Hank and Frances are in their mid 50s with two teenage children, a good income and considerable anxiety about their future. At the moment, Frances is unemployed.
"I worked for several years, but have twice been forced to leave my job because of the needs of our daughter, who is disabled," Frances writes in an e-mail. Their daughter is starting college this year, and in two years, their son will be off to university.
"They both work and have achieved scholarships, but we would still finance a significant portion of their post-secondary schooling," Frances adds. Recently, their daughter became eligible for the Ontario Disability Support Program. They plan to use the money for her medical and education costs.
"We have saved over the years and have our own home, but neither of us has an employer pension plan," Frances writes. Once she finds a job, Frances hopes to work for at least 10 years before she retires. "I live in constant anxiety about finances and feel that we have royally screwed up," she writes. "Right now, retirement is a slim possibility," she adds. Ideally, they would like to quit working at age 66 with $72,000 a year to spend. "Is this even possible?"
We asked Barbara Garbens, president of BL Garbens Associates Inc., a fee-only financial planning firm in Toronto, to look at Frances and Hank's situation.
What the expert says
Frances and Hank have made a good start at saving for retirement, Ms. Garbens says. She suggests Hank continue contributing $500 a month to his registered retirement savings plan for the time being. If and when their cash flow allows, he could start contributing at least $2,500 a year to each of their tax-free savings accounts.
Stepping up the level of TFSA savings will help alleviate concerns that they will be strapped for cash later in retirement and also serve as an emergency fund, the planner says. Once Frances starts working, she could take over the TFSA contributions, tucking away the maximum, currently $5,500 each.
Hank could then start contributing as much as possible to his RRSP, catching up with any unused contribution room.
"Since Hank is in a higher tax bracket (47 per cent), contributions to his RRSP will result in an attractive tax refund," Ms. Garbens says. Once they retire and begin drawing on their savings, they can split their pension income.
As for their retirement spending goal of $72,000 after-tax a year, "my calculations indicate that this is possible," the planner says. This assumes an inflation rate of 3 per cent, an average rate of return on their savings of 5 per cent a year and a lifespan of 95 years. They would retire in 2026, downsize their house, pay off the mortgage and move to a less expensive community.
Their daughter's ODSP and scholarship money will be enough to cover her educational costs, so no additional savings are needed, Ms. Garbens says. Their son, who is 16, will start university in two years. So far, they have about $2,000 in a registered education savings plan. The planner suggests they contribute $5,000 this year and another $5,000 next year.
"They can only contribute up to and including the year in which their son turns 17," she says. She assumes Hank and Frances contribute $10,000 a year for four years to his education costs, starting in 2016. "Their cash flow will allow them to do this."
Their daughter qualifies for the ODSP and the disability tax credit. Frances and Hank may want to explore whether she might also qualify for the registered disability savings plan, which is available to people under 60 years of age. The Canada Revenue Agency provides matching grants of up to $3,500 a year (with a $70,000 lifetime limit) for money contributed by a taxpayer up to the end of the year in which the taxpayer turns 49, she notes. Grants are deposited directly to the plan.
"Up to 300 per cent of a taxpayer's contribution is matched up to the above limit," the planner says. Their daughter may also qualify for an additional $1,000 a year in bonds, depending on family income.
"This plan is well worth looking into," Ms. Garbens says. "It could provide their daughter with a nice nest egg as she nears retirement."
The People: Hank, 55, Frances, 54, and their two children, 16 and 19.
The Problem: How to provide for their children's education and save for retirement with no company pension plans.
The Plan: Increase savings once Frances returns to work. Explore possible federal government financial help for their disabled daughter. Plan to downsize when they retire and move to a less expensive community.
The Payoff: Peace of mind.
Monthly net income: $8,220.
Assets: Cash in bank $25,000; her TFSA $9,000; his TFSA $13,000; her spousal RRSP $112,000; her RRSP $39,000; his RRSP $128,000; RESP $2,000; residence $515,000. Total: $843,000.
Monthly disbursements: Mortgage $1,400; property tax $490; home insurance $100; utilities $390; maintenance, repair $300; vehicle lease $585; car insurance $400; fuel $250; maintenance $50; parking/transit $300; grocery store $1,500; clothing $115; gifts, charitable $85; children's activities $350; dining, entertainment $150; grooming $50; pets $50; doctors, dentists $350; drugstore $50; life insurance $245; telecom, TV, Internet $215; RRSPs $500. Total: $7,925.
Liabilities: Mortgage $314,000 at 2.6 per cent.
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