Essie is 67 and her husband, Vince, is 76. When Vince retired 10 years ago, Essie and Vince owned their home free and clear, having paid off their mortgage some time ago. About five years later, Vince’s health began to decline. Essie and Vince managed on their own for a while, but then they needed help. With some home care, they were able to stay together one more year in their home.
Then, Vince’s health got worse. In time, he had to move in to a nursing home. That meant Essie and Vince had two places to pay for on the same income. All of Vince’s Old Age Security (OAS), Guaranteed Income Supplement (GIS), and Canada Pension (CPP) go to the nursing home. Essie also qualifies for some OAS and GIS, and she has a small Registered Retirement Savings Plan (RRSP) worth $54,000. She takes the minimum out each year.
In 2005, Essie’s total yearly income was $13,575. That works out to be about $1,131.20 a month. With that income, she has to pay her living costs, including food, hydro, heat, property taxes, transportation, clothing, and personal and medical needs. With so little income, she finds it hard to make ends meet.
Essie has some options. Using a reverse mortgage, she can borrow back some of the savings she and Vince have in their home. For example, if she borrows $60,000, she can buy a life annuity that will give her about $730 a month for life. Another option is to sell her home, and buy or rent a smaller place. If she takes this step, her housing costs will go down and she can invest the savings she frees up from her house to create more income. This will also make it easier to pay her bills.
Essie decides what to do: She feels it would be best to sell and move. She is concerned about getting a reverse mortgage, because if she lives for many more years, she will owe a lot of money in interest. If she moves instead, she can get a smaller place closer to Vince. That way, she can see him more often and spend less.
Content in this section is provided in partnership with Investor Education Fund, a non-profit organization founded and supported by the Ontario Securities Commission that provides unbiased and independent financial tools to help Canadians make better money decisions. To find out more, go to: GetSmarterAboutMoney.ca