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Mark Blinch/The Globe and Mail

As they embark on their life together, Fred and Signy face the same challenges that younger folks might – mainly, how to amalgamate their incomes, assets and liabilities.

Where Fred and Signy differ from most newlyweds is their pressing need to plan for their approaching retirement. She is 61 and self-employed, he is 63 and works for the government. It is the second marriage for both of them.

Each comes to the partnership with a property of their own that they rent out. Recently, they bought a family home in the Vancouver area that they renovated at considerable cost.

This, together with wedding costs, ate into their cash flow. Now that they have money to spare again, they want some guidance.

Fred's job comes with a defined benefit pension plan that will pay him $48,000 a year, indexed to inflation, when he retires. Signy has no pension plan.

"We are concerned about how to manage our assets and income to the maximum benefit for our future," Signy writes in an e-mail. Longer term, their goal is to "prepare for a lengthy retirement with their current style of living." Their spending goal: $120,000 a year after tax.

We asked Matthew Ardrey and Warren Baldwin of T.E. Wealth in Toronto, a fee-only financial planning firm, to look at Signy and Fred's situation. Mr. Baldwin is regional vice-president, Mr. Ardrey, manager of financial planning.

What the experts say

Fred and Signy are in an enviable position, the planners say. He has a defined benefit pension plan, while she is self-employed, entitling her to tax-deductible expenses "over and above what an employee can enjoy."

They each have investment properties, although hers has a mortgage of about 25 per cent of the value.

Still, there are risks to their plans – as well as opportunities for arranging their affairs in a more tax-effective way, Mr. Ardrey and Mr. Baldwin point out.

Their forecast assumes Fred retires in 2022, the year he turns 72, and Signy stops working in 2017, when she turns 65. It also assumes they earn an average of 5 per cent a year on their investments and the cost of living rises by an average of 2 per cent a year. Soon after Fred retires, they receive an inheritance of $400,000.

The planners further assume Fred will sell his rental property when he retires for $528,265 net of expenses.

Signy holds on to hers and is debt-free in about 11 years. This will increase her net rental income to $76,400 a year, from $26,000, the planners say.

With further contributions to savings and growth of 5 per cent a year, Fred's RRSPs will have grown to $741,535 and his tax-free savings account to $92,082 by the time he retires.

With no further contributions, Fred's non-registered portfolio will have grown to $292,234 by then, while Signy's RRSP will be $54,296.

Fred will get maximum Canada Pension Plan benefits at age 70 and Signy will get 40 per cent of the maximum at age 65.

Neither will get Old Age Security because of the government's clawback provisions for high income earners.

By the time Signy turns 90, they will have $1.9-million of investment assets as well as the two remaining properties.

"Looking at the projection another way, it is conceivable that they would want to spend more than $120,000 a year," Mr. Ardrey says.

If they decided to spend all their investment assets, they could raise their lifestyle spending to $165,964 in today's dollars.

Alternatively, the extra money "provides a significant cushion to account for any unforeseen expenses."

The planners see a couple of risks to the plan. The first is Fred's ability to work for another nine years.

"Though his health is not a concern now, it could become so," Mr. Ardrey says. Being able to save less for a longer-than-expected retirement would put a squeeze on his retirement cash flow.

Another uncertainty is the inheritance. "Neither of these factors would leave them paupers, but could conceivably put pressure on their retirement lifestyle," Mr. Ardrey says.

From a tax perspective, Fred should consider making a spousal investment loan to Signy because he is in the higher tax bracket.

"This could amount to up to a 15-per-cent tax saving," the planners say. The current prescribed rate of interest for spousal loans is 2 per cent a year. "As this portfolio grows or when Signy retires, the benefit of this strategy only improves."


Client situation

The people

Fred, 63, and Signy, 61

The problem

How to combine their income and assets to ensure their current lifestyle when they retire.

The plan

Be mindful of the risks to their plan and take steps to make their investments more tax-efficient.

The payoff

The comfort of knowing they have an ample financial cushion.

Monthly net income



Principal residence $1,850,000; his rental $550,000; her rental $1,800,000; cash in bank $5,000; her RRSP $35,000; his RRSPs $478,000; his TFSA $25,000; his non-registered portfolio $234,000; est. present value of his pension plan $189,550. Total: $5.2-million

Monthly expenses

Property tax $950; house utilities $395; house insurance $165; maintenance $350; transportation $520; groceries $800; clothing $1,620; her line of credit $300; gifts, charity $300; travel $800; entertainment $1,325; grooming $250; memberships $700; golf $100; dentist $50; drugstore $10; disability and critical illness insurance $75; telecom $150; RRSP $50; TFSA $480; pension plan contribution $1,750. Total: $11,140. Surplus: $4,125


Rental mortgage $465,000; her line of credit $80,000. Total: $545,000

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