The time has come for upsizing your new house. Your job is going OK. The kids are now semi-independent and they are thinking of moving out and renting. At last the time is right to buy that large luxury house you have been dreaming about. You know, the one with the heated pool and the built-in media room. Whoa!! Well, stop and have a think about it with your head and not your heart.
You have worked out your expected price for the house you are in now. You know how much is outstanding on the mortgage. You have calculated your monthly budget for your repayments and you can just do it. Sure, you won’t have a lot left over but with maybe 15 years to retirement you figure out you should be able to have it pretty much paid off by then.
What you haven’t taken into account is how much you need for your retirement to live on and where that is coming from. It costs a lot just to live and the more you have saved or invested when you retire, the more comfortable and secure you will be when you no longer get that regular pay check. If you purchase that dream mansion you may feel fantastic about it for a year or two but remember, the larger the house and property, the more outgoings you will have keeping it maintained and looking great and the less money you will have left for investing in your retirement fund and you present living expenses.
The retirement years can last for a long time because we are living healthier and longer. Unless you want to struggle in your old age and have to watch every cent, think carefully and do your sums. The current Canada Pension Plan is $1092.50 per month. You may well be better to increase your investment in other assets (perhaps stocks and bonds) than upsizing and putting extra money into the dream mansion. This is especially worth evaluating in light of the falling real estate values.
So before you take the leap of faith and buy that castle, think carefully about your future. Maybe a smaller unit with more comfortable fittings etc. might be a better long-term solution. If on the other hand you have a healthy, balanced portfolio of investment and are sure you will have sufficient retirement income, then upsize to your dream home. You have done well, you deserve it, enjoy it.