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Stuart and Sheila want to have a 20 per cent down payment on a larger home to avoid paying mortgage insurance.Matthew Sherwood/The Globe and Mail

The birth of their first child this spring spurred Stuart and Sheila to take stock of their financial future. With the new arrival, their rented apartment in Toronto is feeling a little cramped.

"We are now looking at making a move to a larger home (in three years) and want to make sure that this decision will not adversely affect our financial future," Stuart writes in an e-mail. They aim to pay $500,000 for a house and have the mortgage paid off in full by the time Sheila retires.

He is 31 and works as a manager; she is 39 and a financial analyst. Together, they earn about $127,000 a year. Their modest lifestyle leaves them with a sizeable cash flow surplus.

Their questions concern both short and longer term considerations: Should they rent or buy a home? How would having a second child affect their financial situation? Should they consider using their registered retirement savings plans as part of their home down payment?

They have no will, no life insurance and no disability insurance.

We asked Matthew Ardrey and Warren Baldwin of T.E. Wealth to look at Stuart and Sheila's situation. T.E. Wealth is a fee-only financial planning firm. Mr. Baldwin is regional vice-president; Mr. Ardrey is manager of financial planning.

What the experts say

Stuart and Sheila want to have a 20 per cent down payment to avoid paying mortgage insurance, the planners note. They have $33,000 in non-registered investments and cash, and can save the remainder outside of their RRSPs over the next few years given the significant surplus their income gives them over their current expenses.

Thus they have no need to tap their RRSPs for a down payment.

Having a mortgage will limit their ability to save for retirement. Once Sheila and Stewart buy the house, they will only be able to make about 65 per cent of their maximum RRSP contributions, the planners say.

After the mortgage is paid off in 2038 – about 22 years on a bi-weekly accelerated basis – they can begin to catch up on their unused RRSP room. This will continue until retirement at age 65. Once the RRSPs are maximized, funds that would have been used for them can be deployed to their tax-free savings accounts.

In preparing their retirement projection, the planners assume that Stuart and Sheila will retire at their respective age 65. Because there is an age gap between the two, Stuart will continue to work while Sheila is already retired.

The investment return on their current assets and future savings is assumed to be 5 per cent a year, while the inflation rate that affects their lifestyle expenses is assumed to be 2 per cent. Both Sheila and Stuart will receive full Canada Pension Plan benefits at age 65 and Old Age Security benefits at age 67. The planners assume both live until age 90.

When Sheila retires in 2039, their target retirement spending of $50,000 would have increased to $83,671 due to the 2 per cent inflation factor. By then, with contributions and growth of 5 per cent a year, the RRSP portfolios would be $601,200 for Sheila and $722,733 for Stuart.

By the time Stuart retires at age 65, his RRSP portfolio will have grown to $1,459,448. His TFSA would be worth $181,015 and Sheila's $55,160. By the time Stuart is 90, there would be $2,786,763 in investment assets remaining, along with the real estate and personal assets.

"Based on these assumptions, Sheila and Stuart will be in an excellent position to meet their retirement goals," Mr. Ardrey says. They could spend up to $67,306 in today's dollars in retirement and still have their real estate and personal assets to leave their children.

One immediate concern the planners note is the fact the couple does not have wills or powers of attorney.

"This is a significant pitfall when it comes to planning, especially now that they have a child," Mr. Ardrey says. Without wills, their estates will be governed by the intestate laws of their province of residence. As their assets grow, this will become an increasing risk. The powers of attorney are perhaps even more important than the wills because the chance of becoming disabled is even greater than dying prematurely.

Client Situation

The people

Stuart, 31, Sheila, 39, and their first child.

The problem

With plans to have a second child, can they afford to buy a home? If they do, how will that affect their financial well-being?

The plan

Go ahead and buy the home. They can save up the down payment outside of their registered accounts and so have no need to tap into their RRSPs. Their long-term savings may suffer some setbacks because of the higher cost of home ownership, but they can catch up later once the mortgage is paid off. First, though, they must take care of their wills and powers of attorney.

The payoff

Lots of wiggle room now and in future for all the twists and turns that life may bring.

Monthly net income



Bank deposits, GICs $16,000; mutual funds $17,000; TFSAs $11,500; her RRSP $35,500, his RRSP $26,500. Total: $106,500

Monthly disbursements

Rent, including utilities $1,180; transportation $280; groceries $500; clothing $170; gifts, charitable $80; vacation, travel $300; dining out, entertainment $300; sports, hobbies $150; grooming, subscriptions $60; other personal discretionary $150; dentists, drugstore $110; telecom, TV, Internet $170; RRSP $800; RESP $200; group benefits $75. Total: $4,525. Surplus: $2,535



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