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Myron brings in $117,500 a year from his management job, while Marge earns $47,355 teaching part-time. She plans to return to work full-time in a couple of years.Darren Calabrese/The Globe and Mail

As they approach their 41st birthdays this year, Marge and Myron are wondering whether they are on the right path. They want to travel, save for their children's university education, fix up their house and enjoy a "reasonable" retirement lifestyle. Their children are ages 9 and 11.

Myron brings in $117,500 a year from his management job, while Marge earns $47,355 teaching part-time. She plans to return to work full-time in a couple of years.

They can't decide whether to renovate their older house at a cost of $35,000 or move to one that has already been done. They are making extra payments to their mortgage, hoping to have it paid off in 11 or 12 years. Ideally, they'd like to take one "significant" family vacation each year ($10,000) and one or two smaller trips costing $2,000 to $3,000 each.

When their car and van need replacing in a few years, they plan to buy used again.

"We always purchase used vehicles and budget $20,000 to $25,000 for our primary vehicle and $10,000 for our secondary vehicle," Myron writes in an e-mail. They have no idea how much money they should save for retirement, what income they will need "or whether we're on track to meet a reasonable goal."

We asked Michael Cherney, an independent financial planner in Toronto, to look at Myron and Marge's situation.

What the expert says

With their current savings plan and Marge working part-time, they could retire at age 65 with before-tax income of $98,000 a year in today's dollars, Mr. Cherney says, "which in most books would be a comfortable retirement indeed." Their retirement income would come from government benefits, Marge's teacher's pension ($44,000 a year), Myron's two defined-contribution pension plans and his group registered retirement savings plan (RRSP).

The forecast assumes they retire at age 65 and live to be 95, inflation of 2.5 per cent, and a rate of return of 4.5 per cent.

With Marge at half-pay, the couple don't have much in the way of extra funds to finance pricey vacations or renovations, Mr. Cherney says. They should postpone these outlays until Marge returns to work full-time. "The extra income will bring them $2,100 a month after deductions."

Marge's increased income will give them more options, including moving their retirement up by four years to age 61. They could better afford to renovate their house or move to a larger one, contribute more to their children's registered educations savings plans (RESPs), travel or even increase their already generous charitable donations. Once the mortgage is paid off, the $1,950 a month currently going to mortgage payments also could go toward these goals.

"Events like a return to work or mortgage payoff are important inflection points in the financial life of a family," Mr. Cherney says. Such events "put a bonus of unallocated after-tax income in their pockets."

Myron and Marge have been using their non-registered investment account as a source of temporary funds. It is a margin account, allowing them to borrow small amounts of money without having to sell the underlying stocks. The planner recommends they transfer these investments to a tax-free savings account – provided they intend to hold the stocks as part of their retirement savings.

"They will lose the margin account, but they could borrow from a home line of credit at a lower rate, or even better, don't borrow at all."

Ideally, Marge and Myron can save enough money to replace their vehicles in a few years. They could keep the money in a savings account or term deposit either within or outside of their TFSAs. "However, these funds shouldn't replace funds for long-term investment," the planner says. Their stocks stand to benefit more from being in a TFSA than would low-yielding term deposits. They could also consider drawing on a line of credit for a car purchase as long as they are able to pay back the debt within a year.

He recommends they renovate rather than move to avoid paying moving costs (commissions, legal fees, land transfer tax, actual moving expenses, etc.) that could easily approach $100,000 when improvements to the new house are included. For the children's education, he recommends they take full advantage of the Canada Education Savings Grant. The government kicks in 20 per cent of the first $2,500 saved in a child's RESP each year, up to a lifetime limit of $7,200 for each child ($14,400 for two). This would require total contributions of $72,000.

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Client situation

The people: Marge and Myron, both 40

The problem: How can they achieve their many goals? Can they afford a big family vacation? Should they sell their home or renovate?

The plan: Postpone major outlays such as expensive vacations until Marge returns to work full-time in a couple of years. Shift stock investments to TFSA and continue to pay down mortgage.

The payoff: All their aspirations realized.

Monthly net income: $9,805

Assets: His two defined-contribution pension plans $47,150; his group RRSP $61,370; estimated present value of her defined-benefit pension plan $179,780; cash $4,000; stocks $28,335; her TFSA $1,000; RESP $33,780; residence $690,000. Total: $1.05-million

Monthly disbursements: Mortgage $1,950; property tax $285; utilities $265; insurance $75; security $35; transportation $660; groceries $900; child care $40; clothing $200; gifts $175; charitable $1,005; vacation, travel $600; other $750; dining, drinks, entertainment $475; grooming $100; pets $50; sports, hobbies $450; subscriptions $25; dentists, drugstore $100; telecom, TV, Internet $250; RRSPs $360; RESP $150; pension plan $850; professional association $55. Total: $9,805

Liabilities: Mortgage $228,000 at 3.02 per cent.

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