Q

: I am 62 years old and stayed home to raise my family for several years, so I do not have a lot of employment years or that high an income. I am currently working, but my health is slowly deteriorating due to a chronic illness, and I’m not sure how much longer I can work full-time. I may only receive $1,000 per month total from the

Canada Pension Plan

(CPP) and

Old Age Security

(OAS) when I turn 65 and will get some of my ex-husband’s CPP pension as well — about $500 per month. I also have about $100,000 in a

tax-free savings account

(TFSA) invested in a balanced

exchange-traded fund

(ETF), but no registered

retirement savings plans

(RRSPs). I do not own any real estate and am currently sharing an apartment with my daughter, but I would love to have my own home.

My mom recently died and

left me $275,000

. So, I’m wondering how best to use this money to help me in my retirement. I live in St. Catherine’s, Ont., so buying my own one-bedroom condo may be an option. I could buy one for roughly $350,000 or alternatively simply rent for about $1,400 a month. I would consider myself to be a conservative investor and don’t plan on leaving an inheritance for my daughter. But whatever is left when I die will go to her. Thank you for your help.

—Margaret

FP Answers

: Sorry to hear that your mother recently died, Margaret. You have some choices to make with your inheritance of $275,000 that

should be carefully considered

based on future cash flow planning.

You could potentially buy a $350,000 condo outright using the inheritance and your TFSA balance, which total $375,000. This option would leave you with little savings to manage expenses, especially if an emergency comes up or if your health deteriorates and you have to retire soon. In retirement, once you cover property tax, utilities and strata or condo fees, you may only net about $500 to $700 per month for other expenses based on your government pension income of $1,500 monthly.

If you are still working, you could qualify for a mortgage and keep back some of your savings. I would weigh the length of the mortgage commitment against how much you can afford now while you may still be working versus when you retire. For example, if you had a down payment of 20 per cent, a mortgage would work out to about $280,000. Using a 25-year amortization and a 4.4 per cent interest rate, your payment would be about $1,500, or equivalent to your monthly income at 65.

Renting is not always a bad thing financially, and $1,400 rent is not high relative to the cost of owning a $350,000 property. I understand that having your own place may have an appeal, but there is a high risk that if you do buy, you will have very little to live on in retirement.

To bridge the expense gap, you would need to continue to work and save for many years to create a larger cushion should you buy or mortgage a home. Or you may end up having to sell in retirement or borrow against your home equity using a reverse mortgage, which comes at a much higher interest rate than a conventional mortgage rate. The closing costs to buy and sell real estate can get expensive and eat into a lot of your equity as well, so buying may not be as appealing for a short period of time.

If you invest the money using your TFSA and a taxable investment account, you could create a tax-efficient income stream to boost your retirement income. If you can rent at $1,400 a month, that is a very reasonable rate in the context of most mid-to-large cities.

Contributing to an RRSP account may not be advantageous to you. You probably have a lot of accumulated RRSP room if you don’t have an RRSP currently. But an RRSP is most advantageous if you are in a higher tax bracket today than you expect to be in the future. That may not be the case if your income is modest.

Your balanced ETF strategy is not a bad investment approach because it is simple and low cost. As a more conservative investor with modest savings, every dollar counts. And paying high fees generally does not result in higher returns. An investor can buy an all-in-one ETF and own thousands of global stocks and bonds. It also makes decumulation easy, because you don’t have to decide which investment to sell in retirement. You just sell units of your all-in-one ETF as needed.

Running some quick numbers, you could probably afford $1,400 in rent plus an additional $1,500 per month for other expenses on an annual basis, indexed, if you retire soon. Assuming you deplete your investments by age 95, your savings plus CPP and OAS could allow you to spend about $35,000 per year, indexed starting in 2026.

Given your chronic illness, your life expectancy may be shortened, but your health expenses could make your retirement budget difficult to assess. A shortened life expectancy may support starting CPP and OAS sooner rather than later. CPP can start as early as age 60, so you could apply now to supplement your income. OAS can start as early as age 65. You have to continue to contribute to CPP until age 65 if you are working, and your contributions will boost your pension in the subsequent year.

Practically speaking, a

home purchase

could restrict your cash flow at a time when you may want to enjoy your retirement rather than pinch pennies, Margaret. So, renting may not be a bad choice.

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Andrew Dobson is a fee-only, advice-only certified financial planner (CFP) and chartered investment manager (CIM) at Objective Financial Partners Inc. in London, Ont. He does not sell any financial products whatsoever. He can be reached at adobson@objectivecfp.com.