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When Suzanne, 56, thought about retirement, she had envisaged starting a small landscaping business and enjoying golf and travel with her husband, Ben. But when Ben, 66, previously “a healthy and active guy,” suffered two stokes in the fall of 2011, their retirement prospects suddenly changed. (Dushan Milic for The Globe and Mail)

When Suzanne, 56, thought about retirement, she had envisaged starting a small landscaping business and enjoying golf and travel with her husband, Ben. But when Ben, 66, previously “a healthy and active guy,” suffered two stokes in the fall of 2011, their retirement prospects suddenly changed.

(Dushan Milic for The Globe and Mail)

Portfolio Makeover

Couple nearing retirement thrown off course by illness Add to ...

When Suzanne, 56, thought about retirement, she had envisaged starting a small landscaping business and enjoying golf and travel with her husband, Ben. But when Ben, 66, previously “a healthy and active guy,” suffered two stokes in the fall of 2011, their retirement prospects suddenly changed.

Ben had been at his last job for a brief two years so had just $6,000 in his work pension fund. After a third stroke, Ben went into long-term care, putting an end to any possibility that he would return to his job.

Suzanne earns a gross annual salary of $88,000 at a technical job that she’s held for nearly 30 years. She expects to get a monthly pension of $2,800 a month when she retires in September of 2014. Suzanne feels she won’t have the resources to start the landscaping business, so she plans instead to work part-time or on contract in her same field to supplement her income after retirement.

The Ontario couple has combined registered retirement savings plans of $370,000, mainly holding bank stocks and oil and gas. Suzanne has about $105,000 of an inheritance invested in non-registered mutual funds. She was concerned when one of her mutual funds in precious metals recently went down 20 per cent and wonders if she should sell those.

Suzanne and Ben have two adult sons who no longer live at home: one who just graduated from university and the other who will finish this spring. Suzanne says their co-owned family home (valued at $650,000) is too big for her now, and she will sell it in March (she has power of attorney). The proceeds will pay off the $239,000 mortgage and be reinvested in another smaller house rather than a condo to accommodate their 70-pound dog. Although the couple has a financial adviser through a bank, Suzanne doesn’t have a clear financial plan.

“Part of that is denial,” Suzanne says. “I keep thinking that Ben’s going to get better, but he hasn’t. I need to start making some alternative plans and financial decisions.”

Suzanne would like to have a secure retirement in which she could have enough money to go south every year for a month and golf.

We asked Gordon Stockman, owner of Efficient Wealth Services in Mississauga, and John Home, an investor consultant of Rosehill Consulting Services Inc. in Toronto, for their advice.

THE BASICS

$370,000 Total combined RRSPs.

$15,000 In a tax-free savings account (TFSA).

$105,000 An inheritance invested in non-registered mutual funds.

$20,000 In a savings account.

$2,000 In a chequing account.

Gordon Stockman’s tips

Sell the house. Both of our experts approve of Suzanne’s decision to downsize their home in order to pay off the mortgage. According to Mr. Stockman, if she moves to a less expensive home and nets $175,000, her spending could be maintained at $6,000 a month.

Diversify portfolio. As it stands, Suzanne and Ben’s portfolio carries unnecessary risk and should be diversified. Mr. Stockman recommends that Suzanne reorganize their investments for risk and liquidity needs. He sees their current portfolio as very aggressive and Canadian-centric, designed for a growth bet on the Canadian markets. “This portfolio is unsuitable for someone with such a high need for safety of principal and income within 18 months time,” Mr. Stockman says. “The adviser is using mutual funds [fairly high management expense ratios or MERS] while the self-directed discount accounts are all equities. The whole of the portfolio is unstructured and without evidence of a strategy.”

A new formula. Mr. Stockman recommends a portfolio with at least 48-per-cent fixed income and cash, indicated by the income needs and safety of principal. To improve the diversification, he recommends 19 per cent Canadian equities, 19 per cent U.S. equities, 14 per cent international equities (Europe, Asia and Brazil/Russia/India/China or BRIC), 38 per cent fixed income (with $100,000 in a five-year ladder of guaranteed investment certificates or strips and balance split between corporate bonds and real return bonds) and 10 per cent cash.

John Home’s tips

Clear debt. Mr. Home agrees that she should use the inheritance money of $105,000 to immediately pay off their $24,000 line of credit and credit card debt, which stands at $15,000, with an interest rate of 4.99 per cent. “Carrying debt into retirement should be avoided,” Mr. Home says. “Suzanne should not plan on retiring until all debt has been eliminated.”

Consolidate accounts. Mr. Home suggests that Suzanne consider consolidating her accounts under a do-it-yourself model, which currently represents the majority of her holdings, to reduce both fees and complexity. “An individual investor focused on stock picking requires a high degree of knowledge and commitment making it difficult for most to outperform the markets,” Mr. Home says. “A simpler strategy of having a well balanced portfolio of ETFs [exchange traded funds] or low-cost funds may better serve this investor.” Mr. Home points out that if there’s a major market correction, this current retirement plan would almost certainly be in jeopardy. He suggests that a more balanced, well diversified portfolio will go further to protect them from a significant market correction.

Take advantage of TFSAs. Mr. Home feels that Suzanne is underutilizing her TFSA by not maximizing her annual contribution to benefit from tax-free growth potential. It appears that the couple has carry-forward room. He recommends rectifying this immediately simply by transferring funds from her non-registered accounts to the TFSA for both her and Ben.

You can get your portfolio reviewed by the experts, too. Send us a confidential e-mail to portfoliomakeover@globeandmail.com. If we profile your portfolio, your identity will not be revealed.

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