A 62-year-old Ontario woman named Margaret is facing a critical financial decision after receiving a $275,000 inheritance from her mother. With her health slowly deteriorating due to a chronic illness and an uncertain timeline for full-time work, she must decide whether to use the money to buy her own condo or bolster her investments for a secure retirement.
Margaret's Financial Picture and Retirement Concerns
Margaret, who lives in St. Catharines, Ont., stayed home to raise her family, resulting in fewer employment years and a lower income. She currently shares an apartment with her daughter but desires her own home. Her retirement income is projected to be modest: approximately $1,000 per month from Canada Pension Plan (CPP) and Old Age Security (OAS) starting at age 65, plus about $500 monthly from her ex-husband's CPP.
Her existing savings consist of $100,000 in a Tax-Free Savings Account (TFSA), invested in a balanced exchange-traded fund (ETF). She has no Registered Retirement Savings Plans (RRSPs) and does not own real estate. Margaret considers herself a conservative investor and has no plans to leave an inheritance, though any remaining funds would go to her daughter.
The Condo Purchase Option: High Risk to Cash Flow
In the St. Catharines market, a one-bedroom condo would cost roughly $350,000. Margaret could theoretically purchase it outright by combining her $275,000 inheritance with her $100,000 TFSA, totaling $375,000. However, financial experts from FP Answers strongly caution against this path.
Buying the condo outright would deplete almost all her liquid savings, leaving a dangerously thin financial cushion for emergencies, rising living costs, or accelerated health issues. In retirement, after paying property tax, utilities, and condo fees, her estimated $1,500 in monthly government pension income might leave her with only $500 to $700 for all other expenses.
If she opted for a mortgage while still working—for instance, with a 20% down payment—the math remains challenging. A $280,000 mortgage at a 4.4% interest rate with a 25-year amortization would result in payments of about $1,500 per month, effectively matching her projected retirement income and leaving nothing for other costs.
The Investment and Rental Alternative: Preserving Flexibility
The alternative is to invest the inheritance, potentially within her TFSA for tax-free growth, and continue renting. In her area, renting a similar one-bedroom unit costs approximately $1,400 per month.
Financial analysis suggests that renting is not necessarily a poor financial choice, especially when the cost is relatively low compared to the full carrying cost of ownership. By investing the $275,000, Margaret could generate supplemental retirement income, preserving her capital for future needs and healthcare expenses.
The experts warn that purchasing a condo carries a high risk of leaving her with very little to live on in retirement. To make ownership feasible, she would likely need to work and save for many more years to build a larger safety net. Otherwise, she might be forced to sell later in life or resort to a high-interest reverse mortgage. Additionally, real estate transaction costs can significantly erode equity, making buying less appealing for a potentially short ownership period.
The core advice for Margaret is to prioritize future cash flow and financial security over the immediate desire for homeownership. With limited pension income and health concerns, preserving her inheritance as a invested financial buffer may provide greater long-term stability and peace of mind than taking on the fixed costs and illiquidity of a condo.
