In the Paycheque Project, bold Canadians talk to The Globe and Mail honestly about how they spend their incomes and their tough choices for the future.
- Net monthly income $3,130
- Townhouse $1,492
- Food $250
- Transportation $210
- Fun $710
- Savings $675
- Debt $0
- House $330,000
- RRSP $35,000
- Age: 52
- Home: Kamloops, B.C.
- Work: Executive Assistant.
At 52, Cindi Thompson could be eight years from retirement. While in some ways that’s an exciting prospect, it’s also a scary one.
“My biggest financial fear is eating cat food when I retire,” she says.
Ms. Thompson, who lives in Kamloops, B.C., works as an executive assistant at Thompson Rivers University. She’s single, but managed to buy her 1,800-square-foot townhouse in 2009 (her third house). The downside: Its value has dropped $35,000 since then.
That’s a big concern for Ms. Thompson, whose home is essentially her retirement plan. She’s been counting on selling it, moving into a smaller place, and living off the difference. “I realize it’s only a loss on paper,” she says, “but it’s still in my brain.”
Ms. Thompson hasn’t made a definite decision to retire at 60, but her pension will be maxed out at that point, so there’s no obvious reason to continue working. She would like to travel, though, and she knows “my retirement’s not going to be like the commercials,” she says. One possibility is following the lead of people she knows at Thompson Rivers, who have retired but return occasionally as auxiliary workers – living off their pension and using the extra income for, say, travel.
Still, she’s anxious to improve her financial state before that point. “My pension’s based on my best five years [of pay] and I have about eight years left to go,” she says. So she began studying for her Master of Arts in Leadership through Royal Roads University last year. It’s a two-year program which she hopes will open doors – and boost her salary. Her last wage increase was in 2010 and, as a provincial government employee, she expects her wages to remain frozen for at least three more years.
“I’m hoping that other opportunities will arise,” says Ms. Thompson. “Because nobody’s going to look after me when I retire.”
THE BIG PICTURE
Ms. Thompson's not the only one with an eroded nest egg or frozen wages. Survey after survey shows Canadians are rethinking their retirement – and deciding to keep working longer than than they’d planned. Virtually all of Canada’s job gains since the recession have gone to workers over the age of 55.
THE PRO’S TAKE
Eight years to go and worried best describes Cindi Thompson’s view of retirement.
But Warren MacKenzie, founder of Weigh House Investor Services, a fee-only financial planning firm in Toronto, says she’s in better shape than she thinks. She’ll be 60 when she retires, with a home and something most Canadians don’t have – a partly indexed government pension plan.
It’s true that Ms. Thompson will have a lot less to spend when she stops working. She currently takes home slightly less than $38,000 a year. And if she retires at 60, her pension will be $29,500 (including a bridge benefit to age 65, when she begins collecting Canada Pension Plan benefits).
But her spending will drop as well. Ms. Thompson will no longer be contributing to the Canada Pension Plan, employment insurance or her own pension plan. She won’t be spending as much on transportation and other work-related costs. And she’ll be paying less income tax. That means, says Mr. MacKenzie, that “all in all, from her pension she will have almost as much disposable income as she currently has.”
At 65, she will also begin collecting CPP; by 67, she can claim Old Age Security. By the time she retires from work, Ms. Thompson will have paid off her mortgage, too. “Her worth will actually grow during her retirement years,” says Mr. MacKenzie.
Even better: Ms. Thompson is upgrading her skills in hopes of a higher salary, which would increase her pension since it is based on her highest-paid five years of work.
Mr. MacKenzie’s main tip for Ms. Thompson is to think about liquidity: Because home and pension comprise the bulk of her assets, he says, she does not have much in reserve for emergencies. She might consider buying critical-illness and long-term-care insurance. Although if she keeps her house, that could help fund whatever nursing-home care she might need in her old age.
“Ms. Thompson has managed her finances wisely,” Mr. MacKenzie says. She needn’t worry that her townhouse has fallen in value because she has no need to sell it any time soon and it “provides an excellent source of inflation protection for when inflation eventually returns.”