Keep the House, Downsize or Sell and Rent? A Retirement Planning Guide
For many Canadians, their home is their largest asset. After decades of mortgage payments, renovations and memories, owning a mortgage-free home can provide a tremendous sense of security as retirement approaches.
But retirement can change the way you think about that home.
Perhaps the house has become too large. Maybe maintenance is becoming expensive, or you would like to free up money for travel, family, healthcare or other priorities. You may even wonder whether selling your home and renting could give you more financial flexibility.
These are important questions—and the answer involves more than comparing a home's value with the cost of rent.
Your housing decision can affect your retirement cash flow, investment income, taxes, government benefits and estate plans.
There are three main options to consider: stay in your current home, downsize to a smaller property, or sell and rent.
Let's explore what each option could mean for your retirement.
1. Staying in your current home
For many retirees, staying put is the preferred option. Your home is familiar, your community is established, and you may have family, friends and services nearby.
If your mortgage is paid off, you also avoid monthly mortgage payments and the costs associated with purchasing another property.
However, a mortgage-free home is not a cost-free home.
You still need to budget for:
Property taxes
Home insurance
Repairs and ongoing maintenance
Utilities and other household expenses
Future accessibility improvements or renovations
These costs can rise over time, and a major repair can put unexpected pressure on your retirement budget.
There is also an opportunity cost to consider. Money tied up in your home is not readily available to pay everyday expenses or invest for retirement income.
That doesn't mean your home is a poor investment. It means its value and the cash it provides are two different things.
Staying may make sense when you can comfortably afford the ongoing costs, enjoy your home and neighbourhood, and expect the property to meet your needs as you age.
Before deciding, consider whether your home will remain practical if stairs, yard maintenance or access to transportation become more challenging.
2. Selling and downsizing
Downsizing means selling your current home and purchasing a smaller or less expensive property.
For some retirees, this can offer a useful balance: a more manageable home, lower ongoing expenses and money released from home equity.
Imagine selling a larger house and moving into a smaller bungalow or condominium. If the new property costs less, the difference—after transaction and moving costs—could become available to support your retirement.
That money might help fund travel, supplement retirement income, strengthen your emergency reserve or provide financial assistance to family members.
However, downsizing does not automatically mean lower costs.
A condominium may come with monthly maintenance fees. A newer home may cost more than expected. Moving expenses, legal fees, real estate commissions and land transfer tax on a replacement purchase can also reduce the amount of money left over.
In Ontario, the cost of a replacement property and its associated expenses should be included in your calculations before you estimate how much equity you will release.
Downsizing may be worth considering when your current home is larger than you need, the ongoing costs are becoming burdensome, or you want to unlock some equity without giving up homeownership.
The goal is not simply to buy a cheaper property. It is to improve your overall retirement lifestyle and financial position.
3. Selling your home and renting
Selling your home and renting is a bigger change, but it can offer a different kind of financial flexibility.
Instead of using much of your wealth to maintain a property, you can turn the net proceeds from the sale into investable capital.
That money could help pay your living expenses, provide a financial cushion or support the retirement experiences that matter most to you.
Renting can also remove some responsibilities associated with ownership, including property taxes, major structural repairs and certain maintenance expenses. The exact responsibilities depend on your rental agreement and circumstances.
But renting introduces other considerations.
Your rent may increase over time, subject to applicable rules. You may need to move if your circumstances or rental arrangements change. You also give up ownership of the property and any future appreciation it might have provided.
Most importantly, the proceeds from selling your home must be managed carefully enough to support your future housing costs and other living expenses.
A large amount in the bank can feel reassuring, but it does not automatically translate into a sustainable retirement income.
Before choosing this route, estimate the rent for the type of home and neighbourhood you would genuinely want to live in. Then project how rent, other expenses and investment returns could change over the course of retirement.
4. The tax question: Is selling your home taxable?
One important advantage of owning a principal residence in Canada is the principal residence exemption.
Generally, if a property qualifies as your principal residence for all the relevant years you owned it, the capital gain may be exempt from tax. Eligibility depends on the circumstances, and the sale must be properly reported to claim the exemption.
The Canada Revenue Agency provides guidance on the principal residence exemption and reporting requirements.
However, there is a distinction that retirement planning often overlooks:
The sale may be tax-free, but what you do with the money afterward can affect your taxes.
Once you invest the proceeds outside a registered tax-sheltered account, the investments may generate taxable interest, dividends and capital gains.
That income can affect your overall taxable income and potentially influence income-tested government benefits.
For example, retirees receiving Old Age Security (OAS) may be subject to the OAS recovery tax if their net income exceeds the applicable annual threshold. The threshold changes over time, so it is important to use the figures relevant to the tax and payment year being planned.
You can check the current rules through the Government of Canada's OAS pension recovery tax information.
This does not mean selling your home will necessarily reduce your OAS. The sale proceeds themselves are not generally taxable income when the principal residence exemption applies. The potential impact comes from the income generated by investing those proceeds and from the broader retirement-income strategy.
That distinction is important when comparing housing options.
5. How selling your home could change your retirement income
Let's consider an illustrative couple, both aged 67, who own their home mortgage-free.
They have:
A home worth approximately $750,000
Retirement savings in RRSPs, TFSAs and a non-registered investment account
CPP and OAS income
A target annual retirement spending amount
No workplace pension income
These figures are hypothetical and are intended to illustrate the planning process, not predict a financial outcome.
The couple has three options: stay in their home, downsize or sell and rent.
Each option changes the financial picture in a different way.
If they stay, they retain their home equity, but continue paying property taxes, insurance, maintenance and other ownership costs.
If they downsize, they may release some equity while retaining ownership. Their ongoing expenses could decrease, although condominium fees and other costs may offset some of the savings.
If they sell and rent, they may have more money available to invest, but they also take on a recurring rental expense that can rise over time.
The critical question is how these changes affect their retirement income over many years.
A larger investment account may provide more flexibility, but it can also generate more taxable income. At the same time, having additional funds available to pay living expenses may reduce the amount they need to withdraw from their RRSP or Registered Retirement Income Fund (RRIF).
Those effects can work in opposite directions.
The couple needs to consider the combined result—not just the sale proceeds or the monthly rent.
6. Don't overlook your RRSP, RRIF and TFSA
Your housing decision should be considered alongside your other retirement assets.
For example, if you sell your home and invest some of the proceeds in a non-registered account, you may be able to use that account to cover certain expenses rather than withdrawing as much from your RRIF.
That could change the amount of taxable retirement income you receive in a given year.
However, investment income from the non-registered account may also increase your taxable income. The outcome depends on the type of income generated, your tax situation and how withdrawals are coordinated across your accounts.
Your TFSA may offer additional flexibility because withdrawals are generally tax-free and do not count as taxable income. But withdrawing from a TFSA also reduces the money available to grow tax-free, so it should be considered as part of the complete plan.
There is no universally correct order for drawing down retirement accounts. The best approach depends on your age, income sources, investment mix, tax situation, spending needs and goals.
Your home should not be analysed separately from the rest of your retirement plan.
7. Remember the costs of selling and moving
One common mistake is to calculate the amount available from a home sale using only the expected selling price.
The money you can actually use is the net amount remaining after the relevant costs.
Depending on your situation, those costs may include:
Real estate commissions and applicable taxes
Legal fees and closing costs
Mortgage discharge costs, if applicable
Moving expenses
Repairs or preparation before listing
Land transfer tax and legal fees if you purchase another property
Initial costs associated with renting, such as deposits where permitted and moving expenses
The costs vary considerably, so obtain realistic estimates before making a decision.
Also consider the ongoing expenses after the move. Renting replaces many ownership expenses with rent, while downsizing may reduce some costs but leave you responsible for property taxes, insurance, maintenance or condominium fees.
Compare the complete budgets rather than focusing on one expense.
8. Think about your future needs, not just today's preferences
A housing decision that works well at 67 may feel different at 77 or 87.
Your mobility, health, transportation needs and preferred level of independence may change. You may want to live closer to family or move into a home that requires less maintenance.
Consider these questions:
Is my current home practical as I get older?
Can I access healthcare, shops and community services easily?
Would a smaller home make daily life easier?
Would renting provide flexibility, or would I prefer the security of ownership?
Could I afford my preferred housing option if my investment returns were lower than expected?
How much money should I reserve for unexpected health or care expenses?
There is no need to move simply because you have reached a particular age. But it is worth making a plan while you have time to explore your options and make a considered decision.
9. Three housing options to consider in retirement
There is no single right answer when deciding what to do with your home in retirement. The best choice depends on your financial situation, lifestyle preferences and plans for the future.
Here are three options worth exploring.
Option A: Stay in your current home
Best for: Retirees who value familiarity, stability and staying in their community.
Keeping your home means you can continue enjoying your familiar surroundings without the disruption of moving. You also retain your home equity and any future appreciation.
However, you will need to budget for property taxes, insurance, maintenance and unexpected repairs. Consider whether your home will remain practical as you get older and whether the ongoing costs fit comfortably within your retirement income.
Ask yourself: Can I comfortably afford to maintain this home throughout retirement, and will it continue to meet my needs?
Option B: Sell and downsize
Best for: Retirees who want a smaller home, potentially lower expenses and some money released from home equity.
Selling a larger property and purchasing a smaller one may free up capital to supplement retirement income, fund experiences or strengthen your financial cushion.
Remember to account for real estate commissions, legal fees, moving expenses, land transfer tax where applicable, and the ongoing costs of your replacement property. A condominium, for example, may have substantial monthly fees.
Ask yourself: After paying all the costs of selling and moving, how much money would I actually free up—and would my new home improve my quality of life?
Option C: Sell your home and rent
Best for: Retirees who want greater flexibility and access to the equity tied up in their home.
Selling and renting can make a larger portion of your home equity available for investment or retirement spending. It may also reduce your responsibility for property maintenance and major repairs.
The trade-off is that rent becomes an ongoing expense, may rise over time and does not build ownership equity. You will need to consider whether your investment proceeds can support rent and other living costs throughout retirement, even if markets perform poorly.
Ask yourself: Could I comfortably afford my preferred rental lifestyle over the long term, while keeping enough money available for unexpected expenses and future care needs?
Which option fits your retirement?
Before deciding, compare the actual numbers for all three options. Estimate your net sale proceeds, future housing costs, investment income, taxes and retirement withdrawals. Then consider how each choice affects your independence, relationships, comfort and peace of mind.
The objective is not simply to maximize the amount of money you have invested. It is to choose a housing arrangement that supports the retirement you want and that you can afford to sustain.
10. A practical checklist before making your decision
Before you list your home or sign a new lease, work through these steps:
Estimate your home's current market value. Use a realistic local estimate rather than an optimistic asking price.
Calculate net sale proceeds. Subtract transaction costs, any outstanding mortgage and the costs of your next move.
Build a realistic housing budget. Include utilities, insurance, property taxes, maintenance, condominium fees or rent, as applicable.
Review your retirement-income sources. Include CPP, OAS, workplace pensions, RRSPs, RRIFs, TFSAs and non-registered investments.
Consider the tax consequences. Assess how investing the proceeds and changing your withdrawal strategy could affect taxable income and OAS.
Test different scenarios. Compare staying, downsizing and renting under a range of reasonable assumptions.
Protect your financial security. Keep sufficient funds available for emergencies and future care needs.
Consider the lifestyle implications. Your preferred location, community, independence and quality of life matter just as much as the calculations.
A qualified financial planner can help you bring the housing decision, retirement-income plan and tax considerations together. A tax professional can help assess the principal residence exemption and any unusual circumstances.
The bottom line: Your home is part of your retirement plan
For Canadians approaching or living in retirement, deciding whether to stay, downsize or sell and rent is about much more than real estate.
Your home may represent security, family memories and a place you love. It may also represent a significant amount of wealth that could support other retirement goals.
Staying can be the right choice. Downsizing can release equity while preserving homeownership. Selling and renting can create flexibility, provided the proceeds and ongoing costs are managed carefully.
The best decision is the one that supports the retirement you want while keeping your finances sustainable.
Before making a major move, compare the costs, consider the tax implications and look at how each option affects your retirement income over time.
Your home is an important asset—but the bigger goal is making sure all your assets work together to support your life.
This article is for educational purposes only and does not constitute personalized financial, investment, tax or legal advice. Rules and tax thresholds can change. Consider your individual circumstances and consult qualified professionals before making major housing or financial decisions.