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Meagre income leaves retiree few options.


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At 65 and single, Kathleen finds herself in the same unenviable position as thousands of other Canadian women. She has a home she loves but her pension income is so meagre she fears she may not be able to stay there for much longer.

Kathleen worked outside of Canada for many years, teaching English as a second language. In 2007, she retired, returned to British Columbia and bought a two-bedroom condominium townhouse in Victoria with an enclosed garden that is her hobby and refuge.

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She paid $299,000 for the townhouse and figures it's worth about $389,000 now. Trouble is, she has a $175,000 mortgage.

With net income of about $1,865 a month and expenses of $1,745, Kathleen has little in the way of wiggle room. She has started to do a little tutoring and freelance editing, but she wonders whether she should sell her townhouse and either rent or buy a small condominium apartment.

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She's even wondered whether she could borrow against her home to raise a down payment for a rental property - a retirement condominium - that would throw off some much needed income if all went well.

"I am not alone," she said in an interview. "There are a lot of other people who are just my age or a few years younger, and there will be more and more of us as the years unfold and yes, it is an issue."

We asked Jane Cheong, vice-president of T.E. Wealth in Montreal, to look at Kathleen's situation. She found no magic solutions.

What Our Expert Says

Kathleen's house-related costs account for about 61 per cent of her monthly expenses, which is pretty high, Ms. Cheong notes.

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Kathleen is considering three options. The first is to sell her townhouse and use her equity of about $214,000 to buy an annuity.

"This would be an interesting scenario if we were in an environment where interest rates were higher," Ms. Cheong says.

An annuity is a payment that you receive in exchange for your capital. The amount you get is based on interest rates at the time you buy the annuity, your age and sex.

As it is, the annuity would barely cover the $1,000 cost of renting an apartment. Any annuity purchased with Kathleen's equity from her home, either now or later, would be a "prescribed" annuity and so would have a reduced level of taxation because it is purchased with after-tax funds, Ms. Cheong says.

Although Kathleen is single and has no dependants, she presumably has relatives or friends to whom she might want to leave an estate. Thus, if and when she does decide to sell, she could purchase an annuity with some form of minimum guarantee, say 10 years.

Kathleen's second option, to invest in a rental property, "would not be an option I would be looking at," Ms. Cheong says flatly. Not only would the combined mortgage be higher and the income uncertain, but she doubts any financial institution would give Kathleen the loan.

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Also, renting out a retirement unit would mean having the hassle of finding tenants and taking care of the property. Too many things could go wrong.

"What will the real estate market be like when Kathleen wants to sell her properties in five or even 10 years?" the planner asks. If prices fall, she may not get her capital back.

The third option, to sell her townhouse and downsize to a condo apartment, is worth considering, Ms. Cheong says. Prices for condo apartments range between $250,000 and $300,000 in Kathleen's neighbourhood.

If Kathleen were to sell her house and buy an apartment for $300,000, she would reduce her mortgage to $86,000. Her house-related expenses would be cut to about $762 monthly, which would represent 41 per cent of her monthly expenses, freeing up more money for discretionary spending.

Selling and buying a smaller place would come with its own expenses, the planner cautions - moving costs, real estate fees and decorating could eat up a portion of the savings.

But numbers aren't everything. Kathleen wants to stay in her home as long as possible and she should be able to as long as she can supplement her income, Ms. Cheong says. She recommends that Kathleen continue to develop her part-time tutoring and editing business.

"Nowadays, we see a lot of healthy retirees working part-time to fulfill their need to contribute and give back to the community, to keep a social network and to keep learning every day," Ms. Cheong says. "If Kathleen really enjoys tutoring and this helps her supplement her income, why not explore this easy solution?"

In 2013, when her mortgage comes up for renewal, Kathleen can revisit the situation. She will be 69. She can then decide whether to sell her house, rent an apartment or downsize to a condominium apartment.

If she is still in good health at that age, her life expectancy will be well over age 85, the planner says. If she then decides to sell her house, Ms. Cheong suggests Kathleen buy an annuity with her equity. By then, historically low interest rates may have risen to more normal levels.

If she were to develop any serious medical conditions by then, she may be able to apply for an impaired-life annuity, which could result in higher monthly payments.

Client Situation

The Person:

Kathleen, age 65, retired

The Problem:

How to make enough money to keep her beloved townhouse

The Plan:

Build her part-time tutoring and editing business to bring in some extra money

The Payoff:

Being able to enjoy her private garden for another few years

Monthly after-tax income:



Residence $389,000; RRSPs $6,000; cash $5,000. Total: $400,000.

Monthly disbursements:

Mortgage $747; condo fee $220; property taxes $90; auto $70; car insurance $56; house insurance $12; YMCA $45; course fees $75; food $250; communications $110; health care $70; savings/discretionary $120. Total $1,865


Mortgage $175,000; credit card debt $2,500. Total $177,500

Special to The Globe and Mail

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