Snowbird or not, look before taking wing
Spend time in a prospective area and imagine your retirement lifestyle before you pull up stakes, experts advise
By Michael Ryval
At age 72, Gordon Pape continues to work, both in Toronto and Fort Myers, Fla. The investment writer and publisher of the Internet Wealth Builder newsletter enjoys being active and spending balmy winters in the waterfront home he and his wife, Shirley, bought 11 years ago.
"As people get older they feel the winters more intensely than when they were young - I speak from experience," Mr. Pape says. "As you get older, winter is a time when you're less active. Having a place in Florida or Arizona changes all that."
Living in a warmer climate means a more active lifestyle, and the Papes spend far more time outdoors than they would in Toronto. "It's more social, and healthier. You do more because the weather is so conducive," he says.
But there is another side to the coin. High property taxes, exorbitant insurance premiums (especially in hurricane-prone Florida), maintenance fees and utilities add up to around $40,000 (U.S.) a year, Mr. Pape says. "My advice is, you don't do it for the money, or the potential gain [from selling the property later]. You do it for the lifestyle and because you can afford it."
If you are in your mid-50s and looking forward to retirement in five to 10 years, you are likely considering a host of future housing options.
Many ways to downsize
You can downsize by selling your home and moving into a condominium, and perhaps use the extra cash to acquire a vacation property south of the border. Alternatively, you could move into a Canadian retirement or "adult lifestyle" community that has amenities such as exercise centres and golf courses. Or you can stay where you are.
"You have to have a sense of your budget and how much of a home you can afford," says Sherry Cooper, chief economist at BMO Nesbitt Burns Inc. in Toronto, and author of The New Retirement: How It Will Change Our Future. "That helps to determine the location." Generally, she adds, retirees want to downsize. That usually means, within Canada, moving to a smaller city or town that is within a 60- to 90-minute drive of larger cities.
Good values in Ontario
"Property values would be down in much of Southwestern Ontario, for instance, because of layoffs in the auto industry," Ms. Cooper says. "Retiree couples could get quite significant values in a very lovely place."
But be sure to ask yourself key questions before you buy, advises Lee Anne Davies, head of advanced retirement strategies at Royal Bank of Canada in Toronto. Your choice "has an impact on your family, lifestyle and your health."
Ms. Davies's approach is to split the housing issue into three considerations: where you are going to live, how you are going to live, and the "what if?" or financial aspect.
In talks with clients, she goes through a discovery process. If someone is interested in living in a smaller city because it presumably has a more relaxed pace or milder climate, Ms. Davies will ask whether he or she has tried living there.
"Do you see a more balanced lifestyle taking place there? Do you see health care facilities, or will you have to return to the city to get the services you need?" asks Ms. Davies. "What about friends that you are leaving behind? They are important ties for you especially if you have more time to spend with them. What about the personal fit? Do you really feel you will belong? Some places are perfect, but others are not what you imagine them to be."
Too often, she observes, people will move to another community within Canada and discover that life is more complicated because they want to spend time with grandchildren in another city, or health problems require commuting to their hometown.
"We try to get clients to look beyond being 65. Think about being 70 or 75, when you need to re-enter the community where there is public transportation and better health care," Ms. Davies says. "Can you afford to do that?"
Consequently, she says, it's important to blend financial planning with life planning. "As much as you think about the affordability of these new communities, it comes down to deciding, 'What is your life going to be like?'."
That view is shared by Ms. Cooper. "What kind of lifestyle do you envision in retirement? If you are in a couple it's obviously a joint decision, but it could be difficult. ," she says. "One of you may have the beach in mind, but the other loves skiing or snowmobiling. "You have to talk it out, visualize, and take vacations in the areas you are contemplating. Get to know them. Dip your toes into the water and try them out."
Is U.S. market a good bet?
Should you be looking at the United States? Values of vacation properties have fallen by as much as 30 per cent to 40 per cent in Florida, Nevada and Arizona, and this could be an opportune time to buy.
"There are 'desperation sales' in Florida because it was so overbuilt," Ms. Cooper says. "The foreclosures are significant. Those properties are being auctioned. Some are going for less than their replacement value."
Still, she cautions that first-timers should not rush into the U.S. market. "Prices won't be coming back quickly. It's a great time to rent a place for a few weeks and do some research. Keep your eyes open," Ms. Cooper says, adding that it is a good buying opportunity for those who are thoroughly familiar with the area they want to move to.
Yet some say the United States property market is too risky to venture into.
"There are good deals, but also a lot of realtors and promoters who are trying to attract Canadian buyers who may not be savvy about the realities of the U.S. market," says Douglas Gray, Vancouver-based author of personal finance books such as The Canadian Snowbird Guide.
Mr. Gray expects prices may fall an additional 20 per cent in parts of Arizona, California and Florida. "The mortgage meltdown is still playing itself out," he says. "There are still people whose mortgages with artificially low interest rates will go to market rates, or two or three points above them. They're walking away from the properties because they can't afford them."
As the number of U.S. foreclosures climbs, the pressures will mount on unsold properties whose prices will continue to fall. "Buying into that volatile environment is very foolish," Mr. Gray says.
Be wary of pitchmen
Canadians should also be wary of new condominium projects that are only partly sold and are being aggressively promoted, he says. Should the builder-developer go bust because of the credit crunch - and many have already - buyers will end up paying disproportionately high monthly maintenance fees because they have to make up the difference for unsold units.
Finally, buying and renting out a property while saving it for retirement only introduces another level of complexity, Mr. Gray says. "You will have to file with the U.S. Internal Revenue Service and the Canada Revenue Agency," he says, noting that Canadians have to pay taxes on worldwide income and capital gains.
"You have to pay U.S. estate taxes and federal taxes and withholding taxes for your revenue down south. There are also maintenance fees and so on." Given all the factors, many people will walk away from the lure of a seemingly cheap U.S. vacation property.
"However, if you're being touted by a smooth-talking sales person, your normal cautions may dissipate," Mr. Gray says. "It's a dream that you're buying into. That's the conundrum."
Special to The Globe and Mail