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  • Writer's picturePatricia A. Stewart | CFA

The Role of Real Estate in Retirement Planning

When it comes to retirement, the latest statistics show that fewer Canadians than ever have a nest egg large enough to live comfortably in their golden years. While exactly how much a person needs will depend on what their view of retirement is, the general rule has been that Canadians need 70% of their pre-retirement income to live comfortably.

But according to the most recent data, 75% of Canadians aged 55 to 64 have $100,000 or less in savings while 44% have less than $5,000 in savings. While it appears as though a retirement crisis may be looming, a large portion of Canadians expect to use their homes to pad their retirement nest eggs. And there are some major benefits to including your primary residence or other real estate holdings in your retirement plans.


Thanks to Canada’s resilient real estate market, it’s easy to see why so many Canadians are counting on their homes to make up a large portion of their retirement savings. The benchmark price for Canadian properties more than doubled from $409,000 in 2015 to $861,000 in 2022.

While the housing market will experience periods of volatility, the average annual increase in Canadian property values over 20-year and 30-year periods have consistently exceeded five percent since the end of the Second World War.

To put that number into perspective, that’s pretty much in line with the stock market, which is inherently more volatile than Canada’s real estate market. And the equity market is where Canadians knowingly or unknowingly invest for retirement through pensions plans and Registered Retirement Savings Plans (RRSP).

Tax Breaks

Canada may have some of the highest tax rates, but when it comes to your primary residence, Canada is home to some of the most enviable housing tax exemptions. When you sell a house in the U.S., you can pay up to 20% on capital gains. In Canada, you do not pay tax on any appreciation in the sale of a principal residence.

If you purchased a home for $500,000 and sold it years later for $1.5 million, you keep all of that money. Assuming the home is paid off of course, if not, you pocket what’s left after paying off the mortgage.

That’s a significant benefit over how other investments are taxed. For example, with stocks, half of any capital gains are taxed. When you withdraw money from an RRSP, you’re taxed at the fully amount.

When you sell a house, the returns are treated like a Tax-Free Savings Account (TFSA) is, in that no gains are taxed. Tax-free retirement income can also come from a home equity line of credit (HELOC) or a reverse mortgage. You could also downsize to a smaller home too.

Diversified Retirement Portfolio

Real estate is not unlike investing in that it’s always a good idea to have a diversified retirement portfolio. As the adage goes, it’s never a good idea to put all your eggs in one basket. And real estate can provide Canadians with diversification that is not tied to stock market volatility or fluctuations.

For example, blue-chip stocks can provide long-term capital appreciation and a reliable dividend, while real estate can safeguard against economic downturns. In fact, compared to other major asset classes, Canadian real estate has a low correlation with the economy.

As a result, real estate can help reduce the overall volatility of a portfolio and provide a higher rate of return than one not diversified with real estate.

Hedge Against Inflation

Inflation is something Canadians are all too familiar with right now. In June 2022, Canada’s inflation peaked at a 40-year high of 8.1%. Inflation may be coming down, but the rising cost of living continues to make it difficult for many Canadians.

But real estate can help hedge against inflation. Assets that hedge against inflation tend to rise in value by the same amount, or more, than the cost of living does. As a result, rising inflation helps boost property values and even rental incomes. This may not help with current grocery bills, but it can help Canadian homeowners preserve their quality of life when they do eventually retire.

Sharp Asset Management for Your Retirement Planning Needs

While there are many ways in which Canadians can save for retirement, because of the tax advantages and strong capital appreciation, real estate has become one of the most popular. If you live in Toronto and currently own a home or are looking for ways to bridge the gap in your retirement planning, the financial investment advisors at Sharp Asset Management can help.

Sharp Asset Management is an independent wealth management firm that is 100% owner operated. All of our investment counsellors are charter financial analysts, the highest level of achievement, and have over 10 years of experiencing managing portfolios. To learn more about how Sharp Asset Management can help you with your retirement planning, contact us today.

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