Retire – Downsize – Cash Out


Home-owners who downsize have five choices for the proceeds they receive from the sale of their home. They may choose a combination of all five or only two to three. Very rarely will they choose only one. Here’s a breakdown of the five along with some thoughts on the one that will be very common throughout this decade.

The five key choices for sale proceeds are:

  1. Rental residence + personal care (optional)
  2. Smaller residence of lower value + Saving/Investing for future care
  3. Smaller residence of lower value + Spending (Travel)
  4. Smaller residence of lower value + Giving (Family)
  5. Smaller residence of lower value + Debt elimination

Rental residence + personal care (optional)

retirement home - tautonThis choice is the “maximum cash out” option since no equity is transferred to another property. A good example of this is Retirement Home living since it involves rental accommodation and optional personal care. A senior who never downsized on retirement would typically make this type of move. A retiring boomer would probably not need personal care and would use the sale proceeds for one of the other choices below.

Smaller residence of lower value + Saving/Investing for future care

bungalowThis choice is very common for retiring boomers who still wish to own property but have no immediate needs for personal care. They typically renovate and customize their smaller residence to their liking with some of the downsizing proceeds. The new residence could be a bungalow, a retirement community row-home or a unit in a condo building. We have many neighbours in our condo building who precisely fit this profile.

Smaller residence of lower value + Spending (Travel)

budapest-river-cruiseThis is a variation of choice #2 since the new home is less expensive thus freeing up more cash for discretionary spending such as travel. Downsizers in this group typically use their new residence as a home base only and travel elsewhere for as much as six months each year. This choice is very popular with Canadians who become “snowbirds” each year during the winter months. For more on this choice, see Downsize – Retire – Travel.

Smaller residence of lower value + Giving (Family)

cash-giftThis is a variation of choice #2. However, some of the freed-up cash is gifted to others such as family members. This could be for grown children who have difficulty getting into home ownership as in the Greater Toronto Area (GTA). Helping grandchildren with university tuition is another example of this choice. The challenge here is for the retiring parent to set aside enough funds for their own care in the future.

Smaller residence of lower value + Debt elimination

credit-card-cut-upThis is yet another variation of choice #2 with different emphasis. The growth of personal debt levels over the past decade have left many retirees and seniors with outstanding debts while entering their upper years. Using home-sale proceeds to address the debt is proving to be a common strategy now and in the foreseeable future. This is expected to take us into the next decade, especially if the real estate market shows signs of weakness.

Bonus topic:

There is actually a sixth choice that is not listed above since it involves a “sideways move”. In this case, the home-owner decides to downsize their space only but not their equity. They do a partial downsizing but transfer their equity to a smaller residence of similar value. They are not really cashing out, only downsizing.

What is your family’s experience with “cashing out”?

* You may notice some Canadian spelling in these posts. The words may look odd but that’s how we spell them. We’re used to it.

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Quill pen

Unless otherwise credited, all posts are happily authored with a quill pen …
Paul Ferri, Broker, ASA (Accredited Senior Agent)
RE/MAX Unique Inc. Brokerage*, Toronto, Canada
*Each office independently owned and operated.

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