John Ulan/The Globe and Mail
Patrick and Kathleen want a mortgage-free home, a couple of children and time off work to pursue graduate degrees.
To finance their goals, Patrick spends at least six months away from their Edmonton home, earning big money working as a consultant in the Alberta oil fields. Kathleen makes more than $100,000 a year working for the provincial government.
He is 29, she is 33.
Topping their list of short-term goals is their wedding, which they estimate will cost $10,000. Then, Patrick plans to take a year off work to get another degree, after which he will quit the oil patch once and for all. Then, if things go as planned, they might have a baby or two.
Somewhere in that time frame, or perhaps a bit later, Kathleen would like to get another degree as well. All the while, they aim to pay down their mortgage loan aggressively and save for their children's education.
Top of mind for this hard-working couple is when can they get on with it? "When can Patrick come home from the bush?" they ask in an e-mail. "Tell me how many days so I can start counting down," Patrick adds.
We asked Ron Graham, an independent fee-only financial planner in Edmonton, to look at Patrick and Kathleen's situation.
What the expert says
Patrick wants to take a year off work and go back to school. This may cost $40,000 in tuition, books and so on, and another $40,000 in lost income.
Once Patrick is working in Edmonton again, they want to have a baby, so they plan to set aside funds – $15,000 for the year – to top up Kathleen's maternity benefits.
They hope to accomplish all of this over three years.
Together, they spend about $6,700 a month now. Kathleen's take-home pay is about $5,400 a month. Patrick can earn about $850 a day (before tax) when he is out of town. He has saved $57,000 in his bank account, about $6,000 in his tax-free savings account and about $23,000 in his registered retirement savings plan.
Kathleen has saved $7,000 in her bank account, about $3,000 in her TFSA and about $45,000 in her RRSP and locked-in retirement account from a previous employer. They also have about $8,000 in a joint bank account.
To meet their goals over the next three years, they will need $105,000. They already have $108,000 that can be used for this purpose. The money that is in Patrick's RRSP can be used to finance his education using the Lifelong Learning Plan. He can borrow up to $10,000 a year to a maximum of $20,000 over a four-year period to help fund his education. The only requirement is that he be attending a post-secondary educational institution full time (at least 10 hours per week for at least three months).
If he starts school in September, he can borrow $10,000 from his RRSP and pay no tax. If he continues in January, he can borrow another $10,000, again without tax, to fund his second term. He does have to repay the loan starting five years after the first withdrawal. If Patrick borrows the full $20,000, he will have to pay back at least $2,000 a year over 10 years.
Kathleen can also borrow her RRSP funds (not her LIRA funds) under the Lifelong Learning Plan to pay for Patrick's education. She has $15,000 in her RRSP. Kathleen could contribute an additional $5,000 to her RRSP from her cash to allow her to borrow the full $20,000.
If Patrick is in a low tax bracket when he goes to school, he may choose to withdraw additional funds from his RRSP. If, for example, he was studying from January to December of 2014, he could withdraw enough to use up his personal exemption of about $11,000 and pay no tax. He would also have tuition, education and book tax credits that he could use himself or transfer to Kathleen.
They have enough to pay for their wedding now with funds from their joint account and TFSAs. As well, Patrick has enough money in his savings to pay for his year off ($40,000) and Kathleen's maternity top-up ($15,000).
Spending most of their current savings over the next three years means that they will have less money for retirement, extra mortgage payments, children's education and other goals. They anticipate Patrick will be able to earn $60,000 annually in his future employment to make up some of what they spend now. Even though Patrick may not earn as much in the future as he does now, they may have a better lifestyle just because he is home.
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Client situation
The people
Patrick, 29, and Kathleen, 33.
The problem
When will they have enough savings so that Patrick can come home from the oil fields to stay?
The plan
Patrick could come home now. Consider dipping into RRSP savings to finance his graduate degree using the Lifelong Learning Plan.
The payoff
A wedding, perhaps a baby or two, a couple living together all year round, studying, saving, paying down their mortgage and all the other things that couples do.
Monthly net income
$13,860, variable.
Assets
Bank accounts: $71,800; loan receivable $13,500; Kathleen's LIRA $30,300; TFSAs $9,260; his RRSP $23,490; her RRSP $15,000; her DC pension plan $34,000; residence $380,000; his interest in rental property $120,250. Total: $697,600
Monthly disbursements
Mortgage $1,420; property tax $305; insurance $130; utilities $390; maintenance, improvements (actual and reserve) $560; transportation $650; groceries $400; clothing $200; car loan payments $715; gifts, charitable $125; vacation, travel $200; dining out, entertainment $500; grooming $150; sports, hobbies, subscriptions $230; other personal discretionary $200; dentists, drugstore $80; health, dental, life and disability insurance $185; telecom, cable, Internet $255; her pension plan contributions $990; group benefits $140. Total: $7,825 Surplus: $6,035
Liabilities
Home mortgage $304,000; his share of rental mortgage $73,000; car loan $19,990. Total: $396,990
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