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-Justin Tang/The Globe and Mail

Max and Juliette want to retire from full-time work in five years so they can travel and enjoy more time together while they are still in good health.

Juliette, a school administrator, is 45, while Max, a civil servant, is 55. Their combined employment income is roughly $210,500. The big gap in their ages makes retirement planning a challenge because Juliette would sacrifice future pension benefits by retiring early. Both have defined-benefit pension plans indexed for inflation. As well, Juliette has a couple of rental properties.

Once they ease up on the work, they plan to take one big trip together each year costing $10,000. "Should we get rid of the car or make other cuts to our spending habits to achieve this?" Juliette asks in an e-mail. "What level of post-retirement income is realistic?" Their spending goal is $80,000 a year after tax.

By December, 2015, the mortgage on their home in Kingston, Ont., will be paid off. They hope to have the rental mortgages paid off in 10 years. They wonder where they should stash their savings over the next five years.

We asked Stephen Osborne, a fee-only financial planner at E.E.S. Financial Services in Markham, Ont., to look at Max and Juliette's situation.

What the expert says

Max and Juliette are united by a common goal: to retire when Max reaches 60, Mr. Osborne says.

"This creates a number of challenges, both financial and non-financial," he says. A big question is whether Juliette is really prepared to leave behind "the fulfilment and challenges that come from her career at such a relatively young age." Their sabbatical together this fall should help them answer that question, the planner says.

While it makes sense for Max to retire at age 60, Juliette will be faced with a lower pension, 10 fewer high-income years to save before retirement and 10 more years to provide for herself after she retires, Mr. Osborne notes.

Once their line of credit and home mortgage are paid off, they should direct surplus cash flow to their non-registered investment portfolio, the planner says. The line of credit can serve as an emergency fund.

Mr. Osborne does not suggest Max and Juliette pay off their rental property mortgages more quickly than they are doing now. The money would be better used to fatten their non-registered portfolios mainly because marketable securities are more flexible – and liquid – than real estate investments.

Max and Juliette have a combined $60,000 in non-registered savings plus a combined $67,000 in their tax-free savings accounts. If they needed a big sum of money in a hurry, they "might find themselves needing to either borrow against or sell one of their rental properties," Mr. Osborne says. Selling a portion of a stock or bond portfolio to raise capital would be much easier.

If they had to cash in the TFSAs to raise money, they would be sacrificing potential tax-free returns, "which I do not believe to be desirable," the planner says.

The couple spend $60,545 a year on basic living costs (excluding debt repayments, the cash flow going to the rental properties and their savings). In preparing his retirement cash flow forecast, Mr. Osborne added a $10,000 buffer to the couple's living expenses, increasing the number to more than $70,000 a year. He added another $10,000 for travel for the first 10 years of their retirement, for total spending of $80,500 a year – their target.

Max and Juliette figure they can earn $20,000 a year each working part time, Juliette for 10 years and Max for five. To be conservative, the planner did not include Old Age Security benefits in his calculations.

Max is expecting a $57,000 lump-sum retirement allowance when he retires at age 60, which he will roll into a registered retirement savings plan. He will get $70,000 a year in pension benefits, while Juliette's pension is projected to be $29,520 a year. In five years, Juliette's RRSP will provide annual income of $5,800 a year, assuming a 5-per-cent rate of return, while Max's will provide $3,500 a year.

Their non-registered savings are forecast to grow to $190,000 in five years. In addition, they will have their TFSAs and the equity they have built in the two rental properties, as well as their principal residence. Mr. Osborne assumes both rental properties will be sold when Juliette is 60.

Max and Juliette's pensions will give them a dependable source of income when they retire, the planner says. With continued savings over the next five years, "they figure to be able to afford the lifestyle they say they want to lead in retirement," he concludes.

"The more they can continue to be disciplined about saving and about making their savings work for them while there is time, the more extras they can enjoy and the more they can look forward to enjoying their time together in retirement with some peace of mind," Mr. Osborne says.


Client situation:

The people: Max, 55, and Juliette, 45.

The problem: Can they quit full-time work in five years given their spending goal?

The plan: Save as much as possible in the next five years and figure on selling the rental properties at some point.

The payoff: A potentially long and comfortable retirement.

Monthly net employment income: $13,680

Assets: Cash $4,760; GICs $7,295; stocks $27,160; mutual funds $21,415; TFSAs $67,575; Juliette's RRSP $75,000; estimated present value of Max's pension $840,000, and Juliette's pension $424,000; principal residence $600,000; two rental condos $500,000. Total: $2.56-million

Monthly disbursements: Mortgage $885; property tax $490; utilities $80; home insurance $40; transport $490; groceries $600; clothing $560; line of credit $1,000; charitable, gifts $250; travel $500; dining, entertainment $780; grooming $100; clubs $150; dentists, drugstore $50; life, health, dental insce $445; telecom, $155; TFSAs $920; non-registered $300; support payments $2,200; Juliette's pension plan contribution $1,110; professional association $15; cost of carrying rental property $790. Total: $11,910; surplus: $1,770

Liabilities: Home mortgage $14,500; rental property mortgages $187,200; line of credit $16,500. Total: $218,200

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