4 unconventional ways to fund retirement

Question:

I have always been skeptical about RRSPs and so have contributed very little over the years.  I’m single and now on the verge of retirement. I don’t have a company pension but my kids are out of the house and my mortgage is paid off. What are my options for retirement?

Answer:

AHHHHHHHHHHHH!

I don’t mean to add to your level of anxiety, but you are in a tough situation. And while I could try to speak soothingly about easy ways to solve this problem, there are no easy ways. Yours is a cautionary tale that I hope your kids, and our readers, can learn from.

Most of the time we talk about “saving” for retirement. In your case, we need to focus on “funding” your retirement, given that you are about to end your career and enter this new phase without a paycheque. The most obvious thing for me to recommend is that you continue to work, to build up your nest egg for when you really need it. If you aren’t able to do that, and don’t want to cut your lifestyle significantly, you will need to carefully manage your income and expenses so that you can pay for the basics.

Your financial base will be OAS and CPP. Depending on your CPP contributions during your career, the two combined will give you somewhere around $16,000 per year. This won’t go very far when it comes to paying the utilities and property taxes on your home, and other day to day essentials. So how can you increase your income or cut your expenses to fund your retirement? I have a few ideas, but I don’t expect you to like any of them because they all involve tradeoffs.

1.  Sell your house and downsize early.

Many seniors talk about their house as their retirement fund. But this only really works if you sell it and put the money to work generating income. Sure, you could get a reverse mortgage but the fees are high and you are still living in a house that you can’t afford.

Instead of waiting until you’re 75 years-old, consider downsizing now. And when I say “downsize” I mean in dollars, not square footage. Say you can sell your house for $500,000 and then buy something smaller and in a less desirable neighbourhood for $300,000. This frees up about $200,000 that you can put to work in something that generates an income, like dividend stocks or bonds. Interest rates are at a record lows these days, but at least you’ll get something coming into your bank account each month. You likely don’t want to sell your house, for a myriad of reasons, but this isn’t about want, it is about need.

2.  Develop source of passive income.

This second idea is to develop a source of passive income. Some people with greater resources and expertise might look at buying a rental property or starting a business. But in your case I would keep it simple and consider renting out part of your home – for example, creating a basement suite or renting rooms to foreign language students.

3.  Move to a lower cost region or country.

To increase your cash flow you can either increase income or cut expenses. You can make your money go further by spending less of it. The wild idea would be to move to a lower cost country, like Panama or Nicaragua. But if you can’t bear to work through the tax and health care issues or don’t want to brush up on your Spanish, consider moving to a lower cost community in Canada. Elliott Lake, a community in Ontario, has been marketing itself to seniors for years, focusing on high quality of life for a lower cost. If you can dramatically cut your cost of living you can stretch your limited income further.

4.  Rely on your kids.

You think I’m joking. I’m not joking. Another option is to talk to your kids now about how they can help with your expenses in retirement. One family on my TV show Million Dollar Neighbourhood has both grandmothers living with them. This isn’t a common practice in Canada these days, but in many cultures it is. And it might work for you. Or ask if they will have the financial resources to provide you with some sort of stipend.

As I said, I don’t expect you to love any of these ideas. But I encourage you to think about unconventional ways to increase income (legally) and cut your expenses so that you’re able to fund your life post paycheque.

Hey readers: What do you think? It is easy to shoot down these ideas, but the bigger challenge is to suggest other ones to add to list. What ideas do you have?

About Bruce Sellery

Bruce Sellery is the CEO of Credit Canada, the country’s longest-standing non-profit credit counselling agency. He is a former MoneySense columnist.