m-set wrote: ↑03 Oct 2017 15:51
My CPP will be at 239 @ age 60, 401 @ age 65 and 658 @ age 70
My OAS would be 585.49 now but she said it will likely be higher when I'm 65.
I am in a 20% marginal tax bracket. Not like most of you high rollers around here : )
Buy scenario (assuming a down payment of 45% of purchase price, $375K condo):
Mortgage payment + condo fee + utilities + phone/internet + Property tax + insurance = $2200
Current rent scenario: $1900
So it's $300 more in terms of cash flow increase, not $200 as I had mentioned.
So let's say you retire at 65 for the sake of argument, with $1000/mo coming in from CPP/OAS.
At a 20% tax bracket I take it you make < 42k/year, which means dividends are taxed at -6.86% (i.e. they decrease your taxes by almost 7c for each dollar received).
So let's work this out:
Buying condo:
$206,250 mortgage = $1023/mo payments until age 78
Monthly other fees (condo, utilities, etc) = $1177
Total monthly payments: $2200
Total payments you have made at age 78: $660,000
Value of condo at age 78: $1,017,000 (assuming 4% growth as you assumed -- I think this is overly optimistic personally)
Left over money = 250k - $168,750 = $81,250 -> grows untouched to age 65 at 5.2% (based on the assumption you used, and this seems reasonable to me) -> $151,438
Renting:
$1900/mo payments until age 78
Total payments you have made at age 78: $570,000
Left over money: $250,000 -> grows untouched to age 65 at 5.2% -> $465,966.07
Obviously, the mortgage payment/other fees/rent will not stay unchanged over time, but since they will most likely all increase due to inflation and rising interest rates, for simplicity we shall assume they do stay unchanged over time.
At age 65, you retire and start getting CPP/OAS. You haven't saved anything extra for retirement except for the inheritance.
Income if you own the condo from age 65-78: $1000/mo from CPP/OAS + $505/mo from your investments (you can safely take out 4% of your investments a year if you want them to last 30 years)
Expenditures if you own the condo from age 65-78: $2200/mo
Shortfall: $695/mo ($108k over the 13 year period)
$650/mo on beer and groceries seems reasonable, I think (room for some luxuries there but nothing too crazy). That's $101k over the 13 year period.
Income if you rent from age 65-78: $1000/mo from CPP/OAS + $1553/mo from your investments
Expenditures if you rent from age 65-78: $1900/mo
Surplus: $653/mo to spend on beer and groceries
Then age 78 comes and your mortgage is paid off.
Income remains the same for both situations but expenditure changes:
Owning condo: $1177/mo -> surplus of $328/mo
Renting: $1900/mo -> surplus of $653/mo
So, if you keep living in the condo until you die, you end up much poorer than if you had rented.
If you sell the condo at age 78 and it really did grow 4% per year, you'd get $966k as a lump sum after realtor fees. After you pay off your 200k in debt accumulated to pay for the mortgage/condo fees/beer groceries shortfall, you're left with $756k. This gives you $2500/mo in lifetime income, which added together with your $1000 CPP/OAS is $3500/mo, giving you a surplus every month after age 78 of $1600 for beer and groceries.
HOWEVER, there are 2 big issues with this: Firstly, it counts on the condo growing 4% a year, which may not happen. Mind you, the 5.2% for the investments may not happen either. Second big issue is that from age 65-78 you are in the hole every single month and that can't be fun. If you keep living in the condo your monthly surplus even after it's paid off is less than your monthly surplus if you were renting (assuming the 5% returns really happened).
I hope this helped, I basically just vomited numbers at you. I think they made sense. My inclination would be towards renting, it seems safer.