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Florence, who turns 65 this year, is considering returning to work full time for the next five years.

Shawn Talbot/The Globe and Mail

When Florence's husband fell ill, she lightened her workload to spend more time with him. When he died three years ago, she suddenly found herself taking care of the house they bought in the B.C. Interior a few years earlier as well as making investment decisions for the first time.

It was stressful. She had bad tenants and water leaks that pushed up her home insurance costs. Then the insurance agent knocked on her door and persuaded her to buy high-cost segregated funds with the proceeds of her husband's insurance policy.

On top of her job, Florence threw herself into her volunteer work to keep busy, giving up her evenings and weekends. But as her bank account dwindled, she knew she had to do something.

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Now she has her eye on a townhouse in a nearby village that would give her the little garden plot she wants and maybe, just maybe, she hopes, leave her mortgage-free.

If she sells her existing home, she will be giving up $950 a month in rent from her new tenants, whom she likes. But she'd be able to pay off her $300,000 mortgage.

"Maybe I don't want tenants any more," Florence said in a telephone interview. "Maybe I'm just too old." She will be 65 later this year. Fortunately, Florence loves her job. She's thinking of going back to work full time and working for another five years.

"Would it be advisable to sell my home and downsize?" Florence asks in an e-mail.

We asked Heather Franklin, an independent Toronto financial planner, to look at Florence's situation.

What the expert says

"Florence finds herself in a precarious financial position," Ms. Franklin says. She has a big mortgage and little in the way of savings. The investments she has carry high fees.

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If Florence sells her existing house, she figures she could net $200,000 by handling the sale herself rather than using a real estate agent. As well, she figures if she cashed in her savings (her registered retirement savings plan and tax-free savings account), she might be able to come up with another $50,000.

"She should definitely not cash in any investments," the planner says. If she did, she would have to pay income tax on the RRSP withdrawal on top of any penalties related to the segregated funds.

So downsizing to a $250,000 condo townhouse would lower her housing costs but it probably would not leave her mortgage-free, Ms. Franklin says. She'd likely need to borrow $50,000 or so, but her payments would be much lower. "A very short amortization would have her mortgage-free in about five years, to coincide with her retirement."

Alternatively, she could stretch the amortization to 10 years, on which she would pay about $466 a month at current interest rates, the planner says. Florence should also look at finding property insurance at a lower cost.

If Florence returns to work full time, she will have to cut back on her demanding charitable work, the planner says. She could also stand to cut back on her monthly charitable donations.

"While it is apparent that Florence has a charitable heart and feels she has a moral obligation, $200 a month is a significant amount to give to charity considering her salary and her own financial situation," the planner says. "These expenditures may be part of the reason she feels financially pinched every month."

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Florence is in good health and her employer is willing to let her work full time, Ms. Franklin notes. "It would be advisable to increase her employment to a full five days a week."

By doing so, Florence would increase her income now and in the future. The additional employment would help her accumulate monies within her defined benefit pension plan, Ms. Franklin says. As a result, her pension income would increase to about $500 a month at age 70 from $315 a month at age 65.

By deferring taking her Canada Pension Plan and Old Age Security benefits to age 70, she also would get a larger sum, the planner says. Her CPP benefits would be $630 instead of $450, "an additional 40 per cent," the planner says. Her OAS would increase to $770 a month at age 70 from $570 at age 65, "an additional 35 per cent."

Altogether, her pension and government benefits would be about $2,200 a month before tax at age 70, compared with $1,600 a month at age 65, "a 37.5-per-cent increase to the present scenario."

On the investment front, Florence should find out how much it would cost to sell her segregated funds and invest her RRSP and TFSA savings in low-cost mutual funds, Ms. Franklin says. If she can earn an average of 5 per cent on her investments (with 1.5 per cent inflation), Florence's RRSP investments will grow to $35,000 by the time she retires and her TFSA funds to a tax-free $67,000.

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The person: Florence, 64

The problem: Should she downsize her home to lower her financial obligations?

The plan: Work full time. Sell the house, buy the less expensive one and be prepared for another five to 10 years of mortgage debt. Try to lower her investment costs by using low-cost mutual funds.

The payoff: A financially secure retirement.

Monthly net income: $3,350 (work $2,100; rent $950; CPP survivor's pension $300)

Assets: House $500,000; RRSPs $30,000; TFSA $57,500; savings account $6,000; estimated present value of defined benefit pension plan $15,000. Total: $608,500

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Monthly distributions: Mortgage, property taxes $1,350; property insurance $206; utilities and repairs $240; transportation, gas, car insurance, maintenance $385; groceries $250; clothing $30; charitable $200; phone, Internet, cable $205; vacation $150; gifts $50; entertainment, dining out, alcohol, hobbies, personal care $150; health care expenses $95; pension plan contributions $275. Total: $3,586. Shortfall: $236

Liabilities: Mortgage $300,000

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

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

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