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GEOFF ROBINS/The Globe and Mail

Between them, recently wed Sharon and Bruce have a handful of grown children, a couple of businesses and some rental properties.

He is 64, she is 58.

Last year, Sharon drew $79,600 in salary from their management consulting business, $40,000 in bonuses and $12,500 in dividends. Bruce took $45,000 in dividends and $24,000 from the little restaurant he bought a couple of years ago, for a total of $201,100. Their rentals generated $15,120 in free cash flow (before income tax), but this and more is going toward capital improvements.

Complicating matters, perhaps, is Sharon's plan to use her business – and her borrowing power – to help her children, employing one of her sons, whom she hopes will eventually take over the business. As well, Sharon borrowed to buy a commercial property with her daughter so the daughter could start her own business there.

Bruce, a retired architect, is thinking of selling the little restaurant he bought a couple of years ago, after which he would continue to work part-time in the consulting business.

"Could we afford to move into part-time work mode by 2018?" Sharon asks in an e-mail.

They would like to help with the education of their dozen or so grandchildren "and do one big trip with each grandchild as they grow up," Sharon writes.

Bruce and Sharon's weak link is their debt load, a result, likely, of their having to start over financially. Their real estate assets total $925,000, plus another $160,000 for the restaurant, against which they have $680,520 in debt. She intends to have it all paid off by 2020.

"When would it make sense to begin selling assets?" Sharon asks.

We asked Kurt Rosentreter, a chartered accountant and senior investment adviser at Manulife Securities Inc. in Toronto, to look at Bruce and Sharon's situation.

What the expert says

Sharon and Bruce are looking at scaling back their workload in 2018 rather than retiring completely, Mr. Rosentreter says. Sharon figures they can earn at least $40,000 a year working part time. She plans to continue consulting as long as she enjoys it. Their retirement spending goal is $70,000 a year after tax, or about $100,000 a year of pretax income.

To put their property investments on a long-term footing, Sharon and Bruce are midway through a multiyear, $50,000-plus renovation, which is eating into their disposable income. Once the work is done, they can redirect surplus money to paying down debt before they retire.

Neither has a company pension plan and neither is contributing further to their registered retirement savings plans. They are not making payments at the moment on some of their debts.

In Bruce's first year of reduced employment (2019), he will get about $5,000 a year in Canada Pension Plan benefits. Sharon will get about $12,000 a year starting in 2020. Both will get $6,600 a year in Old Age Security Benefits, for a total of $30,200 a year in current dollars. The rest of their income needs will have to come from part-time consulting and rentals.

"As long as the rentals can cover their operating costs, pay the mortgages and still offer a profit to the couple to live off, they can likely plan to keep the properties as long-term investments," Mr. Rosentreter says. "But if the property costs, including maintenance, constantly exceed revenues, one has to ask how this will help their short-term retirement needs."

Their RRSPs and tax-free savings accounts – $663,000 combined – are 100 per cent invested in stocks and equity-linked products. The adviser recommends a more balanced portfolio that includes some bonds for stability given their stage in life and financial situation.

"If they draw out 5 per cent a year starting after 2018, that will add $33,150 of pretax income," the adviser says. A 5-per-cent annual withdrawal rate "should preserve the capital for the rest of their lives," he adds.

But withdrawing chunks for vehicles, big trips and home repairs "could lead to dangerously excessive depletion" of their savings.

The $30,200 in government benefits, $33,150 in portfolio withdrawals and $15,000 in net real estate income in 2019 and beyond means they would have to make at least $21,650 a year from their consulting business to reach their goal of $100,000 a year – something that appears readily achievable short term, Mr. Rosentreter says. Longer term, they will be relying more heavily on rental income, so it is important that their debt be reduced significantly by then.

But dangers lurk.

"The reality is that they carry a lot of debt for people in their 60s," the adviser notes. "This is okay as long as they stay ahead of the cash-flow needs, but it could be a stressful, dangerous situation in a rising interest rate, falling real estate market." He recommends they sell the restaurant and one of the properties – preferably the one with the lowest return – to pay down debt, improve cash flow and simplify their lives.

Client situation

The people

Sharon, 58, and Bruce, 64.

The problem

Weighing the risks of a highly aggressive investment strategy, both for real estate and stocks, to their long-term financial well-being.

The plan

Steady as she goes, but with serious thought to what could possibly go wrong. Shift portfolio to include fixed income over time. Consider selling one property and the restaurant to pay down debt.

The payoff

Greater ability to weather adversity – and to be generous with their children and grandchildren.

Monthly net income

$14,950 (variable).


Cash $6,000; term deposits $90,000; TFSAs $10,460; her RRSP $169,730; his RRSP $580,130; residence $400,000; rental properties $525,000; restaurant $160,000. Total: $1,941,320.

Monthly expenditures

Mortgage $1,500; property taxes $565; water, sewer $50; home insurance $120; hydro, heating $280; maintenance $400; renovations $2,150; garden $100; transportation $370; groceries, clothing $610; gifts $700; charitable $500; vacation, travel $600; other $200; drinks, dining, entertainment $300; clubs $100; grooming $70; pets $40; dentists, drugstore $120; life insurance $270; telecom, Internet, TV $385. Total: $9,430. Surplus: $5,520.


Residence mortgage $250,445; first rental mortgage $79,500; line of credit (second rental) $212,575; loan (restaurant) $140,000. Total: $682,520.

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Some details may be changed to protect the privacy of the persons profiled.