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Christinne Muschi/The Globe and Mail

Michelle was born in 1948, the early part of the postwar baby-boom generation. She's well-educated and successful, a retired professional, single again, who earned big money during her 40-year career and is still making a good income – more than $90,000 a year – in her second one. She plans to work until she is at least 75.

"Having worked my entire life, I have no desire not to work and I very much enjoy what I am doing," Michelle writes in an e-mail. "Somehow, I still have trouble making ends meet and I worry that I will run out of funds in my lifetime."

Despite her wealth – much of it in real estate – Michelle shares traits with less-well-off boomers that some see as typical of their generation: In her own words, she's an enthusiastic spender, self-indulgent and incapable of reining in her expenses. She's gone through her non-registered savings because of some unforeseen expenses and is now tapping her registered savings. "This has consequences today from a tax perspective," she notes.

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She has managed to save a tidy sum because she invested in vehicles that were both tax-efficient and "locked," she adds. "Knowing that any money to which I have access will be spent, I consciously tied up my savings in my houses and registered plans."

As well as her Toronto house, Michelle has a place in the country. She has one child, a married daughter, who is successful in her own right, so leaving a big estate is not a major concern.

We asked Warren MacKenzie, a principal at HighView Financial Group, to look at Michelle's situation.

What the expert says

Michelle spends about $140,000 a year, including about $40,000 of discretionary expenses, Mr. MacKenzie says. That does not include $33,500 a year of debt repayments that show up in her budget. The debt payments will drop to $7,000 a year after the balance of the business loan is paid off in two years.

She calculates her net worth at $3.7-million, of which more than $2.2-million is in registered accounts. Because she will have to pay income tax of about 40 per cent on her registered savings and capital gains tax on the sale of her country property, her true net worth is substantially less, the planner says: about $2.7-million after subtracting future tax liabilities.

To supplement her employment income, Michelle has to draw sizable amounts of cash each year from her registered accounts and pay tax of about 46 per cent on the withdrawals. She plans to sell the country house at some point and eventually sell her city home, too, and move to an apartment.

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With her investments, Michelle appears to be taking more risk than necessary because her investments are mainly in Canadian stocks. The plan Mr. MacKenzie prepared shows that Michelle could continue spending the way she does and still not run out of money before the age of 95 if she earns an average annual return on her investments of 4.5 per cent after fees – quite possible with a balanced portfolio. His plan assumes she sells the country property in three years – although sooner would be better – and her city home in 2028.

Michelle could do a number of things to ease her worries, the planner says. First, she could and should reduce spending just in case things don't work out as planned, or she falls ill. She could sell the country property now. She could lower the risk in her investment portfolio so she could better withstand a bear market. She could have a financial plan prepared to show how things might work out with different spending levels and economic assumptions. "When she sees and understands how the cash flows work, she will stop worrying." She could also ask for a performance report that shows how she is doing compared with the proper benchmarks.

Unless Michelle is willing to cut about $25,000 a year out of her $40,000 in discretionary spending, she should consider selling the country property that she rarely uses – and which costs $12,000 a year to maintain – now, Mr. MacKenzie says.

"Selling the country property would reduce cash needs by $12,000 a year." She could use the proceeds of the sale to supplement her income and not have to take so much out of her RRSP.

Michelle's investments are 86 per cent equities, of which about 75 per cent is in the Canadian stock market. "This is not a well-diversified asset mix and results in an investment portfolio with higher risk than necessary," Mr. MacKenzie says. "It would make more sense to be in a well-diversified portfolio that is goals-based and therefore designed to take only as much risk as is necessary to achieve her financial goals."

As long as Michelle is working, she is paying income tax at the top marginal rate on all withdrawals from her registered plans to fund her lifestyle. "When she fully retires, at least the first $44,000 of the withdrawals will come out at a significantly lower rate of tax," the planner says. So it would make sense to delay the RRSP withdrawals by using her line of credit to help fund her lifestyle in the meantime. "By delaying the payment of tax for eight years, when she plans to retire, the money that would otherwise be paid in tax would be working for her during that period. Also, the tax savings from being in a lower bracket when she takes the money out will far outweigh the interest cost."

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The person: Michelle, 67.

The problem: Will she run out of money?

The plan: Consider selling the country home now. Diversify investments. Supplement income by borrowing on line of credit until she fully retires.

The payoff: Not having to give up her free-spending ways.

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Monthly net income: Salary and CPP $6,355 plus balance taken from RRSPs as necessary.

Assets: Cash $69,275; art, antiques $100,000; TFSA $48,650; registered retirement income fund $966,315; RRSP $1,221,900; residence $1,250,000; country home $250,000. Total: $3.9-million.

Monthly disbursements: Property tax $1,025; utilities $495; insurance $335; security $85; maintenance, garden $1,250; cost of carrying country home $1,000; transportation $865; grocery store $835; housekeeper $540; clothing $835; dry cleaning $125; line of credit $335; business loan $2,210 (fully paid in two years); credit cards $250; gifts $290; vacation, travel $540; personal trainer $375; grooming $1,085; entertaining, dining out $475; club memberships $135; sports, hobbies $125; pets $100; subscriptions $40; professional fees $210; doctors, dentists $250; prescriptions $290; health insurance $40; telecom, TV, Internet $250. Total: $14,390.


Line of credit $140,000; balance of business loan $55,470; credit cards $10,000. Total: $205,470.

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

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