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With his contract job in financial services over and his 60th birthday approaching, Mark naturally wonders what would happen to the family finances if he did not look for another job but instead retired, perhaps doing a bit of consulting as the opportunity arose.

After all, he and his wife Antonia have substantial savings and no debts. Their two older children have graduated from university and moved out on their own; the younger is finishing up her first year of college. Antonia, who is 55, stayed home to take care of the children. Now that they're grown, the couple would like to spend more time travelling, Mark writes in an e-mail.

They have no company pensions. Mark wonders whether they should begin collecting Canada Pension Plan benefits at age 60. He is concerned they might be too heavily invested in stocks. Most of all, he wonders whether he can retire without having to rein in their comfortable lifestyle.

"Our target monthly cash income is $6,500-$7,000, which includes a provision for travel and winters in the sun," he writes. They want to keep two cars at least for the next five years and not be forced to downsize their Mississauga, Ont., home for at least 10 years.

"We're open to moving to a lower-cost real estate market around the GTA perimeter but are waiting to see where our kids appear to be settling," he adds.

We asked Warren Baldwin, regional vice-president of T.E. Wealth in Toronto, to look at Mark and Antonia's situation.

What the expert says

Although they have $1,053,000 in financial assets, Mark and Antonia's savings appear modest compared to their expectations for how they will live in retirement, Mr. Baldwin says.

"Making ends meet may present a challenge for this couple."

Looming on the horizon is the capital gains tax they will have to pay when they begin liquidating their bank shares, which they have held for many years. Based on the current stock price, the taxable portion of the capital gain is $187,000.

"If this income is triggered in a year (or over several years) when Mark's marginal tax bracket is even as low as 35 per cent, the tax bill could reach $65,000," Mr. Baldwin notes.

By the time Antonia is age 65, they will be getting $23,280 a year in CPP and OAS benefits in 2012 dollars, the planner says (CPP at age 60 of $8,040 for him and $2,280 for her and OAS at age 65 of $6,480 each). Their target income for the first 10 years of retirement is at least $78,000 a year after tax, declining to $72,000 thereafter.

Mr. Baldwin looks at two different situations, one in which they keep the house and a second in which they sell it in 10 years and downsize, netting $300,000 in non-inflated dollars. He assumes a growth rate on their investments of 5 per cent a year and an inflation rate of 2 per cent. With inflation, their expenses will be $87,768 by the time Antonia is 65 against pension income (indexed for inflation) of $28,400, leaving a shortfall of roughly $60,000 to come from income and withdrawals of capital from their investments.

"With no funds from downsizing of their property, they exhaust their assets by his age 79 in 19 years." To stretch their money to her age 90 and still keep their home, they would have to pare their lifestyle expenses to $58,231 a year.

In the second scenario, where they sell their home after 10 years and downsize, adding $300,000 to their capital, they run out of savings by the time he is 86 and she is 81. To stretch their savings to her age 90, they would need to limit their lifestyle spending to $65,970 a year in 2012 dollars.

The best approach, Mr. Baldwin says, is to see whether they can pare their long-term expenses while at the same time earning some income for a few more years. The extra income would help cover their expenses and pay some of the capital gains tax they will owe as they sell stock and shift to a more balanced portfolio. As well, additional earning years will create RRSP room; using some of the earnings to contribute to an RRSP could help offset the capital gains tax bill.

He recommends they shift their investments gradually so that they have 40 per cent to 50 per cent of their holdings in fixed income and the equity position divided equally among Canada, the United States and international using a low-cost mix of assets such as institutional pooled funds or exchange-traded funds.


Client situation

The people:

Mark, 59, and Antonia, 55

The problem:

Now that Mark is out of work and nearing 60, can they afford for him to retire without sacrificing lifestyle?

The plan:

Either pare spending or work for a few more years, using RRSP room to help offset the big future capital gain tax on their investments.

The payoff:

A sustainable retirement plan that doesn't have them fretting about how to make ends meet.

Monthly net income (from investments):



Cash $11,000; stocks $492,000; other $27,000; TFSAs $20,200; his RRSP $220,000; her RRSP $283,000; RESP for youngest child $29,000; residence $600,000. Total: $1.68 million.

Monthly disbursements:

Property tax $360; utilities $355; maintenance $200; car lease $535; car insurance $360; fuel, maintenance $450; groceries $700; clothing $200; charitable $500; vacation and travel $1,000; other $500; discretionary (alcohol, tobacco, beauty, dining out, entertainment, sports, hobbies) $760; health care (dentists, life insurance) $220; telecommunication, cable $260. Total: $6,400.


None except for monthly car lease payments.

Special to The Globe and Mail

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