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financial facelift

-Tim Fraser/The Globe and Mail

Tim and Tina know just what they want to do when he quits his $200,000 a year sales job: travel the world for six months each year without having to stay in hostels. They are eager to get on with it.

He will be 56 this year, she will be 58. They have two boys, both in their early 20s.

When Tim quits work – which they hope will be soon – they plan to sell their Toronto home and move to a less expensive place in the country. Tina has been unemployed for nearly a year and would prefer not to go back to work.

"Have we saved enough to retire in 2019?" they ask in an e-mail. "Can we retire earlier if we choose to?" Neither has much in the way of a work pension.

They'll need a new car soon and their younger son is still in university. Their retirement spending goal is $75,000 a year after tax.

We asked Matthew Ardrey, vice-president of T.E. Wealth in Toronto and a certified financial planner, to look at Tina and Tim's situation. T.E. Wealth is a fee-only financial planning firm.

What the expert says

Tim and Tina want to travel extensively while they are still relatively young, Mr. Ardrey says. With no company pensions to speak of, the question for these two is, have they saved enough to make their dream a reality?

They have been diligent savers, paying off their home and amassing an investment portfolio valued at about $1.3-million. Tim is saving $550 a month to his RRSP and $1,100 a month to his employee stock purchase plan. His company matches both contributions in full. They both maximize their tax-free savings account contributions.

In his plan, Mr. Ardrey assumes Tim's RRSP savings stop at retirement but the TFSA savings continue until their respective age 72.

Tina will get $964 a month in Canada Pension Plan benefits at age 65. Because Tim spent a substantial part of his life outside of Canada, his CPP is assumed to be half of Tina's. In addition to their Canadian savings, they have $65,000 combined in foreign pension plans (they worked overseas for a couple of years) that will be paid out as a lump sum at age 65. The planner excluded Old Age Security benefits because of the clawback provisions.

Tim and Tina plan to downsize their $1.3-million home when they retire and buy a place in the country for $550,000. Mr. Ardrey assumes they will pay 10 per cent of the sale price for commission, land transfer tax, moving costs and legal fees, netting $620,000 after buying the country house. This sum will be added to their investment portfolios.

They plan to spend $57,000 a year in retirement – close to what they are spending now excluding savings and education expenses – plus another $18,000 a year for travel until Tim is age 75. They also figure they will need to buy a new car within four years at a cost of $30,000.

Mr. Ardrey assumes the rate of return on their investments will average 5 per cent a year and the inflation rate that affects their expenses 2 per cent. Both are assumed to live to age 90.

"Based on these assumptions, Tim and Tina will be able to meet their retirement goal comfortably," the planner says. They would leave behind an estate of about $1.8-million plus real estate and personal effects upon Tim's death (he's younger).

If they spent their savings, leaving behind only the house and personal effects, they could increase their spending to $75,000 a year plus travel, inflation adjusted.

As for retiring even earlier than 2019, the planner looked at how things would stand if they were to retire this year. Adding in another $18,000 a year for the children's education from 2016 to 2018, the couple would barely meet their retirement goal, leaving an estate of about $88,000 in addition to the real estate and personal effects.

"Because this scenario of retiring now leaves very little cushion, I would suggest delaying early retirement until at least 2017 to be on sounder financial footing."

Tim and Tina should review their estate planning, he says. If they both died tomorrow, they would leave an estate worth about $3.3-million before taxes and probate. "How a large amount of wealth like this is managed for their children is very important," Mr. Ardrey says. He suggests the couple set up trusts for the children that allow for staggered access to the inheritance and arrange for someone to teach and guide their children about making it last.

Tim and Tina have more than 70 per cent of their portfolio in mutual funds (including their registered accounts), which tend to have higher fees than other alternatives. They may want to look at the services of an investment counsellor or financial planner instead. "If they were to reduce the cost of investing by even half a percentage point a year, they would save about $6,000 a year." This saving would grow after they sold their home and invested the net proceeds.

Tim and Tina are in a good position to achieve their retirement dream, the planner says, but they must keep a close eye on their investments. "Their investments are going to be the driving force behind their retirement so they cannot afford a misstep with them."



The people: Tim, who will be 56 this year; Tina, who will be 58; and their two children.

The problem: Can they afford to leave work and the city behind in four years and move to the country?

The plan: Work at least until 2017, set up trusts for the children and keep a close eye on their investments.

The payoff: Their dream of travelling the world realized.

Monthly net income: $9,700

Assets: Bank accounts $10,000; stocks $140,000; mutual funds $60,000; foreign pensions $65,000; his TFSA $67,000; her TFSA $67,000; his RRSP $427,000; her RRSP $450,000; residence $1,300,000. Total: $2,586,000

Monthly disbursements: Property tax $550; utilities $310; home insurance $140; cleaning $180; maintenance, garden $130; transportation $500; grocery store $800; student expenses $1,500; clothing $120; gifts, charitable $200; vacation, travel $600; dining, drinks, entertainment $425; grooming $125; clubs $50; sports, hobbies $150; subscriptions $40; dentists $10; life insurance $155; telecom, TV, Internet $195; RRSP $550; his employee share purchase plan $1,100; TFSAs $1,667. Total: $9,497

Liabilities: None.

Want a free financial facelift? E-mail Some details may be changed to protect the privacy of the people profiled.