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At 64 and closing in on retirement, Roseanne has a clear goal: "To live a simple life, free of financial worries."

Roseanne, a nurse, owns her East Coast home outright. She also has a defined benefit pension plan that will pay her $43,700 a year when she retires two years hence after 35 years of service. She lives frugally and does not want to be a burden on her only child when she grows old.

Yet worry she does. She worries that her pension is not indexed to inflation so her income may fall short over time. She wonders whether she should renovate her house to make it more comfortable and energy efficient, or whether she should borrow money to add an income suite.

"Or I could sell my home, invest the funds, and rent," Roseanne writes in an e-mail. "Will this be necessary?"

In addition to her pension, Roseanne has more than $130,000 in savings, much of which is earning a scant 1.1 per cent a year in bank savings accounts. "How can I get a better return and keep the money safe?" she asks. "Have I got everything in place for my retirement?"

We asked Norm Collins, of Collins Financial Consulting in Halifax, to look at Roseanne's situation.

What the expert says
Roseanne has nothing to worry about financially thanks mainly to her pension plan, Mr. Collins says. If anything, she might want to consider spending a little more on herself.

"Roseanne is very well positioned to achieve her goal of a financially worry-free retirement without the need of either rental income or higher investment yields," the planner says.

Roseanne, who says she loves her job, plans to retire from work in July, 2015. She might want to put off collecting Old Age Security benefits until then rather than taking them at age 65, Mr. Collins suggests. This would increase the benefit by 0.6 per cent for each month (7.2 per cent per year) the benefit is deferred.

In 2016, Roseanne's first full year of retirement, her income is forecasted to be as follows: $3,640 a month from her work pension; $650 in OAS, $1,040 in Canada Pension Plan benefits, and $180 in non-registered interest income, for a total of $5,510 or $4,240 after income taxes. With OAS and CPP adding to her pension, this is slightly more than she is getting now. At age 72, she will convert her RRSP to a registered retirement income fund and begin withdrawing the minimum amount.

What puts Roseanne in such an enviable position is her expenses, which in 2016 are forecast to amount to only $2,020 a month, resulting in more than $2,000 of monthly savings. If she keeps her spending this low, she is forecasted to have more than $880,000 in investment assets in her 90th year. That does not include the value of her home.

As for whether Roseanne should renovate her house to make it more energy efficient, she may well choose to do so for her own comfort, the planner says. But she has no need either to add a rental unit to generate additional income or to sell her home and rent. "With a rental unit may come headaches Roseanne might not want to endure."

The planner's forecast assumes a rate of return of 1.5 per cent on Roseanne's guaranteed assets (73 per cent of the total) and 3 per cent a year on the equity portion of her holdings (27 per cent). The inflation rate is assumed to average 2.25 per cent.

Interest rates are artificially low and can be expected to rise over time, which will generate healthier returns eventually. While there is no need for Roseanne to take any risk, she could earn a little more by shifting her savings accounts to laddered guaranteed investment certificates. For example, with a one to three-year GIC ladder, she could roll over the maturing portion annually into a new, three-year GIC.

She also needs to keep an eye on the two mutual funds in her RRSP to ensure they are earning their relatively high management expense ratios – 1.83 per cent and 2.09 per cent. She might do just as well with lower-fee exchange-traded funds.

Given her solid financial position, Roseanne may want to loosen her purse strings and spend a little more money on herself, Mr. Collins says. For example, if she increases her spending by 25 per cent or $500 a month, she would still have nearly $640,000 in financial assets at age 90.


The person
Roseanne, 64

The problem
Determining what needs to be done to prepare for retirement. Should she renovate or sell her home?

The plan
Improve the home to make it more energy efficient, but don't worry too much about money.

The payoff
Peace of mind knowing she has achieved financial independence with a little spending room to spare.

Client situation

Monthly net income

RRSP $48,200; TFSA $20,600; non-registered $63,800; home $280,300; estimated present value of pension plan $680,000. Total: $1.09-million.

Monthly disbursements
Property tax $270; heating $400; other housing $295; transit $55; groceries $135; clothing $40; gifts, charitable $90; vacation, travel $20; other discretionary $50; grooming $110; entertainment, hobbies, subscriptions, other personal $135; life, health, dental insurance $140; dentists, drugstore $35; telephone $105; RRSP $40; TFSA $460; other saving $870; professional association $65; group benefits $480. Total: $3,795.


Special to The Globe and Mail

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