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financial facelift

Fred Thornhill for The Globe and Mail

Josie is at the age when she would like to work a little less, but she is worried about money.

She is 62 and works in an office, earning $50,000 a year. Her husband, Josh, who also is 62, was forced to stop working because he has Parkinson's disease. He's bringing in $4,800 a year in Canada Pension Plan benefits. Josh was self-employed and so has no company pension. Josie has a defined contribution pension plan to which she and her employer contribute.

They own their home outright and also have a condo in Florida, which they rent out. They have no debts. They have some savings, including $297,000 in cash that is sitting in their bank account.

Josie wonders if she can cut back to four days a week.

"I would like to work part time, but I am concerned about money and future health care costs," she writes in an e-mail. She also wonders if Josh might be missing out on any disability grants.

"Can we afford for me to work part time and be okay financially?" Josie asks. They also wonder how to invest their cash, and whether it would make sense to buy another rental property.

We asked Linda Stalker, director of wealth advisory services at Henderson Partners LLP in Oakville, Ont., to look at Josh and Josie's situation.

What the expert says

Josh and Josie have done an excellent job of eliminating their debt and living within their means, Ms. Stalker says. Their rental property provides them with an annual income of $15, 840 and they are wondering about purchasing an additional rental property with the cash that they have in their bank account.

Choosing where to invest cash is a difficult decision in today's interest-rate environment, the planner says. Cash and cash equivalents are yielding 1 per cent, 10-year government bonds are yielding 3 per cent and the stock market has performed very well, which is an indication that there may be a correction around the corner.

While the rental property has been a great investment for Josie and Josh, Ms. Stalker cautions them against putting all their eggs in one basket. Investing more in real estate would give them too much exposure to that asset class.

"I would be concerned about their not having enough diversification in their portfolio," the planner says. They already have $370,000 in real estate. A more prudent approach would be to invest in a basket of dividend paying stocks and bonds.

She suggests they find an investment adviser who will help them set up a portfolio of low-cost exchange-traded funds, or ETFs. The portfolio should be readjusted when Josie retires.

"At that time, they will need to determine how much the portfolio needs to generate to meet their cash flow needs," The planner says.

In the meantime, Josie would like to reduce her work week from five days to four. If she does this, their net monthly income will be reduced by $657, Ms. Stalker says. Because they have surplus cash flow of $928 a month, they would still be within their budget, she notes.

"They will have additional cash flow if they invest the funds they have in cash to generate an income of 3 per cent to 4 per cent a year on average."

Once Josie retires, they will have to replace her group benefits with private health insurance. Because Josh suffers from Parkinson's disease, they will need good coverage, the planner says. This will be an important item in their budget and they may have to cut spending in another area to cover this added cost.

Josh should see if he qualifies for the federal disability tax credit. "In the very early stages of Parkinson's, when you may be coping well, you likely would not qualify," the planner says. As the disease progresses, however, "there is a greater chance of a successful application." He will need to fill out an application and have his physician provide information and a signature.

"For Josh to qualify, his disability must be of a prolonged nature and it must restrict his basic activities of daily living," Ms. Stalker notes. "Even if he has applied previously and been denied, he can reapply as his condition worsens."

Josh and Josie should also make sure that they are using all their medical expenses to claim the Medical Expense Tax Credit on their personal tax returns, the planner says. Once they obtain private insurance, they can claim some of the cost on their returns along with any expenses not covered by such insurance. Because Josh is over the age of 59, there is no opportunity to set up a Registered Disability Savings Plan, Ms. Stalker says.

Josie and Josh will be able to meet their goals if they maintain a disciplined approach to spending that has gotten them this far, she adds.


Client situation

The people

Josie and Josh, both age 62

The problem

Figuring out whether Josie can work four days instead of five without running into financial difficulties as health care costs rise.

The plan

With careful spending, they should be okay financially provided they invest their big sum of cash in low-cost securities such as ETFs that generate higher returns than a bank savings account.

The payoff

A clear road map of how to achieve financial security.

Monthly net income



House $230,000; rental condo $140,000; her RRSP $32,000; her work pension $61,000; TFSAs $58,000; stocks $50,000; investment funds $40,000; cash in bank $297,000. Total $908,000

Monthly distributions

Property taxes, home insurance and repairs $1,260; utilities $275; transportation $489; groceries $530; clothing $50; phone and cable $184; vacation $200; dining out $20; gifts $85; medical expenses $130; life insurance $100; beauty $100; subscriptions $40; RRSP contributions $245. Total: $3,708. Surplus: $928




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