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(Rafal Gerszak for The Globe and Mail)
(Rafal Gerszak for The Globe and Mail)


Soon to retire, is this couple on target with their goals? Add to ...

Fred and Wilma want to retire soon and live at least as well as they do now, “keeping and maintaining our boat, horse, home, family responsibilities, automobiles and more frequent travel,” Fred writes in an e-mail.

Ideally, they would spend May to September in their Vancouver-area home, “then in October to April, be free to travel for extended periods,” Fred adds.

He works in sales, earning $120,000 a year plus a $40,000 bonus. Wilma works part-time in an office, earning $30,000 a year.

They have substantial savings, mainly in jointly held rental real estate, individual mortgages and cash.

As well, Fred has a group RRSP at work (invested in mutual funds) to which both he and his employer contribute 5 per cent of base pay for a total of $12,000 a year. Wilma has just started contributing to a work pension.

They are both age 61 with two adult children, ages 25 and 30, to whom they wish to leave a substantial estate. Their son is still living at home.

“Preservation of capital is paramount,” they write. Their retirement spending goal is $85,000 a year.

We asked Warren Baldwin and Matthew Ardrey of T.E. Wealth in Toronto to look at Wilma and Fred’s situation. Mr. Baldwin is regional vice-president, Mr. Ardrey, manager of financial planning.

What the experts say

Like many Canadians, Fred and Wilma have left their retirement planning until they are on the threshold.

“The danger with this is, if you have not measured yourself against your goals, you have no way of knowing if you are on target or not,” Mr. Ardrey and Mr. Baldwin write.

In drawing up their forecast, the planners make a number of assumptions.

Fred will retire early in 2016, just before he turns 64. Wilma will retire in 2017, when she turns 65. They will downsize their house, which will add $75,000 to their investment portfolio. Fred is also expecting an inheritance in about 10 years worth $575,000.

Fred and Wilma are part owners in eight rental condos. The planners assume that these properties are cash flow neutral and in 15 years, or 2028, they are sold, with Fred and Wilma’s share of proceeds added to their investment portfolio. The net value after selling fees, debt repayment and capital gains tax is estimated at $318,800.

Fred is currently saving $12,000 a year, including his employer’s contributions, in his group RRSP. When Wilma and Fred pay off their $18,000 loan next year, the funds will be redirected to Fred’s RRSP. This will be additional savings of $13,902 in 2014 and $27,804 in 2015. Wilma saves $2,319 a year through her RRSP at work.

Mr. Ardrey and Mr. Baldwin assume an average annual return on investments of 5 per cent a year and an inflation rate of 2 per cent. Fred will get Canada Pension Plan benefits of $825 a month and Wilma $675 a month when they retire. Both will receive full Old Age Security benefits at 65. The remainder of their retirement income will come from their savings.

When they first retire, they will have lifestyle expenses, including travel and hobbies, of $95,000 a year. At age 72, the hobbies will drop off, reducing expenses to $88,800. By age 80, the additional travel expenses will cease and expenses will fall to $78,800. All figures are in current dollars.

In addition to their spending goal, Wilma and Fred would like to leave an estate for their children equal to their investment assets today, or roughly $600,000, in addition to their home.

“Based on these assumptions, they would run out of capital in their portfolios by age 88,” the planners conclude. Fred and Wilma will have to save more – another $76,500 a year from now to retirement – or spend $11,500 a year less when they retire. Because neither option seems practical, the planners did another forecast “ignoring the estate goal.”

Wilma and Fred still do not quite reach their spending goal, but are much closer, Mr. Baldwin and Mr. Ardrey say. The couple would still have to cut their retirement spending by about $3,800 a year, or alternatively, save another $24,200 a year from now to the time they quit working.

As for their asset mix, “This portfolio is too concentrated, leaving them susceptible to additional risk related to real estate,” the planners say. More than 42 per cent of their registered savings is sitting in cash awaiting new mortgage lending opportunities.

The couple should consider diversifying their asset mix through more traditional fixed-income and equity investments, with a mix of 60 per cent in equities, diversified globally, and 40 per cent in fixed income, the planners say.

“If the real estate market took a turn for the worse in the short-term, it would be a real detriment to their retirement dreams.


Client situation

The people

Fred and Wilma, 61

The problem

Determining whether they can retire before long without sacrificing lifestyle while still leaving a substantial estate for their two children.

The plan

Save more, plan to spend less or forget about leaving an estate. Diversify their savings so they are not so exposed to the real estate market.

The payoff

A greater likelihood of achieving at least most of their goals – and perhaps more.

Monthly net income



Bank account $10,000; her RRSPs $159,850; his RRSPs $282,925; residence $550,000; interest in boat $60,000; his work pension (group RRSP) $153,000; joint interest in rentals $532,750. Total: $1.75-million.

Monthly disbursements

Line of credit $2,315; property tax $375; other housing (utilities, insurance, maintenance) $575; transportation $630; groceries $900; clothing, dry cleaning $210; gifts $400; vacation $500; entertainment $655; grooming $90, hobbies $270; pet $60; subscriptions $15; boat and horse $1,400; life, disability insurance $575; telecom $275; group RRSPs $700. Total: $9,945.


Share of LOC for rental condos $398,140; co-signed loan for son $45,000; personal loan $18,000. Total: $461,140.

Read more from Financial Facelift.

Want a free financial facelift? E-mail finfacelift@gmail.com

Some details may be changed to protect the privacy of the persons profiled.

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