Adele and Zeke have good jobs, a mortgage-free suburban Toronto home and three children to put through university.
She is 45, he is 47. Their children range in age from 10 to 17.
Neither has a company pension plan, so they must provide for themselves once they quit working. Adele, who makes about $114,000 a year, hopes to retire in 10 years when she is 55. Zeke, who makes $80,000, plans to work at least until he is 65.
Paying off the mortgage, which they did recently, left them with substantial free cash flow. They have $75,000 in a registered education savings plan for their sons, but they would like to save much more.
Further back on the horizon is the prospect of helping Adele's mother, who lives about 200 kilometres from them in a small town. If she sold her home and moved closer to her daughter and son-in-law, she would need financial help buying a condo. As well, Zeke needs a new car.
"We'd like some advice on the best ways to make sure we can afford to do all that," Adele writes in an e-mail, "plus enjoy life a little more now that the mortgage is gone."
We asked Stephen Osborne, a fee-only financial planner at E.E.S. Financial Services in Markham, Ont., to look at Zeke and Adele's situation.
What the expert says
In drawing up his plan, Mr. Osborne assumes Adele works until she is 55 and Zeke until he is 65, and that their salaries rise in line with inflation. He assumes they contribute the maximum (18 per cent of their salaries) to their registered retirement savings plans.
"For Adele, this amounts to $20,520 a year; for Zeke, $14,400 a year," the planner says. Adele has $46,000 of unused RRSP room, Zeke $130,000.
Mr. Osborne suggests Adele use up her contribution room over the next four years before her two eldest children are in university at the same time and the family's expenses are high. Once Adele's unused RRSP room is used up, they can shift their focus to catching up with Zeke's.
The planner also assumes they contribute the maximum of $5,500 a year to their tax-free savings accounts.
Zeke and Adele show monthly expenses of about $5,350; the planner adds a buffer of $650 a month, for a total of $6,000. Budgeting for a little extra will give them the flexibility to deal with unexpected outlays without compromising their long-term plans.
For vehicle purchases, Mr. Osborne budgets $10,000 a year, which will allow each of them to buy a $35,000 car every seven years.
Because they are focusing on their RRSPs, the money Adele and Zeke accumulate in the RESP will fall short of the children's needs. The couple will need to come up with $15,000 a year for each son to cover the shortfall. The $75,000 they already have would fund $6,250 per academic year for each child.
Mr. Osborne assumes they contribute $2,500 a year for each child until the children reach age 17 in order to take full advantage of the federal government's grants. Any other education savings can be kept outside the RESP to allow for greater flexibility in case one of the children decides not to pursue higher education. His calculations provide a bit of a cushion in case one or two of the children decide to study longer.
When Adele quits work at age 55, she will have $563,000 in her RRSP, assuming a 5 per cent rate of return and 3 per cent inflation. She would begin drawing on her savings, giving her an annual income of $36,000. They would live on that plus Zeke's salary.
Both would begin collecting Canada Pension Plan benefits at age 60 and Old Age Security benefits at age 67. At 65, Zeke would begin drawing on his RRSP, which by then would have grown to $1.1-million, giving him an annual income of $84,500. Under current tax rules, they could split their income.
As for helping Adele's mother, who is in her early 70s, this could be a way off, the planner says. Adele's siblings may help out, or her mother could choose to stay in her own home as long as possible.
"With this situation not being imminent, I would sooner take a wait-and-see approach," Mr. Osborne said. "Once the need to help Adele's mother is better established, it would be a good time to review their overall plans."
Zeke, 47, Adele, 45, and their three children.
How to provide for their retirement and put their three children through university.
Contribute as much as possible to their RRSPs and TFSAs. Continue contributing to their children's RESP but be prepared to make up the shortfall when the second and third child are in university.
The ability to meet their financial challenges as they arise without jeopardizing a comfortable retirement.
Monthly net income
Bank deposits $10,000; TFSAs $2,000; her RRSP $120,000; his RRSP $165,000; RESP $75,000; home $600,000. Total: $972,000
Housing $660; transportation $590; groceries $800; clothes, shoes, cleaning $910; gifts, charitable $150; vacation, travel $400; personal discretionary $450; dentist, drugstore $60; telecom, TV, Internet $210; RRSPs $1,000; group benefits $120. Total: $5,350
Special to The Globe and Mail
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