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Mark Blinch/The Globe and Mail

With his indexed pension and part-time job, Matthew seems set to enjoy early retirement. He is age 59, his wife Anastasia, 42.

Yet Matthew is worried about how Anastasia, who is several years younger, will get along after he dies. Anastasia brings in $35,000 a year as a health-care worker and has no pension or savings. As well, she has a 15-year-old son who will need help paying for post-secondary education.

The couple have a suburban condo with a small mortgage that they are on track to pay off in three years, but no registered retirement savings plans or tax-free savings accounts. They wonder whether it would be better to slow the mortgage repayment and instead direct some of their surplus income to RRSPs or TFSAs. Matthew would prefer to "get the mortgage monkey off his back."

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He also wonders when he should begin collecting Canada Pension Plan benefits.

Naturally, they want to spend more time together and do some travelling. Anastasia aims to visit her home country, where her son lives with relatives, every three years for six to eight weeks at a cost of $4,500 a trip.

We asked Marc Henein, an investment adviser and financial planner at Scotia Wealth Management, to look at Matthew and Anastasia's situation. Mr. Henein holds the certified financial planner (CFP) designation.

What the expert says

Matthew's pension income is $58,000 a year, including a CPP bridge benefit until the age of 65. As well, he is running a part-time home business earning $12,000 a year. Their monthly income totals $8,750, or $6,980 after tax. Their lifestyle expenses work out to roughly $5,000 a month, so they have a monthly cash surplus of $1,920, Mr. Henein says.

One of their short-term goals is paying off their mortgage. At the rate they are paying, they will have their mortgage paid off in about three years when Matthew is 62 and Anastasia is 45. So there is no need to hike the payments. After the mortgage has been repaid, their monthly expenses will fall from about $5,000 to $3,000, further enhancing their ability to increase their savings, the planner says.

Their second short-term goal is funding Anastasia's son to go to university in her home country. They estimate the total cost for a four-year university education is $12,000 in Canadian dollars. Given their positive cash flow, they can put six months of savings into a high-interest savings account and have it ready for Anastasia's son when he is ready for university.

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There is a 17-year age gap between Matthew and Anastasia. "They would like to enjoy some retirement time together and would like to see Anastasia retire before 65 if possible," Mr. Henein notes. While Matthew says he has "good genes" and is confident of a long life span, they are asking when they will be able to enjoy retirement together.

Given that Anastasia has no pension plan and Matthew's has a 50-per-cent survivor's benefit, they need to find a way for Anastasia to sustain their lifestyle expenses of $3,000 a month once he passes away, the planner says. Half of Matthew's pension and CPP combined would be about $28,000 a year. After tax (assuming Anastasia remains single), she would get about $2,000 a month.

To illustrate, Mr. Henein looks at what would happen if Matthew passed away at the average life expectancy for men of the age 85. Anastasia would be 68. "Assuming she lived another 20 years, she would need an investment portfolio designed to pay out $1,000 a month to make up the total $3,000 monthly lifestyle expenditure," Mr. Henein says. They will need to build a $300,000 portfolio paying out 4 per cent a year to ensure Anastasia's lifestyle is sustained, he says.

"The earliest Anastasia can retire is when they are able to save ample assets to sustain her lifestyle once Matthew passes away," the planner says. "As long as he is living and collecting his pension and CPP and eventually Old Age Security, their cash flow is excellent."

Once Matthew turns 65, his bridge benefit will expire and he will begin collecting CPP. He will also be entitled to OAS, which will lift his income by about $7,000 a year. This extra money can be used to finance Anastasia's trips home, or a holiday for the two of them. "He can effectively cover all lifestyle expenses and Anastasia can save her entire income."

Anastasia earns about $24,000 a year after tax. If she concentrates on saving this money for the next 12 to 14 years, she will help set them on a realistic retirement track, Mr. Henein says. In 14 years, when Matthew is 73 and Anastasia 56, their savings should be in excess of $300,000. When Anastasia turns 65, she will be able to collect on a portion of CPP and OAS benefits, roughly equating to half the maximum, which will provide an added cushion in retirement.

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As Anastasia's savings grow, they should open TFSAs and save the money there. They each have unused contribution room of $52,000. "Filling up these two accounts and investing conservatively with a goal of generating a 4-per-cent return should be Matthew and Anastasia's savings goal over the next few years," the planner says. Once these accounts are caught up, they can start building a tax-efficient, non-registered portfolio.


The people: Matthew, 59, Anastasia, 42

The problem: Should they focus on paying off the mortgage or saving for Anastasia's eventual retirement? Can they pay for Anastasia's son's education?

The plan: Save surplus cash flow for child's higher education. Begin saving Anastasia's entire net income, first in tax-free savings accounts and then in non-registered investment accounts. Mortgage is on track to be paid off in three years.

The payoff: Retirement security for Anastasia

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Monthly after-tax income: $6,980

Assets: Cash $10,000; residence $375,000; present value of Matthew's fully indexed defined benefit pension plan $1.2-million. Total: $1.6-million

Monthly disbursements: Mortgage $2,085; condo fees $740; property tax $165; home insurance $20; transportation $290; grocery store $385; gifts $150; clothing $125; regular vacations $110; entertainment $160; personal care and grooming $125; dentist/doctor $25; subscriptions $35; computer supplies $45; dining out $300; telecom, TV, Internet $300. Total: $5,060

Liabilities: Mortgage $70,000 at 2.84 per cent

Want a free financial facelift? E-mail

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

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