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financial facelift

</caption><cutline_leadin>GEOFF ROBINSThe Globe and Mail

When she was widowed in 2012, Miriam spent some time taking stock.

"Many decisions can be coloured by emotion, so I haven't made any major moves since my husband died," she writes in an e-mail. Now she has resolved to sell her rural Nova Scotia home and move to eastern Ontario to be close to her family.

She wonders whether she should buy or rent in Ontario, but "having done the monthly expense breakdown, I'm now not even sure I can afford to move," Miriam adds.

Her home, which needs updating, will likely fetch in the $100,000 range, less than that after expenses.

Miriam's monthly income is $3,350, of which $2,380 is a teacher's pension not indexed for inflation.

She began collecting (reduced) Canada Pension Plan benefits two years ago at age 60. That, combined with a survivor's CPP benefit, adds another $970 a month.

Her one indulgence is her RV, which she drives south each year to enjoy the warmer climate and which eats up a big portion of her monthly budget.

"Can I afford to move?" Miriam asks. "Should I buy or rent when I move? How do I prepare for old age?"

Her short-term goals are to move to Ontario and "continue to travel in my small RV." Her long-term goals: to add to her savings and "continue to travel in my small RV."

We asked Norm Collins of Collins Financial Consulting in Halifax, who focuses on retirement assessments, to look at Miriam's situation.

What the expert says

Heading south each fall in her RV is clearly Miriam's priority, Mr. Collins says.

Her income is "pretty much fixed" because her pension is not indexed, although her CPP and Old Age Security benefits are. Her monthly pension payment will drop when she turns 65, when her pension plan's bridge benefit ends and OAS kick in. The drop in pension income will be largely offset by OAS benefits.

Her expenses – which eat up nearly all her income – can be broken down as follows: $570 for home-related expenses, $940 for fuel and maintenance for the RV, $330 in personal discretionary and $1,392 for necessities such as groceries, telephone, health and insurance. Mr. Collins includes Miriam's $300 vacation budget in necessities.

If she stays put in her house, Miriam will face cash-flow pressures in time that would force her to cut some discretionary spending. But if she sells as planned next fall for net proceeds of $85,000 and rents an apartment in eastern Ontario for, say, $700 a month – the going rate – her financial position will improve, Mr. Collins says.

His calculations assume an inflation rate of 2.25 per cent, an average annual return on her savings of 1.5 per cent and that she will sell her RV at age 75 and buy a used car, saving about $13,000 a year in fuel and maintenance costs.

The cost of renting an apartment will be less than owning a home after factoring in the elimination of such expenses as property taxes, heat and hydro, the additional investment income from the proceeds of the house sale and the lower income taxes in Ontario. Driving south will also cost a bit less.

Altogether, the savings are forecast to add up to $870 a month, Mr. Collins estimates.

"Miriam's financial position should be somewhat improved after moving."

He suggests she consider putting some of the house sale proceeds into a tax-free savings account, where they could be invested in a series of laddered guaranteed investment certificates. Having the extra money in the bank will leave Miriam with "significantly greater breathing room: Her forecasted assets should hold above $130,000 to age 90.

"Not only can Miriam afford to move, but in doing so she will be left with a sound emergency fund and an increase in her annual savings," the planner says.

Miriam also wonders what she can do to prepare for old age.

"One of the most important aspects of preparing for old age is to position yourself financially to be able to sleep at night," Mr. Collins says. "That means living within your means, having an emergency fund and not taking risk by being invested in stocks and mutual funds."

As it is, if Miriam's costs rise in one area, RV repair, for example, she can forgo some of her discretionary spending, or if her savings remain at the forecasted levels, dip into them if necessary.

"Miriam's life appears to revolve around her RV such that I do not consider those costs to be discretionary," Mr. Collins says. "I would never suggest giving it up."


Client situation

The person

Miriam, age 62

The problem

Can she afford to move to Ontario to be closer to her family?

The plan

Sell the home in the Maritimes, move to an apartment in eastern Ontario and invest the proceeds.

The payoff

Many more years of heading south each fall in her recreational vehicle and the sense of freedom that brings.

Monthly net income



Bank savings account $45,000; estimated value of home $100,000; present value of her DB pension plan $550,000. Total: $695,000

Monthly disbursements

Property tax $82; maintenance $100; home insurance $83; hydro $50; heating $255; vehicle expenses $1,120 (fuel $540, maintenance $400; insurance $160; parking $20); groceries $300; restaurants $200; entertainment $80; clothes $50; gifts $50; vacation $300; phone, cable and Internet $241; life, disability insurance $52; health care $155; other $114. Total: $3,232



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