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Samantha's goal is to take one big trip every two years.

Chad Hipolito/The Globe and Mail

At age 58, Samantha naturally is starting to think seriously about the day she'll be able to sit back and collect her government pension. She's earning about $63,000 a year in communications.

Mind you, her pension income won't be much if she retires at the age of 60 like she plans: $1,112 a month, indexed to inflation, with a bridge benefit of $342 a month that will cease when she turns 65.

Samantha is comfortable enough. She has a house with a mortgage in British Columbia and a tenant who pays $650 a month in rent. Not long ago, she had her house appraised by a real estate agent for $650,000, so she's feeling prosperous.

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If necessary, Samantha would sell her house and invest the net proceeds to supplement her retirement income. She figures she can rent an apartment for $1,200 to $1,500 a month. She'd take reduced Canada Pension Plan benefits and begin collecting Old Age Security at the age of 65.

Now, Samantha knows it could be tight, so she plans to work on contract for a couple of years to pay for her travel expenses. Her goal is to take one big trip every two years.

"Will I need to sell my home and rent in order to retire at 60 in 2019 with an income of $50,000 a year?" Samantha asks in an e-mail. Her retirement spending goal is $50,000 a year before tax. "How much contract income will I need to bring in to reach my goals?"

We asked Heather Franklin, an independent, fee-for-service financial planner in Toronto, to look at Samantha's situation.

What the expert says

Samantha would be well advised to look down the road a little farther before she quits her job and begins drawing early pension and CPP benefits, Ms. Franklin says. If Samantha works to the age of 65, her pension will be $1,612 a month, indexed to inflation, instead of $1,112 at the age of 60 (not including the bridge benefit). Her CPP would be $645.54 instead of $413.50.

As the years roll by and Samantha grows old, she might be grateful to have the higher pension and benefit income. If she is firm about retiring early, Samantha could at least work another couple of years rather than depending on contract work that can be unreliable, she says.

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As well, Samantha's retirement spending goal is ambitious, the planner says. She suggests Samantha track her spending carefully over the next year or so to see what she is actually paying for things. She'd need to add to her budget for more expensive vacations every second year. If Samantha sells her house, pays off her mortgage and invests the proceeds at a conservative 3.25 per cent a year, her investment returns would supplement her pension and benefit income, the planner notes. She'd get $11,700 a year based on net proceeds of $360,000 after all expenses. Samantha also has a $200,000 registered retirement savings plan that she could withdraw money from as needed.

So if all went well, income from her savings could supplement her pension and benefits and allow her to live comfortably, Ms. Franklin says. She could leave the capital from the house sale untouched in case she needs it for home care or assisted living when she gets older.

But selling her house any time soon would leave her vulnerable to rent increases beyond the rate of inflation, the planner notes. Rents in desirable neighbourhoods such as hers can rise substantially over time. Selling the house would take Samantha out of the real estate market at too young an age, leaving her to rent for another 25 to 30 years, Ms. Franklin says.

Instead, the planner recommends Samantha sell the house and downsize to a condo. She could probably find a two-bedroom condo apartment for about $350,000. She'd be mortgage-free and she'd have some money left over that she could use to top up her tax-free savings account. She could invest in blue-chip, dividend-paying stocks or exchange-traded funds that hold them, Ms. Franklin says. "This way, Samantha retains her footing in the real estate market with an option to sell at a later date."

As well, B.C. allows residents over the age of 55 to apply to defer their property taxes until they sell the home. The province charges an interest rate of 0.7 per cent a year.

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The person: Samantha, age 58

The problem: Will she have to sell her house if she retires in two years at the age of 60?

The plan: Seriously consider working longer. If she must sell, consider downsizing to a condo rather than renting.

The payoff: Long-term financial security Monthly net income: $4,875

Assets: TFSA $30,000; RRSP $200,000; estimated present value of defined benefit pension plan $275,000. Residence $650,000. Total $1.16-million

Monthly outlays: Mortgage $1,500; property tax $240; property insurance $210; utilities $190; transportation $175; grocery store $350; clothing $40; gifts, charity $140; vacation, travel $200; dining, drinks, entertainment $215; personal care $25; drugstore $30; phones, internet $125; RRSP $450; TFSA $150. Total: $4,040

Liabilities: Mortgage $187,000 at 2.5 per cent

Want a free financial facelift? E-mail finfacelift@gmail.com.

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

Rob Carrick talks with Jeff Gray of Proteus Performance about the options you have when preparing your pension for your retirement.
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