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Tim Fraser/The Globe and Mail

Fiona and Ted recently celebrated their final mortgage payment on their suburban Toronto house, leaving them with an extra $2,300 a month. They're wondering whether to savour their mortgage-free status for a year or two or upgrade to a new home.

He is 43, she is 40. They have two children, ages 11 and 13.

If they decide to move, they will have to spend about $30,000 fixing up their house to make it more marketable. They figure they'll have to take out a $200,000 mortgage to buy the larger home. They borrowed to buy a new car recently and they also have an outstanding line of credit.

Should they move soon or should they wait a few years, perhaps until the children are off at university? they ask in an e-mail. While they have a tidy sum in a registered education savings plan, they wonder if they should shift their education savings to a tax-free savings account instead.

Finally, the retirement question: "Are we saving enough for our retirement or should we increase our monthly RRSP contributions?" Fiona asks. They are both teachers, earning a combined $195,000 a year, so they have defined benefit pension plans. But these plans may not be fully indexed to inflation in future. Fiona and Ted would like to retire as early as their mid-fifties.

We asked Keith Copping, a financial planner at Macdonald Shymko & Company Ltd. in Vancouver, to look at Fiona and Ted's situation. Macdonald Shymko offers fee-only financial planning and portfolio management services and does not sell financial products.

What the expert says

Fiona and Ted can start by using their surplus cash flow to pay off their line of credit over three to five months and their car loan, perhaps within 16 months, Mr. Copping says. Before they begin work on their house, they might want to talk to a realtor to ensure the renovations they plan will add value.

If they do decide to move up to a more expensive house, they should aim for a mortgage amortization of about 10 years to make sure they are debt-free before Ted retires in 2025, the planner says. A $200,000 mortgage at 3.75 per cent amortized over 10 years would cost them about $2,000 a month.

"If they stay in their current home, they will have more funds for travel, savings and other financial priorities, so it will be a major commitment giving up their mortgage-free status," Mr. Copping says.

Their goal is to support four years of post-secondary education for each of their two children. They have $60,000 in an RESP but have cut back their contributions and are shifting the savings to a TFSA instead. Mr. Copping suggests they contribute the maximum of $5,000 a year (combined) to the RESP until they max out on the Canadian Education Savings Grant of $7,200 for each child.

With $60,000 now, and annual contributions of $5,000 plus matching grants, they should be able to accumulate about $98,000 in the RESP assuming a 3 per cent average annual return.

In calculating the couple's retirement needs, Mr. Copping made some basic assumptions, including life expectancy of 90 for Ted and 95 for Fiona, a 2 per cent real or inflation-adjusted return on investment and RRSP and TFSA savings of at least $8,400 a year.

At age 56, Ted will have a pension of $51,604 a year, plus a bridge benefit of $6,378 a year until he turns 65 and begins collecting Canada Pension Plan benefits. At 55, Fiona will have a pension of $53,778, plus a bridge benefit of $5,975 a year until she turns 65.

"While the employee pensions may provide an excuse not to save, the incentive to build RRSP, TFSA and investment savings is to provide a cushion against future surprises," Mr. Copping says – high inflation, possible cuts in their pension indexing, the need to help the children financially.

Their teachers' pension plan brought in provisions in 2009 that tie indexing of pensions to the financial health of the pension plan, so indexing could be anywhere from 50 per cent to 100 per cent of inflation. Meanwhile, Fiona and Ted, if they retire as young as they plan, could have another 40 years or more to plan for. Mind you, if the inflation indexing was cut to 50 per cent, they could still achieve their retirement goal of $72,000 a year after tax, the planner says.


Client Situation

The people

Fiona, 40, Ted, 43 and their children, 11 and 13.

The problem

Determining whether it makes sense to move up to a more expensive home sooner or later, and whether they are saving enough for their children's education and their own retirement.

The plan

Pay off debt first, then, if they buy a larger home, keep the mortgage amortization short. Continue with the RESP and RRSP savings.

The payoff

The achievement of all their goals, including retiring early.

Client situation

Monthly net income (after taxes, pension contributions and benefits)



Bank accounts $6,000; RESP $60,000; his RRSP $35,000; her RRSP $28,000; TFSA $11,000; home $280,000; present value of his pension plan $412,590; present value of her pension plan $358,245. Total: $1.19-million

Monthly disbursements

Food, clothing $600; property tax, insurance, utilities $622; communications, TV $275; personal/leisure $390; children's activities $667; holidays $166; transportation $540; gifts $100; debt repayment $1,340; RESP $300; RRSP $500; TFSA $200. Total: $5,700. Surplus: $2,300


Car loan $29,000; line of credit $9,000. Total: $38,000

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