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Facelift Blair Gable for the Globe and Mail (Blair Gable for the Globe and Mail)
Facelift Blair Gable for the Globe and Mail (Blair Gable for the Globe and Mail)

Financial Facelift

Starting over and fast-tracking plans Add to ...

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Middle-aged yet just starting out is how Nancy describes her relationship with her partner, Norm. The two just recently moved in together.

He has been paying support for his former wife and two children and is just starting to get back on his "financial feet," Nancy writes in an e-mail.

She has just finished paying off her student loans after going back to school in her 30s to get a series of degrees. Both work for the federal government.

Because of their age difference - he is 54 and she is 42 - they feel they have to fast-track their plans.


"We want to be able to enjoy our life together now, but also share our retirement in terms of doing the things that we love (travelling, spending time with family) while we are both in good health," Nancy writes.

Among other things, they wonder whether they should buy a house in Ottawa or continue to rent until they can move in a few years, either to the East or West Coast to be with family.

We asked Jason Heath, a consultant with E.E.S. Financial Services Ltd. in Markham, Ont., to look at Norm and Nancy's situation.

What the Expert Says

Mr. Heath says Norm and Nancy can retire according to plan when he is 60 and she is 55. That will mean six more working years for him and 13 more for her.

Alternatively, they could retire at the same time if Norm worked an extra three years and Nancy worked four years less; he'd be 63, she'd be 51.

"This is a lifestyle decision for them to consider," Mr. Heath says.

The Invest for Life series:

  • Part 1: Ten money tips for young people
  • Part 2: Ten money tips for people entering the work force
  • Part 3: Getting married? Ten money tips
  • Part 4: Having kids? Pull out the wallet and get set to invest for the future
  • Part 5: Married, with kids? Ten investing tips
  • Part 6: Financial tips as you climb the financial ladder
  • Part 7: Preparing for retirement: 10 tips
  • Part 8: The retirement years: 10 financial tips

Norm will have a full pension, but Nancy's will be smaller because she has not been in her job as long. Mr. Heath estimates that after Nancy retires, their living expenses will drop by about 15 per cent to the $85,000 range from the more than $100,000 a year they currently spend. (If they were to live on their pensions alone, they would have to slash their living expenses by 40 per cent.) Mr. Heath advises against buying a house in Ottawa unless they plan to stay there a good long while. If they were to move to be closer to family in a few years, the costs of buying and selling would seriously erode any gains they might make.

In five or six years, they will be able to afford a $350,000 home. By then, Mr. Heath assumes Norm will have sold the house he is renting out.

A key to reaching their financial goals is the couple's ability to save.

"Our projections suggest things are pretty tight," the planner cautions. "They certainly don't die leaving a large inheritance." He suggests they establish a budget and stick to it.

Mr. Heath estimates Nancy can save more than $1,600 a month. Norm's spousal and child support payments will end in two years, leaving him with an extra $1,700 a month, which, along with Nancy's savings, could go into an automatic savings plan.

Both have substantial unused room in their registered retirement savings plans. She has $54,000, he has $37,000. Mr. Heath suggests they put the maximum of $5,000 each a year into tax-free savings accounts for a down payment on their house when they buy it, with any additional savings going to their RRSPs.

Because their TFSA money is earmarked for a home purchase, they should invest it very conservatively, in a high-interest savings account, short-term guaranteed investment certificates or short-term bonds, he adds.

If Nancy plans to retire in 13 years, she could contribute $5,000 a year in the meantime to her RRSP to exhaust the unused room. Norm, who plans to retire earlier, could contribute $6,000 a year for the next six years to deplete his RRSP room. But given his support obligations, "he may want to consider holding off until 2012 (when the payments stop) and contributing about $9,000 a year in his final four years of work," Mr. Heath suggests.

Their RRSP money can be invested "a little more aggressively" because they won't need to draw on it for several years. The planner suggests investing their retirement savings gradually, in low-cost mutual funds, to "spread out the risk of buying into stock markets at the wrong time - but beware deferred sales charges some investment advisers charge."

Nancy and Norm will be "cash-flow positive" until he is about 77, at which point they will start drawing on their savings. By the time Norm reaches 90, they will have less than $50,000 of savings left. Nancy will be 78.

By then their home will be fully paid for, "and this provides a bit of a cushion," the planner says. Norm may be able to choose a survivor option on his pension plan that would continue to pay out a portion of his pension to Nancy after his death.

Mr. Heath assumed an inflation rate of 3 per cent and average investment returns of 7 per cent.

Client Situation

The People:

Nancy, 42, and Norm, 54

The Problem:

How to fast-track their savings so they can eventually buy a home, travel and spend time together, even though one will retire quite a bit before the other.

The Plan:

Put off the home purchase, save as much as possible, and be flexible about when they retire.

The Payoff:

A new start, albeit on a tight budget, and a comfortable and secure retirement in future.

Monthly after-tax income:



Norm's rented house $150,000; Nancy's RRSP $10,000; non-registered savings and investments $7,700; TFSA $5,000. Total: $172,700.

Monthly Disbursements:

Food and dining out $900; clothing $200; tobacco and alcohol $60; haircuts, cosmetics, etc. $110; medical/dental $100; personal allowance $200; miscellaneous $400; rent $925; tenants' insurance $45; utilities, phone, Internet, cable $225; furniture $50; vacations $550; entertainment, including gym membership, leisure classes $250; books and music $20; car expenses $400; taxis, buses $200; alimony and child support $1,700; group insurance $90; donations $30; gifts $100; emergency fund $100; TFSA $385; RRSP $300. Total: $7,340. Savings capacity: $1,160.


Mortgage on Norm's rented house $118,000.

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