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Dushan Milic/Dushan Milic

Sabrina and Juan love adventure. The Vancouver couple met in 2000 while she was touring his native England, then reconnected seven years later for a culinary working vacation in Italy. Sabrina, 38, is an avid mountain biker, and she and Juan spend B.C. winters snowboarding

Lately, though, things have gotten downright domestic. Since immigrating to Canada in 2008, Juan, 34, has found a job as a copywriter. Sabrina, the main breadwinner, works in software management. The pair own a $600,000 condo in the city, and they're expecting their first baby next April.

With plans to take time off to raise the child, they worry about how a long career break will affect their investments and retirement goals. Sabrina and Juan may be thrill-seekers on the slopes, but they're financially risk-averse, especially in today's volatile markets.

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Although an independent adviser manages their portfolio, Sabrina wants to be a more active investor. "I read a lot of financial books, and Juan does not look forward to my midnight discussions," she says.

There's no doubt that Sabrina and Juan, who earn a combined $175,000, are careful with money. Besides a $385,000 mortgage with a 20-year amortization, they're debt-free. And thanks to obsessive budgeting, they live on about $6,000 of their $9,000 monthly take-home pay. This outlay includes annual Christmas trips to visit family in England and Ontario.

Sabrina and Juan – neither of whom has a company pension – save diligently. For the past six months, they've been stashing the $3,000 in extra income into their RRSPs.

Money will get much tighter in April, when Sabrina starts a year of maternity leave with no EI top-up from her employer. A tax-free savings account, some spare cash, and a May tax refund should help. But then Juan will join Sabrina for the last four or five months of her leave. And when she returns to work, he'll quit his $65,000 gig to spend the next five years being a stay-at-home dad.

Sabrina has two questions about coping on just her $110,000 salary. First, does she need to take a different software job that pays $150,000 to $170,000, even though the hours are longer?

Secondly, she and Juan want to keep saving. They're keen to start a registered education savings plan – but more importantly, how can they build and preserve their retirement nest egg? "I'd like to know what we need to do to still stay on track for our RRSPs," Sabrina says.

While he's at home, Juan hopes to take on some freelance writing. "How much do I need to do for us to keep saving?" he asks. "Or is it just a bonus if I do?"

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For some answers, we turned to Holly Edwards, a Vancouver-based certified financial planner with Desjardins Financial Security; and Brett Langill, a certified financial planner with Wellington West Financial Services Inc. in Toronto.

The Basics:

  • $97,000 in Sabrina’s RRSP
  • $16,000 in Juan’s spousal RRSP
  • $13,000 in Juan’s tax-free savings account
  • $7,000 in other savings

Holly Edwards' tips:

  • Consider a more balanced and diversified portfolio. Given that she and Juan are conservative investors, Sabrina might want to rethink her RRSP’s current 60/40 allocation to equities and fixed income and opt for a less-risky 50/50 mix. Also, 80 per cent of the RRSP is split evenly between the Fidelity Monthly Income Fund and three other balanced funds with similar mandates. “Maybe she doesn’t need quite so many of the same types of funds,” Ms. Edwards says. Another possible tweak: The equities in Sabrina’s portfolio are largely Canadian, so bringing in more international stocks will provide diversification. If she wants to reduce the overall equity component, she should look for bond funds with a low management-expense ratio.
  • Keeping up those RRSPs is doable. To both retire at 65 with $55,000 in after-tax income including government benefits, Sabrina and Juan must save $16,000 a year, assuming a 6 per cent compounded annual return. During Juan’s five years at home, they could meet that target if Sabrina kicked in $6,000 and he saved $10,000 in freelance income. “If they feel that’s too tight for them, then she might want to consider taking on this other job,” Ms. Edwards says.
  • Pay off the mortgage faster. If they can afford it, Sabrina and Juan should change their mortgage payments so the amortization schedule drops to about 17 years. “Then you get the biggest bang for your buck in terms of how much you pay the bank to have the use of their money,” explains Ms. Edwards. She also advises against rushing into an RESP. The federal RESP grant accumulates, so Sabrina and Juan can always catch up later. If Sabrina stays at her current salary, they should put off the RESP for a couple of years.

Brett Langill's tips:

  • Go for a higher equity allocation. Blending Sabrina’s four balanced funds – three of which constitute Juan’s spousal RRSP – Mr. Langill finds a 50/50 split between stocks and bonds. In both asset classes, he sees healthy diversification: “It’s certainly been a good allocation to have the last few years with the volatility in the market.” But considering Sabrina and Juan’s long investment horizon, Mr. Langill suggests that they reduce their fixed-income exposure by moving toward 70 per cent equities. They could also look at putting some of their money in a pure equity fund and a pure income fund.
  • Split RRSP assets more evenly. Although Canadian tax law now lets couples divide up to 50 per cent of a retirement income fund at age 60, the rules could change, Mr. Langill warns. With that in mind, he’d like to see Sabrina contribute more to Juan’s spousal RRSP. “She gets the tax deduction, the money goes into [his]name, and then they can split the assets a little better.”
  • Don’t choose between RRSPs and mortgage debt. With their good incomes, Sabrina and Juan should strive to retire mortgage-free with help from big RRSP tax refunds, Mr. Langill advises. “The best of both worlds for someone like this is to get as much as they can into the RRSPs,” he says, “and utilize those refunds to push against the debt.”

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