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In order to secure the quality of life they want if they are to retire by their respective 60th birthdays, Ken and Calvin will need to address their debt load.Glenn Lowson/The Globe and Mail

It's a familiar question. "My partner Ken and I are grappling with our next steps," Calvin writes in an e-mail. Ken is 55 and Calvin is 58. "We wish to know when we should retire."

Together, they earn more than $300,000. As well, both have work pension plans that will allow them to retire with full benefits at the age of 60.

Their short-term goals are to pay off the remaining mortgage on their Toronto-area condo and perhaps sell the condo and buy a house. That would entail taking on a small mortgage, they say. Longer term, they want to "retire with a comfortable lifestyle." That might mean spending winters in Florida, where they also have a condo, and travelling once or twice a year.

If they retire at their respective 60th birthdays, "what would be our estimated annual allowance given our current financial position?" they ask. Would $70,000 a year in after-tax spending be reasonable?

They wonder, too, if they should defer taking their pensions and/or government benefits to 65.

We asked Matthew Sears, a certified financial planner at T.E. Wealth in Toronto, to look at Ken and Calvin's situation. Mr. Sears also holds the chartered financial analyst designation.

What the expert says

Ideally, Ken and Calvin would have their mortgage and other debts paid off before they retire, Mr. Sears says. This should be possible given they have a monthly surplus of about $6,825. Because Calvin plans to retire in two years, "paying down debt as quickly as possible should be a top priority," the planner says. "If the mortgage and line of credit aren't paid off, their cash flow in the first year of retirement will be pretty tight."

Selling the condo and buying a house is possible financially, but carrying a mortgage into retirement would take away from their lifestyle spending goal of $70,000 a year, Mr. Sears says. As it is, they are spending about $53,000 a year, excluding savings and debt payments (although some of their expenses may be understated). Based on the planner's projections, they could comfortably spend another $22,000 a year, or $75,000, when they retire.

That assumes an average annual rate of return on their investments of 5.5 per cent, that they both retire at 60, that their real estate holdings remain the same and that, while he is working, Calvin continues to save $10,000 a year to his RRSP and $9,500 a year to his company's savings plan. As they grow older and their lifestyle changes, they could sell their Florida property to help with expenses if necessary, Mr. Sears says.

Deferring their work pensions would not make sense because Calvin can take an unreduced pension beginning in July, 2019, when he will be 60. He is also eligible to get a bridge benefit from 60 to 65. Ken can begin collecting an unreduced pension in July, 2022, when he turns 60. He will also get a bridge benefit to 65.

Both men expect to receive maximum Canada Pension Plan benefits at 65. "They should both delay taking CPP until age 65," Mr. Sears says.

In 2022, the first year in which they will both be retired, cash flow could be tight, Mr. Sears says. Calvin will get a work pension of $19,278, Ken of $42,479 before tax. After tax, their combined income will be $57,306. Their expenses will be $79,966, of which $22,125 will go to paying off the mortgage balance on their existing condo, if they haven't done so already. This will leave them with a net cash-flow deficit of $22,660, which will come from their non-registered savings.

The following year, when all their debts have been paid, the cash flow deficit will shrink to $2,311. In 2024, when Calvin starts getting CPP and Old Age Security benefits, their cash flow will swing to a surplus of $13,735.


The people: Calvin, 58, and Ken, 55.

The problem: "When should we retire?" They also plan to sell their condo and buy a house.

The plan: Retire at the age of 60 when they are entitled to unreduced pension and bridge benefits to 65. Bear in mind that buying a house with a mortgage will eat into their lifestyle spending.

The payoff: A road map to financial security.

Monthly net income: $16,882.

Assets: Cash $3,200; Calvin's RRSP $125,500; Ken's RRSP $200,000; Toronto condo $850,000; Florida condo $315,000; savings account $5,000; commuted value of Calvin's DB pension plan $321,246; commuted value of Ken's DB pension plan $445,000. Total: $2.26-million.

Monthly outlays: Mortgage $1,834; property tax (both condos) $540; maintenance fees (both condos) $1,920; property insurance $20; hydro $25; transportation $485; groceries $250; clothing $100; line of credit $1,050; charity $20; vacation, travel $150; dining, drinks, entertainment $300; personal care $20; cellphones, telephone, TV, Internet $360; RRSPs $833; company savings plan $796; pension plan contributions $1,357. Total: $10,060. Surplus $6,822 goes toward paying off mortgage and line of credit.

Liabilities: Mortgage $125,000; line of credit $20,000. Total: $145,000.

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

Associate portfolio manager James McCreath explains it can be risky to depend too much on a defined-benefit pension plan to provide retirement income, and says additional retirement savings are advisable

The Canadian Press