At first blush, Arthur and Elenita's plans seem a tad hopeful.
He is 51, she is 38, a marketing whiz from Chile who moved to Vancouver in 2009 to join Arthur, whom she met at a conference. "We married shortly thereafter," Arthur writes in an e-mail. Soon they moved to Toronto, where they both found good employment, he in marketing, she in sales. Together, they bring in about $170,000 a year.
While their thoughts are on the future, Arthur does have some concerns. He changed careers in his mid-30s, and although he is making good money now, "I am also 51 years old and haven't accumulated a great deal of wealth," he says.
Arthur misses Vancouver and hopes they can sell their Toronto home and move back West when he retires. They wonder if their retirement plans – he quits at 62, she at 60 – are feasible. She'd be 49 when Arthur hangs up his hat. She'd have to find a job in Vancouver and work another 11 years. Neither has a company pension. "We are wondering how our age difference and staggered retirements will impact our goals," Arthur writes.
We asked Norm Collins of Collins Financial in Halifax to look at Elenita and Arthur's situation.
What the expert says
Together, Arthur and Elenita have a nice income, Mr. Collins says. As well, Arthur's company pays for his car and telecommunication expenses. Still, their expenses are "quite considerable," although more than 30 per cent of their monthly outlays go to mortgage payments, including extra payments to principal. Their income and age discrepancies "present both complexities and opportunities."
Arthur's marginal tax rate will drop from 43.4 per cent to 20.1 per cent when he retires, so he should contribute the maximum to his registered retirement savings plan each year as well as using up his $59,300 of unused contribution room, Mr. Collins says. Contributions should be made as needed to put him in a lower tax bracket.
Because Elenita is younger, Arthur should direct most of his RRSP contributions to a spousal plan for her in order to keep their taxable income more or less the same after Elenita retires, Mr. Collins says. With no pension plans, their retirement income will be largely dependent on how much they can save between now and when they retire.
Next, Mr. Collins looks at Arthur's dream of selling the Toronto home a decade or so hence and buying a modest condo or co-op in Vancouver for cash. Mr. Collins inflates the current $700,000 value of their home by 2.25 per cent a year, lifting it to $895,000 by the end of 2024. He deducts 6 per cent, or $53,000, for real estate commissions and selling costs, as well as the estimated mortgage balance outstanding of $132,000, leaving the couple with $710,000. This may well be enough to buy the modest condo or co-op they envision.
Come 2025, their forecast income dives after Arthur stops working because his salary is more than double Elenita's. The drop will be offset partly by his Canada Pension Plan benefits (reduced for early retirement), lower income and payroll taxes and the fact that he will no longer be making mortgage payments. Arthur will begin withdrawing $34,000 a year from his savings. "When Old Age Security benefits begin in late 2029, the RRSP withdrawals can be reduced by an offsetting amount," Mr. Collins says.
When Elenita retires in 2035, their income drops again and she begins to draw down her RRSP by $40,000 a year. Their savings will last to his age 93 and her age 80, "at which time it is forecast their invested assets will expire." That assumes an inflation rate of 2.25 per cent, and an average annual return on investments of 2.5 per cent for guaranteed investments and 4 per cent for equities. They will still have their home to fall back on.
To shore up their financial position while they are still working, Arthur and Elenita could cut some of their spending on such things as groceries, restaurants and vacations, leaving more money for savings, Mr. Collins says.
Perhaps the most significant issue facing the couple is whether Elenita will want to continue working another 11 years after Arthur has retired. If she works to age 60, he will be 72 and could be facing some health problems. Says Mr. Collins: "It may provide more options if Arthur continues to work another year or two, allowing Elenita to retire a few years earlier if desired, providing them an opportunity to enjoy more of their retirement together."
Arthur, 51, and Elenita, 38
How best to plan for retirement given their age difference.
Save more, spend a little less. Plan for Arthur to work a little longer and for Elenita to retire a little sooner.
A better chance at financial security plus more time together when they retire.
Monthly net income $10,280
His RRSP $190,000; bank account $200; residence $700,000; his TFSA $50. Total: $890,250 cct.
Mortgage $2,785; property tax $245; maintenance and improvements $200; heat, light, water $260; home insurance $90; garden $50; transportation $745; groceries $900; clothing $125; gifts, charitable $70, vacation, travel $1,000; dining, drinks, entertainment $900; grooming, pets, clubs, sports, subscriptions $350; insurance, dentists, drugstore $300; telecom $30; RRSP $420; Total: $8,470
Mortgage $391,205; car loan $18,355; line of credit $1,000. Total: $410,560
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