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 $4,775
- House: $2,147
- Food: $300
- Transportation: $250
- Fun: $370
- Savings: $0
- Debt: $400
- House: $600,000
- Stocks: 20,000
- Age: 58
- Home: East Gwillimbury, Ont.
- Work: Retired teacher
Willard Petersen wants to enjoy his retirement – both on the home front and abroad.
The 58-year-old social-sciences teacher from East Gwillimbury, Ont., has been retired for six years. In that time, he’s been steadily renovating his 3,000-square-foot home on two acres of bucolic countryside north of Toronto. Outside, he has added a pool, a hot tub, a dug-out pond and landscaping. Inside, he’s been working on the kitchen and bathrooms. Even though he lives alone in a big house (where he shutters some rooms in the winter to cut costs), Mr. Petersen is also thinking of putting on an addition – for himself.
That’s for the future, when he’d like to see his 26-year-old son, Anders, take over partial ownership of the property – and hopefully one day raise a family there – while Mr. Petersen embarks on global travel for half the year.
“I couldn’t do this unless he agreed,” Mr. Petersen says of his son.
For his part, Mr. Petersen isn’t interested in life as a snowbird in Florida, but as he’s watched friends pass away, he’s started to dream of making the most of his retirement by touring North America in an RV (a potentially pricey purchase) and making the rounds in Europe, as well as other exotic places.
“I’m what you call a modern nomad,” he says.
Those plans are on hold for a few years, though. Despite a rapidly shrinking mortgage, Mr. Peterson has taken on a ballooning line of credit to fund his extensive home renovations. It will be 2016 before he hopes he can start his travelling.
His biggest challenge, in the meantime: whittling down his overall debt to $100,000, a level he says he feels comfortable leaving his son to pick up while he takes off.
THE BIG PICTURE
Mr. Petersen could be a poster boy for Canadian debt loads – which have never been higher, and have been racked up in many cases for home renovations. It’s a trend that makes some sense in some ways: When financial markets are bumpy, people invest in their homes; what’s less certain is whether home values will stabilize, or drop.
THE PRO’S TAKE
Although he left his job eight years ago, Mr. Willard is anything but retired. He’s spent that time fixing up his house in East Gwillimbury, Ont., in the hopes of handing it off to his son – and then taking half his own year to travel across North America, Europe and beyond.
Mr. Willard has given himself three years to achieve that goal. Between now and then, however, he has to pay down substantial loans taken out to renovate his house.
Brinsley Saleken, a financial planner and portfolio manager at Macdonald Shymko & Co. Ltd., a fee-only financial planning firm in Vancouver, wonders if there’s a better way forward. Would Mr. Willard consider moving to a smaller home to pay off his debts – an option that would spare him a financial squeeze and free up cash for travel?
If the answer is no, and Mr. Willard wants to keep his property, he can eliminate some of the risk tied to rising interest rates by converting his line of credit to a five-year term mortgage.“This provides certainty for the next five years of payments,” says Mr. Saleken.
Further, he can take his $206,000 of total debt and remortgage, based on a 20-year amortization. At 3.19 per cent, he would be paying about $1,160 a month, Mr. Saleken calculates. He might get an even lower rate if he shops around. (If he wants an even more “disciplined and forced pay-down scheme,” he says, Mr. Willard could go for a shorter amortization.)
Mr. Willard might also want to consider the implications of sharing ownership of the house with his son, who is 26, Mr. Saleken says. What if Mr. Willard had to move to an assisted living facility in the future and needed money? Would he be able to draw on his equity in the home? What if his son couldn’t afford to buy Mr. Willard out? Or Mr. Willard’s son found himself in financial difficulty?
Mr. Willard does have money he can use to pay down his debts. Mr. Saleken suggests he set aside some of that for an emergency fund and use the rest, including money in his tax-free savings account, to pay down his loans.
Whatever he decides, Mr. Willard’s teacher’s pension will go a long way to ensuring he meets his goals. Mr. Saleken suggests Mr. Willard also give some thought to drawing up an investment policy to deal with the cash he has sitting in his RRSP. He could look for low-cost investments in keeping with his risk tolerance, “and invest according to a systematic and structured asset allocation plan.”