Skip to main content
The Globe and Mail
Support Quality Journalism.
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
Just$1.99
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to globeandmail.com
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(select.open)}function setPanelState(o){dom.root.classList[o?"add":"remove"](select.open),dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); } //

JENNIFER ROBERTS/The Globe and Mail

Since their original Financial Facelift in 2009, Ezra and Leah have done well indeed. Back then, they were a young couple with a child, struggling to pay down debts and feeling constrained by their tight budget. Today, Ezra is part-owner of the family company.

"The planner's advice reassured us that we were doing the right things," Ezra says. The planner, Ngoc Day of Macdonald, Shymko & Co. Ltd. in Vancouver, offered some tips on freeing up cash flow. "It also convinced us that enjoying life a bit wasn't a bad thing as long as we maintained a balance."

Today, Ezra, 33, and Leah, 32, have three children with a fourth on the way. Rather than doing without, they're planning to build a new house and wondering how to invest their surplus income.

Story continues below advertisement

"Our income and family situation have changed dramatically, but we continue to live well within our means, paying off debt and saving as much as possible," Ezra writes in an e-mail. He figures they can save upward of 60 per cent of their income. "We can now enjoy a healthy balance between living for today – and for tomorrow."

Ezra asks whether he should use his bonus ($250,000 this year), and the dividends paid to his holding company ($125,000), to pay off business or personal debts. As well, they would like to diversify their investments beyond the company.

Ezra wants to retire at age 50 and wonders how much they would need to put away each year to have $120,000 a year after-tax in retirement. "My job is very stressful and taxing," Ezra says. "We run a very lean business, which puts a lot of demands on the owners/operators."

We asked Ms. Day to take another look at Ezra and Leah's situation. Macdonald, Shymko is a fee-only financial planning firm.

What the expert says

In 2009, Ezra and Leah had a net worth of about $47,000, Ms. Day says. Their current net worth is $787,000. "They have been diligent in keeping expenses down and saving a lot of their income."

Ezra earns a salary of $130,000 a year plus bonus and dividends, the planner notes. Leah plans to return to work part-time when all of the children are in school in five or six years. The youngest will be 17 when Ezra plans to retire.

Story continues below advertisement

Because he is in the top income tax bracket, Ezra's first priority should be to maximize his RRSP contribution, Ms. Day says. He should take advantage of his unused RRSP contribution room, topping up his RRSP by $50,000, and using the tax refund, plus other savings, to pay down their personal debts.

Paying down the mortgage on their home makes sense: With a high marginal tax rate of 49.5 per cent and a mortgage rate of 3.5 per cent, Ezra would have to earn 6.9 per cent on an investment to match the amount he would save by paying off the mortgage.

On average, the family spends about $113,400 a year. Assuming Leah stays home with the children for the foreseeable future and Ezra is the sole breadwinner, Ms. Day estimates they could save about $114,000 a year, including contributions to their registered retirement savings plans (RRSPs) and registered education savings plans (RESPs) for their children.

Ezra could use the $125,000 dividend paid to his holding company to pay off the $24,000 inter-company loan and buy another $100,000 worth of the operating company, Ms. Day says. Interest on the business building is paid by the business and deductible for tax purposes, so it would not make sense to pay off the business debts before their personal mortgage, she adds.

In the future, Ezra could use his personal income (salary and bonus) to pay for the family's expenses, his RRSP contribution, paying off personal debts and building the new house.

To diversify their investments, Ezra and Leah are wise to explore investment options other than the business, Ms. Day says. For their RRSP and RESP accounts, they should consider a balanced portfolio with a mix of fixed-income assets and Canadian, U.S. and international equities, using exchange-traded funds to keep their management expenses low.

Story continues below advertisement

Ezra's aim to retire at age 50 is an ambitious goal for several reasons, Ms. Day says. Their children may still be living at home at that time and the parents may still be funding their post-secondary education costs. "Thus their estimate of retirement income of $120,000 after tax … may be on the low side."

As well, retiring early means saving up enough money to cover their living expenses for 40 years or more, longer than the 25 years they would have been working. It may be possible to achieve this goal if they continue to save $114,000 a year, pay off all their debts at retirement and sell the business building for $2-million. To be conservative, the planner does not attribute any future value to the business.

In the meantime, they need to keep on the right path to minimize income taxes, maximize their savings and shore up RESP funds for their children's education, Ms. Day says.

+++++++++++++++++++++++++

Client situation

The people: Ezra, 33, Leah, 32, and their children

Story continues below advertisement

The problem: What is the most effective way to pay off debts and save for an early retirement?

The plan: Focus first on RRSP contributions and use tax refund and bonus to pay down personal debts.

The payoff: A chance at achieving their ambitious retirement goal.

Monthly net income: $18,939 (including bonus)

Assets: Cash in bank $20,000; his TFSA $20,000; his RRSP $70,000; estimated present value of her defined benefit pension plan $30,000; RESP $11,000; residence $750,000; his share of business building $900,000; his share of business $250,000; additional value of the new house $50,000. Total: $2.1-million.

Monthly disbursements: Mortgage $1,950; property tax $650; insurance $120; heat, hydro $310; maintenance $100; car leases $1,350; auto insurance $200; auto fuel $325; groceries $2,000; clothing $1,000; gifts, charitable $400; vacation, travel $400; grooming $100; clubs $100; dining, entertainment $200; pets $50; life insurance $65; telecom, TV, Internet $130; RRSPs $2,078; RESP $833. Total: $12,361. Unattached savings: $6,580.

Story continues below advertisement

Liabilities: Residence mortgage $348,000; mortgage on business building $825,000; inter-company loan $24,000; car leases (to be bought out next year) $67,000; additional cost for new house (over and above current house value) $50,000. Total: $1.3-million.

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

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow topics related to this article:

View more suggestions in Following Read more about following topics and authors
Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

UPDATED: Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies