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Justin Tang/The Globe and Mail

At 51, and with a costly divorce behind her, Zoe wants to start planning for retirement. She brings in $117,600 a year ($87,870 net) working for the government and will be entitled to a defined-benefit pension when she retires.

Zoe has two grown children, one of whom lives with her.

Short term, she wants to take a vacation in the Caribbean with her family and upgrade her two bathrooms.

Longer term, she wonders whether she can afford to retire at the age of 58 or 60.

Her savings are modest. If she retires at 60, she will get a lump-sum severance payment of $56,110, as well as an after-tax pension benefit of $53,847 a year, including a bridge benefit to 65.

Her retirement spending target is $60,000 a year after tax, slightly more than the $56,700 a year she is spending now after subtracting mortgage payments and pension-plan contributions.

Her question is whether to accelerate the payments on her $143,000 mortgage or save any surplus cash flow in her tax-free savings account.

"I cannot carry a mortgage into retirement," Zoe writes. "Do I sell my house now and buy a condo that costs about $240,000 and use the difference to pay down the mortgage?" she wonders.

We asked Brent Soucie, a vice-president at T.E. Wealth in Toronto, to look at Zoe's situation. Mr. Soucie holds the Chartered Professional Accountant (CPA) designation.

What the expert says

Zoe's financial situation has been tight for a number of years, yet she has managed to build some savings, pay down a large portion of her mortgage, and amass a very healthy pension benefit, Mr. Soucie says.

"That said, there are a few things she should do in order to meet her retirement spending goal of $60,000 per year."

Her first priority should be to ensure that her mortgage is paid off by her retirement date, Mr. Soucie says. "It is unwise and typically unhealthy to retire with debt."

Zoe shows a cash-flow surplus of $780 a month. If she continues to pay off her mortgage at her current rate, with a mortgage payment of $804 monthly, she would still owe about $94,000 at 60.

If she were to increase her payments to, say, $1,600 a month, she would owe only about $11,000 at 60.

However, Mr. Soucie wonders how much Zoe can truly increase her mortgage payments.

She shows a monthly surplus but she wants to travel and do some work on her bathroom, which will eat up any spare cash she might have for a while.

Whether Zoe stays put in her existing home until she retires, or downsizes, is a personal choice rather than a financial one, the planner says.

As long as she is working, she can afford to stay.

When she retires, Zoe will likely have to sell and buy a less expensive place but she'll be in a better position to do so nine years hence.

Her house, which is worth $315,000 now, could rise in value to about $375,000 by the time Zoe retires thanks to inflation.

This assumes a modest annual growth rate in housing prices in her area.

Even if she still has a mortgage of $94,000, she might have enough to buy the equivalent of a $240,000 condo without having to borrow. A condo that would cost $240,000 today would have risen in value to $280,000 after inflation.

It is important to note that inflation will also apply to her living expenses, Mr. Soucie says. In other words, $60,000 a year in today's dollars will equate to $71,700 in 2025 dollars.

If Zoe's 2025 before-tax income consists of her pension (roughly $70,000 a year), CPP (roughly $7,372 a year), and OAS (roughly $6,500 a year after her assumed claw-back), she will be left with $83,872 – or about $65,000 a year after taxes – short of her inflation-adjusted goal.

At that point, she may have to cut spending.

Out there in the future is a potential inheritance of $300,000, but Mr. Soucie has not included it in his calculations.

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Client situation

The person: Zoe, age 51

The problem: Whether to pay down her mortgage or save for retirement. When to downsize her home.

The plan: Direct all surplus cash flow to the mortgage. Plan to work to the age of 60 and make the downsizing decision when she retires.

The payoff: A clear road map to a financially secure retirement.

Monthly net income: $7,323

Assets: Cash in bank $5,600; severance pay due at retirement $56,110; TFSA $7,300; RRSP $3,200; commuted value of her defined-benefit pension plan $684,529; RESP $3,700; residence $315,000. Total: $1,075,439

Monthly outlays: Mortgage $804; property tax $257; water, sewer $55; property insurance $80; electricity $120; heating $45; maintenance and improvements $750; garden $25; transportation $465; groceries $750; clothing $310; gifts $300; other discretionary $200; dining, drinks, entertainment $500; grooming $50; club $30; golf $50; hobbies $15; doctors, dentists $150; prescriptions $50; vitamins, supplements $100; life insurance $110; cellphones $190; Internet $73; RRSP $50; pension plan contributions $1,014. Total: $6,543. Monthly surplus: $780

Liabilities: Mortgage $143,000 at 2.79 per cent.

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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