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In Vancouver, a couple we'll call Mark and Ellen are working toward building stable careers in fields in which they have masters degrees.

Mark, 32, is a manager in a high-tech company. Ellen, 31, trained in marketing, is a stay-at-home mom who plans to return to full-time work when their six-month-old son is four or five. The family's pretax income -- $95,000 a year -- leaves net income of $5,640 a month for paying bills. It's a substantial sum for most of Canada, but not so much in the roaring housing market in British Columbia's Lower Mainland.

Mark and Ellen are frugal, but they worry about paying off $241,000 in liabilities.

They want a larger house for their family, especially if they have another child. They wonder, too, if their best investment strategy is to keep on building up retirement savings or to divert the $4,100 they contribute each year to their registered retirement savings plans to current spending.

"Should we contribute anything to an RESP [registered education savings plan]? Should we stop being savers and be more inclined to borrow for cars, renovations and other purchases, rather than sticking to our cash-basis planning?" Ellen asks. "We have to get our finances in order."

What our expert says

Facelift asked Bernie Geiss, a Certified Financial Planner and a principal at Cove Financial Planning Ltd. in North Vancouver, to work with Mark and Ellen in order to sort out their choices.

"I am impressed by how well Mark and Ellen have used their resources," Mr. Geiss says. "They are instinctive planners and if they continue to be focused on their goals, they are likely to reach them."

Retirement is three decades away for the couple and it is difficult to make reliable projections of income they will have to spend in 2038, when Mark expects to retire. The largest immediate question for Mark and Ellen's budget, whether to upgrade to a larger house in three years or even sooner, is "yes," Mr. Geiss says.

If the right real estate opportunity presents itself and their equity is sufficient for them to qualify for a conventional mortgage financing, they can use $150,000 of equity in their current home for a $600,000 house or condo. Assuming that their $115,000 of equity in their $340,000 condo rises at 3 per cent a year with inflation, and their weekly mortgage payments, Mark and Ellen should have $170,000 of equity available in three to four years, Mr. Geiss calculates.

Paying down the mortgage is not a bad idea, but the return is relatively modest, Mr. Geiss notes. It carries 3.65-per-cent annual interest, which equates to earning 6.51 per cent before tax, he says. This is more than the couple has made in their mutual funds for the past four years. It would be more tax-efficient to pay off the mortgage and borrow money to buy back the investments, the planner explains. That would make the interest paid to borrow the funds for investment fully tax-deductible, he says. The deduction would reduce Mark's annual taxes by $433, he explains.

Ellen should use the money in her non-registered portfolio to make the maximum contributions to Mark's RRSP for this year and the next, Mr. Geiss suggests. The goal should be to maximize RRSP contributions each year before paying down the mortgage. The RRSP contributions generate an immediate 40-per-cent return at Mark's marginal rate, the planner notes. Mark will receive a $10,800 tax refund as a result of contributing $27,000 to his RRSP over the next two years, Mr. Geiss estimates.

That money can go either to future RRSP contributions or to mortgage pay-downs.

By the time Mark reaches his intended retirement age of 65 in 2038, his RRSP, if contributions are maximized each year, will have assets of $1.8-million, assuming that assets grow at 5.75 per cent a year for the next 33 years.

If the RRSP is converted to a registered retirement income fund and pays 5.75 per cent a year, then it will generate $103,212 a year in income, Mr. Geiss calculates. Assuming that Mark obtains the full Canada Pension Plan payment, currently $9,945 and indexed at an assumed rate of 3 per cent a year, he will receive $26,377 a year in 2038 dollars. If Old Age Security, which currently pays a maximum benefit of $5,758 a year, rises at 3 per cent a year, then Mark will receive $15,272 a year.

In 2039, Ellen should receive $15,730 in Old Age Security payments, Mr. Geiss estimates. Her RRSP, if she returns to full time work at a salary of $60,000 a year in 2011 and if she works to her age 65 in 2039, would have a value of $1.71-million, assuming that a) she has also withdrawn the full value of her RRSP over the next two years while she is out of the labour force, b) Mark tops up her RRSP with spousal contributions and c) assets make 5.75 per cent a year.

Thus in 2039, her RRSP will produce annual cash flow of $98,100. If Ellen works to age 65, then she will receive a maximum CPP benefit of $27,168 in 2039 dollars, Mr. Geiss predicts.

Adding up all benefits from government pensions and their RRSPs, Mark and Ellen will have $285,850 in income in future dollars. In that year, their non-registered assets exclusive of their home will be $985,000, Mr. Geiss calculates.

That sum, if it produces growth of 3.8 per cent a year after tax, will yield an annual return of $37,430. With non-registered income included, Mark and Ellen will have annual income of approximately $323,300. The OAS clawback, which currently begins at $60,800 a year, will have risen to $161,120 a person. If Mark and Ellen postpone RRSP withdrawals, they should easily be able to avoid the clawback, which will have risen from a current start point of $60,800 net income to $161,120, the planner explains.

Contributions to their six-month-old son's RESP may seem postponable, for the lad is 17 years away from university. But contributions up to $2,000 a year earn an immediate 20-per-cent bonus through the Canada Education Savings Grant. That's a 20-per-cent instant return on the money -- a good deal for sure. If the money is not available from cash flow, it should be taken from non-registered funds and put into the RESP, Mr. Geiss advises.

Mark and Ellen wonder if they should borrow to buy things or wait until they have the cash. Mr. Geiss notes that borrowing to make investments works if the assets produce a return in excess of the cost of funds. However, the couple have achieved only dismal returns so far.

They have sustained an average annual loss of 0.47 per cent after management fees on mutual funds for the past five years. If they are to achieve their goals of a secure retirement, they must increase their returns to at least 5.75 per cent a year, Mr. Geiss says.

"My projection shows that Mark and Ellen can reach their objectives, but I have assumed many things -- that Ellen will return to work, that their investments will have positive returns close to my estimate for more than three decades, that they have no more than two children, and their health remains good. It is a long time to the date that they retire, but Mark and Ellen have dared to look into the future."

Interested in a free Financial Facelift? Then drop a line to the writer at 444 Front St. W., Toronto M5V 2S9 or andrewallentuck@mts.net

Client situation

Mark, 32, and Ellen, 31, live in Vancouver.

Net monthly income: $5,640.

Assets: Condo, $340,000; RRSPs, Mark $36,800, Ellen $20,439; non-registered savings, Mark $27,100, Ellen $27,400; cash, $24,723; car, $10,000.

Monthly expenses: Food, $300; mortgage, $1,307; maintenance, $167; condo fees $238; Property tax and insurance, $87; car insurance, $108; life insurance, $40; investment loan, $110; gas and maintenance, $87; utilities and Internet, $254; gifts and charity, $200; entertainment, $400; vacation, $333; RRSPs, $345; RESP, $167; computer, $175; miscellaneous, $150; medical premiums, $108; savings, $1,064. Total: $5,640.

Liabilities: Investment loan (Mark), $24,000; mortgage, $225,000.