It has been 18 years since Dion retired with a pension from his job in the computer industry to a picturesque town in rural Quebec.
Over that time, he and his wife, Marie, have seen their purchasing power slowly eroded by inflation to the point where they are spending more than they take in. That's because Dion's pension is not indexed to inflation the way public-sector pensions usually are.
Dion is 77, Marie, 67. She has no pension at all, and their savings have dwindled to little more than $30,000. Their combined income is $3,335 a month.
"We always thought that the company would attempt to provide some hedge against inflation over the years," Dion writes in an e-mail. "Unfortunately, that was not to be."
He and Marie enjoy travelling and want to continue taking the odd trip before they get too old and travel medical insurance becomes too expensive. Last year, they charged their vacation to their credit card, leaving them $5,000 in debt.
To pay off the card, they are looking at lowering their grocery bill through better meal planning and possibly cutting back to one car "when lifestyle allows."
Marie and Dion want to stay in their home as long as possible and maintain their lifestyle "without constantly worrying about money," he says. Because of their age difference, Dion is concerned about providing for Marie after he is gone, including long-term nursing care if she needs it.
We asked Warren MacKenzie, CEO and founder of Weigh House Investor Services in Toronto, to look at Dion and Marie's situation.
What the expert says
Dion and Marie have three objectives: to maintain their lifestyle, including a bit of travel, to stay in their home as long as possible and to have some money for health care in their later years, Mr. MacKenzie notes.
"Unfortunately, they simply cannot do all the things they want to do," he says. "They can maintain their lifestyle and travel more during the next five years, or they can live in their home for as long as their health permits, or they can have a reserve that will ensure excellent care in the last years of their life."
He suggests they sit down and discuss their goals so they are clear about what is most important, realizing that they can achieve only two of them, at best.
Their first step should be withdraw enough money from their term deposits to pay off their credit card balance. Next, they can take a knife to their spending on food, dining out and the second car.
Marie might consider taking a part-time job to earn a bit of money and "keep busy and meet new people," Mr. MacKenzie says. They could sell the house, invest the proceeds and rent an apartment. Alternatively, they could borrow against the house with a line of credit or reverse mortgage when their savings are exhausted. A reverse mortgage would eat up their equity, leaving them with nothing to fall back on if Marie needs private health care at some point.
Another option might be to buy long-term health care insurance for Marie so they would not have to worry about using up the equity in their home, Mr. MacKenzie says. A policy that would pay $1,000 a week for life if and when Marie is unable to care for herself would cost about $650 a month.
If they continue their current spending, their savings will be enough to supplement their pension income for about 10 years – about the same as Dion's life expectancy. When he dies, 60 per cent of his pension will go to Marie. At that point, the planner assumes Marie cuts back her spending by 30 per cent. Even so, she will have to take out a reverse mortgage if she wants to stay in her home. If instead she sells it, invests the proceeds at 4 per cent a year and rents an apartment for $1,000 a month, her savings will last until she is 95.
If they choose to travel for another five years at a cost of $5,000 a year, they would have to sell or borrow against the house sooner, Mr. MacKenzie says.
Dion, 77, and Marie, 67
How to maintain their lifestyle, including travel, in the face of slowly eroding purchasing power. Also, can they stay in their own home as long as possible and still have something set aside for nursing care if one or both of them needs it?
Set priorities and prepare to be flexible. Cut spending where possible and consider long-term care insurance for Marie.
Relief from the constant worry of not having enough money and realistic expectations for the future.
Monthly net income
House $260,000; TFSAs $1,110; term deposits $30,670. Total: $291,780
Property taxes $225; utilities $210; telecom, cable $205; insurance $120; transportation $700; groceries $750; medical/dental $75; property maintenance $155; sports, hobbies $180; personal discretionary $185; entertainment $170; capital improvements $100; credit cards $250; pharmacy $80; gifts $100. Total: $3,505
Want a free financial facelift? E-mail email@example.com
Some details may be changed to protect the privacy of the persons profiled.