Skip to main content
The Globe and Mail
Support Quality Journalism
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(}function setPanelState(o){dom.root.classList[o?"add":"remove"](,dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); }

Rafal Gerszak/The Globe and Mail

Tess and Vince are 35 with two children, 4 and 6.

Tess recently went back to work after spending a year and a half at home with the children, so the cash is flowing more freely.

"Now that Tess is back to work, how should we allocate any extra money that we may have?" Vince asks in an e-mail. "Should we be saving, or could we take a little extra money now to enjoy ourselves and take a vacation here and there?"

Story continues below advertisement

Together, they bring in $233,500 before tax, including Vince's bonus. They also are enjoying a relocation perk – a subsidized mortgage loan for $477,000 on which they pay only 1-per-cent interest.

"How much of a priority should it be for us to pay down the mortgage more quickly than our normal payments?" Vince asks. They wonder, too, how much they should be saving for the children's higher education – and their own eventual retirement.

"Are we even close to on track for saving for retirement, or are we totally lost in terms of how much we really need?"

We asked Ngoc Day, a fee-only financial adviser at Macdonald Shymko & Co. Ltd. in Vancouver, to look at Tess and Vince's situation.

What the expert says

"Tess and Vince are good savers, which will stand them in good stead to achieve their goals," Ms. Day says. Vince contributes $1,750 a month to his employer's defined contribution pension plan (similar to an RRSP), as well as making contributions to his registered retirement savings plan and tax-free savings account.

For the three more years their mortgage rate is subsidized, increasing their payments is not a priority, the planner notes.

Story continues below advertisement

They recently borrowed on their line of credit to prepay their child-care expenses and thus get a 10-per-cent discount.

"Their priority right now should be to pay down their line of credit," Ms. Day says. At Vince's marginal tax rate of 43.7 per cent, the line of credit interest (prime plus two percentage points, or 5 per cent) is equivalent to an 8.9 per cent rate of return on investment, she notes.

Vince could sell the stocks in his non-registered account (about $6,700) and draw on their monthly surplus ($2,300) to repay the credit line right away.

For next year's child-care payment, they could set up a separate savings account earmarked for child-care expenses and direct $1,500 a month to it.

They should set up a family registered education savings plan and make catch-up contributions of $5,000 a year per child (next seven years for the older child, next five years for the younger one) to take full advantage of the federal government's Canada Education Savings Grant, which is equivalent to a 20-per-cent guaranteed rate of return on their investments, Ms. Day says. To fund this year's contribution, Vince could take $10,000 from his TFSA.

They are currently contributing $650 a month to his TFSA. They should stick to this budgeted saving and accumulate funds in his TFSA for a car purchase in a few years so they may not need to take out a loan at that time, the planner says.

Story continues below advertisement

Vince is on the right track taking full advantage of his defined contribution pension plan, but any remaining RRSP contribution room should be directed to a spousal RRSP for Tess "to equalize their proportional share of the family's assets," she says.

Vince and Tess set their retirement spending goal high – $145,000 after tax – substantially more than they are spending now if mortgage payments, RESP contributions and child-care expenses are deducted.

"They would have to save about $123,000 a year in order to retire at the age of 60 (their target) and have $145,000 in after-tax income."

To maintain their current lifestyle, they will need only $71,400 after tax, or about $85,000 before tax, the planner calculates. That assumes they split their pension income.

Are they on track?

Assuming 3-per-cent inflation and a 5-per-cent (average annual) long-term rate of return on their assets, Vince and Tess might need to save about $52,000 a year to meet the lower goal. This is achievable because monthly surplus, TFSA, RRSP and DC contributions add up to $56,000 a year.

Story continues below advertisement

"That leaves them with about $4,000 a year for other goals such as increased holiday travel." Even so, they might be wise to curb their holiday spending for a while longer and shore up their savings instead so they can make a lump-sum principal payment in 2017, when their mortgage subsidy ends and the rate rises.


Client situation

The people

Tess and Vince, both 35, and their two children, 4 and 6.

The problem

Story continues below advertisement

How best to use the increase in income now that Tess is back at work.

The plan

Pay off line of credit, set up children's RESP, shift RRSP contributions to spousal plan for Tess and consider making a lump-sum payment to mortgage when subsidy ends.

The payoff

A realistic view of what they can afford and what they have to save to reach their goals.

Monthly net income

Story continues below advertisement



Cash in bank $2,000; home $950,000; his stocks $6,700; his TFSA $17,000; his RRSP $158,521; her RRSP $35,000; his DC pension $175,000. Total: $1.3-million

Monthly disbursements

Living expenses (food, clothing, medical, help, haircuts) $1,750; housing (tax, insurance, utilities, repairs, phones) $1,117; mortgage payment $2,141; child care $1,500; leisure $710; travel $750; transportation $475; health care $173; miscellaneous $150; RRSP $801; TFSA $650; his DC pension plan $1,750. Total: $11,967. Surplus $2,373 (from which $833 would go to RESP)


Mortgage $477,000; line of credit $8,000. Total: $485,000

Read more from Financial Facelift.

Want a free financial facelift? E-mail

Some details may be changed to protect the privacy of the persons profiled.

Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to If you want to write a letter to the editor, please forward to

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies