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


Supermom wants to go it alone Add to ...

Adele is 44 and single with two children, age 14 and 21, living at home.

Adele earns good money as a self-employed professional, but wonders about her future given the competing demands on her income, one of which is the cost of putting her children through university.

Being single in Vancouver, “with the intent to remain as such,” requires careful financial planning “in light of the costs being borne by one person,” Adele writes in an e-mail. To help pay the mortgage, she rents out a basement suite for $500 a month.

The $96,000 or so she nets each year from her work – it varies – goes to education savings, her RRSP, the mortgage, life insurance, auto payments “and all other such details,” Adele adds. She hopes to “wind down” by the time she is 65 and wonders whether she’ll have enough money saved by then to maintain her current lifestyle.

Her main goal is “to ensure independent financial stability until the day I die – and maybe squeeze in a few holidays before retirement,” she writes.

She has no company pension, but she does have a registered retirement savings plan, in which she has unused contribution room.

Her main asset is her $645,000 home, against which she has a $343,110 mortgage at 3.99 per cent. Her expenses are modest, the main one being mortgage payments.

We asked Gina Macdonald, a financial planner at Macdonald Shymko & Co. Ltd. of Vancouver, to look at Adele’s situation.

What the expert says

Adele should use her cash on hand to pay off her car loan as soon as possible, Ms. Macdonald says. For an emergency fund, she should set up a secured line of credit instead of setting aside cash.

Based on the expense numbers she provided, Adele does seem to have a substantial monthly surplus.

First off, she should contribute the maximum of $2,500 a year for her younger child to a registered education savings plan to take full advantage of the federal government’s education savings grant.

She is contributing $1,500 a year now, which means there should be carry-forward grant money available; she could contribute up to $5,000 a year until she catches up.

Because of her high marginal tax bracket of 41 per cent, Adele should increase her RRSP savings to take full advantage of the tax refund and catch up with her unused contribution room, Ms. Macdonald says. She could use the income tax refund to make extra payments to her mortgage.

“Debt repayment at 3.99 per cent is like earning 6.76 per cent [on investments] risk-free,” Ms. Macdonald says. “[Repaying the mortgage] is her best investment after RRSP contributions, the planner notes.

After the mortgage is paid off, Adele can direct the extra cash flow (she is paying $2,415 a month) to her RRSP, a tax-free savings account and a non-registered investment portfolio. As well, the planner suggests Adele continue to rent out part of her home.

In preparing her plan, Ms. Macdonald assumes that Adele gets maximum Canada Pension Plan and Old Age Security benefits, that she earns an average of 5.5 per cent a year on her investments, and that the inflation rate averages 2.5 per cent.

To ensure she has an income stream of about $55,000 a year after tax starting at age 65, Adele will have to save about $36,000 a year, Ms. Macdonald calculates. That amounts to another $2,000 a month.

Her retirement income will come from CPP, OAS, rental income, RRSP/RRIF/TFSA withdrawals and her investment portfolio.

Adele has set a retirement spending target at $70,000 a year after tax, but if her mortgage is paid off and she doesn’t have university tuition to pay, she should be able to live comfortably and do some travelling on $55,000 a year, the planner says.

“If she wants more in retirement, she will need to work longer, increase current savings or cut expenses,” she adds.

“Once her children leave home, she could rent out their bedrooms to university students,” Ms. Macdonald offers – a prospect that understandably may not suit Adele. Alternatively, she could downsize her living space at some point to free up extra money.

Client situation

The person

Adele, 44, and her two children, age 14 and 21.

The problem

Meeting her competing financial obligations on a single income in an expensive city.

The plan

Contribute to an RESP for the younger child to take advantage of the government grant, then increase RRSP contributions to take advantage of the tax break. Make extra mortgage payments when possible.

The payoff

A clearer picture of the future and perhaps more realistic goals.

Monthly net income



Cash in bank $2,100; residence $645,000; RRSP $104,855; RESP $20,000. Total: $771,955

Monthly disbursements

Mortgage $2,415; other housing costs $355; car lease $580; other transportation $335; groceries $600; clothing $120; gifts $90; vacation $50; entertainment $350; personal discretionary $30; dentists $200; drugstore $80; life insurance $45; telecom; RRSP $1,000; RESP $125. Total: $6,570 Surplus: $1,930


Mortgage $343,110; car loan at 5.99 per cent $2,315. Total: $345,425

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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