Patience - and pension - will make island retreat a reality

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Who hasn't taken a brief holiday to some magical island and longed deeply, perhaps irrationally, to stay there?

Most of us go home and forget about it. Others return year after year for a two-week vacation. A rare few pull up roots in the city as soon as they are able and move.

Charles and Jonathan (not their real names) intend to be among those rare few.

They want to move from their Toronto duplex to Cortes Island, a small but culturally rich paradise off the B.C. coast, within seven years.

They hope to design and build a modest, self-sufficient home by the ocean. Charles wants to work part time as a consultant and Jonathan plans to devote himself to writing.

"It was love at first sight," Charles writes in an e-mail, "kayaking as the sun went down, the sky turning to gloaming and then the stars exploding."

Jonathan thinks perhaps they should spend a winter there to see what it's like, but Charles is impatient.

"If I can get back to planting peas in February, and overwintering leeks and cauliflower, I will have accomplished much."

Is this just a romantic dream?

We asked Kurt Rosentreter, senior financial adviser at Manulife Securities in Toronto, to take a look at their situation. Jonathan's pension is key, Mr. Rosentreter says. And he wonders whether the pair, who are 46 and 47, might not suffer from cabin fever after a spell on the sparsely populated island.

What Our Expert Says Since Charles and Jonathan are both government employees, they are on track to get a combined $100,000 of indexed pension income if they retire between age 60 and 65, Mr. Rosentreter says.

"Most Canadians would kill to have pensions like this."

Jonathan's teacher's pension will max out in eight years and generate $50,812 a year, he calculates, while Charles has an annual pension entitlement of $16,299 available in nine years, which would jump to $44,136 - based on years worked and a higher income in the final five years - if he retires in 14 years.

This asset base would provide the partners with a sizable, life-long, guaranteed cash flow that is indexed for inflation and would be hard to replicate with savings of their own, Mr. Rosentreter says.

"Simply put, these pensions are overwhelming peace of mind for two gentlemen who could live more than 40 years after retirement and face a myriad of unknown costs that they may not be planning for today."

So, at the very least, the pair should wait until Jonathan's pension vests in eight years, Mr. Rosentreter says.

If they were to leave earlier, they would get a lump sum of perhaps $500,000, based on their years of employment, which would be invested in a locked-in RRSP.

The couple's main assets are two Toronto duplexes in which they rent three apartments. The properties are valued at $840,000 with combined mortgages of $630,000, giving them a net asset base of $210,000.

Assuming the properties appreciate by 2.5 per cent a year, that they continue to pay down the mortgages and save $3,000 a month, as they plan, and including their $25,000 in RRSPs, they could head to B.C. in seven years with about $800,000 in assets derived from the equity in their home and their monthly savings, plus interest, between now and then.

But then they'd have to buy a couple of acres and build a home, which Charles estimates will cost $400,000 but could well cost $500,000 by then as the value of oceanfront property appreciates.

This would leave them about $300,000 to $400,000 to supplement their consulting and writing income, which would likely be spent on home repairs, vacations and other living costs over time. They could also collect from the Canada Pension Plan at age 60 and Old Age Security at age 65, which would add to their income.

If they wait for Jonathan's pension to vest and leave in eight or nine years, they could leave with as much as $935,000 - plus the $50,812 annual pension - if stock and real estate markets co-operate, Mr. Rosentreter says.

With Jonathan's pension, the pressure would be off to cover their basic living costs, which Mr. Rosentreter figures will be $50,000 a year.

Then there are the potential new costs of living on the island. Charles and Jonathan would probably need a car for outings to the mainland, an expense they don't have now. They will have to factor in the cost of ferries, hotels and meals when they visit Vancouver to take in a play or opera.

Appealing as the island's back-to-the-land culture might be, it is a far cry from the way the couple currently live, he adds.

"Today in Toronto they are living off $200,000 of combined pretax income," he says. "To cut back to a more basic existence with no guaranteed career plans could be a shock to their systems."

Certainly, Charles and Jonathan could live for very little if they wanted to stay home for the next 40 years, he observes, "but is that practical to expect given who they are today?"

Finally, when they do retire, they should look into keeping Jonathan's health insurance benefits because doing so would likely cost less than buying third-party coverage.

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