Should you sell your home to fund your retirement?

According to the latest sales figures, the downward trend in Vancouver's real estate market is firmly in place.

The average price for a house on the west side is $2.9 million compared to over $4 million just a year ago. Values on the east side have dropped on average by $325,000  — from $1.7 million to $1.375 million.

Condo prices are also down by approximately nine per cent.

While this is great for potential buyers, it is troubling for retirees who are counting on their homes' equity to help fund their retirement.

For many of the two million homeowners in B.C., their home is their largest financial asset, so a significant drop in value will impact their retirement plans.

When asked: "Should I sell my home?", my answer is always the same regardless of the state of the market. 

When to sell

You should consider selling if it allows you to become financially independent. Of course, the best time to sell is during a hot market, but unfortunately many do not list their home due to FOMO, the fear of missing out.

Instead, they delay and only list after prices begin dropping, during a buyers' market. 

While not ideal, even after the recent drops you may want to consider selling your home if it means that your financial needs would be met for the remainder of your life.

The decision to sell your home is not a simple one. It is important to first put together a financial plan, which is an evaluation of your current financial situation. This is useful when contemplating any big lifestyle change, whether it be selling your home, early retirement, lending money to your adult children or taking a year off to travel the world.   

Plans are only as good as the information they are based on. The main benefit of the plan occurs during the discovery process when all the pertinent information is gathered, such as assets, liabilities, cash flows from pensions, investments, and/or inheritances, etc.

The goal of most plans is to help determine whether you will outlive your money, or your money will outlive you. If it is the former, the plan will help you make necessary adjustments — selling your home, working more or spending less — to help you reach your retirement goals. 

Financial planning software

The problem with financial plans is that the data is almost immediately obsolete. They are based on variables that are constantly in flux, such as real estate and stock market returns, and do not properly account for the unexpected, such as illnesses, job loss, or winning the lottery. 

This is where technology comes in. 

The financial planning software of the future will be goal-based. If you allow the software "view only" access to such things as bank accounts, investment accounts, credit history and real estate holdings, the software will be able to update data used in financial plans in real time. 

This will allow it to 'warn' you if you are at risk of not meeting your goals due to such things as over-spending or market fluctuations. You can then make modifications before the problem gets worse.

The software will also help you determine such things as how much you can afford to borrow or how much you can give away if estate planning.

The purpose of a financial plan is to set goals and monitor progress, which is impossible if you are not working with current data.

Some people may not feel comfortable allowing a computer program access to all their financial information, but keep in mind it is the same information that a bank would require when considering someone for a loan.  

This column is part of CBC's Opinion section. For more information about this section, please read this editor's blog and our FAQ.