be compared against alternatives.

A professional advisor can run the numbers to ensure the benefits outweigh the trade offs in your situation.

The Bottom Line

Home equity is often a retiree’s largest untapped asset. With the Retirement Leverage Strategy, that asset can do more than sit idle. It can provide tax free income, reduce portfolio withdrawals, and help you maintain the lifestyle you have worked for.

Used carefully, it is a way of making your home work for you, not just the other way around.

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