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The soft issues including leaving friends, family, clubs they may be members of, could be too much of an upheaval for older retirees.iStockPhoto / Getty Images

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Selling a pricey home and moving to a cheaper location to stretch retirement dollars is tempting in this era of galloping inflation. But serious financial planning and an assessment of lifestyle factors are needed before making such a drastic move, advisors say.

Keith Anderson, senior investment and wealth advisor with Anderson Wealth Advisory Group at BMO Nesbitt Burns Inc. in Parksville, B.C., has seen clients move from more expensive markets such as Toronto and Vancouver to the Vancouver Island beach town. He knows of people who have moved from Parksville to less expensive homes in Saskatchewan and the Maritimes.

Unlocking the value of a home is a strategy for retirees worried their nest egg is now insufficient, he says.

“Inflation decreases your purchasing power. One way you can combat that is increasing the amount of money you have working for you,” he says. “An asset like a house is a really good way to monetize extra funds because [the capital gains are] tax-free.”

If clients have the ability to monetize an asset and get tax-free proceeds, they can then put those work, he adds.

However, advisors need to encourage retirees thinking of this strategy to look at the intricacies because making a move to a different city or out of the country shouldn’t be taken lightly, Mr. Anderson says.

“You want to make sure the move you’re going to make gives you a big enough bang for your buck in terms of adding to your retirement assets and your pools [of investment capital] to make the move and all the soft issues you’re going to run into worthwhile,” he says.

Those soft issues, including leaving friends, family, and clubs they may be members of, could be too much of an upheaval for older retirees. Mr. Anderson says this type of move is probably one to be made earlier in retirement.

There are plenty of costs and issues, including tax and estate issues, to consider. Mr. Anderson points out estate law is different in B.C. than in Alberta, so a move from province to province needs rethinking of those parts of a financial plan.

A move out of the country typically may mean becoming a non-resident of Canada and that has tax implications as well, Mr. Anderson says. Emigrating clients need to do their due diligence on costs, fees, government levies, social services and health care where they’re considering moving.

On the income side, there are also some implications to moving out of Canada. If a tax-free savings account (TFSA) is an essential part of a retirement strategy, for instance, non-residents need to know their contribution room does not grow during the time they live out of Canada, and penalty taxes are applied to contributions made to a TFSA while the account holder is a non-resident.

Might be better to rent while trying it out

Kathryn Del Greco, senior investment advisor with Del Greco Wealth Management at TD Wealth Private Investment Advice in Toronto, says if she had clients considering a move to save retirement funds, she would prepare a list of things to consider before making a decision.

Clients should also consider if inflation is here to stay. If the inflation issue lasts only a year or two, should they uproot themselves? she asks.

Even if housing and food are cheaper in a destination such as Mexico, costs of insurance, dental treatments and airfare home to Canada to connect with family should be considered in any planning, she says.

And the emotional toll needs to be factored into the final decision even if the move will save money.

“You’re solving a financial problem but you’ve just added a whole other element of emotional detachment,” she says. “You’re not going to be as accessible to your family and now you have travelling expenses.”

If clients are set on moving, they might be better to rent rather than buy in another country, Ms. Del Greco says, while they try out the new destination and see the unexpected hidden costs.

‘How it used to be’

Zena Amundsen, certified financial planner at Astra Financial Services in Regina, warns that clients may have outdated ideas of how cheap it is to live out of the country.

Her parents have lived in Mexico for more than a decade, she says, and in that time the cost of housing and transportation have increased significantly. Rents in the past 10 years have doubled, sometimes tripled and cab fares have doubled.

Clients stuck in the mindset of how it used to be won’t see huge equity and cash savings, Ms. Amundsen says.

“There has to be a pause and investigation to determine if you’re really coming out ahead,” she adds.

Ms. Amundsen says an international move requires a comprehensive plan, and the advisor should refer the client to a tax advisor with cross-border experience.

She adds there are pitfalls to moving within Canada as well. One of her clients moved to a rural location and didn’t like it, but it took two years for the rural house to sell. Another client moved to the Maritimes and took a loss on the house when she returned. She had to come out of retirement to cover a mortgage on a new home.

Ms. Amundsen also advocates for advisors to take care of their retiring clients’ emotional health, asking if there are friends or family in the new location, will health care at the location meet their needs in five or 10 years, and how the client sees themselves fitting into the new community.

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