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Rafal Gerszak/The Globe and Mail

Kristen and Howard earn good money – $205,000 between them – so it's no wonder they are growing impatient with living in her 600-square-foot Vancouver condo.

Their dream long term is to move to a detached house in North or East Van, but they will settle for less – a townhouse – in the meantime. He is 37, a lawyer, she is 34 and works in advertising.

They are being cautious because they may decide to have a child or two and Kristen may even go back to school – events that would lower their income temporarily. Once all that is behind them, they would sell the townhouse in a decade or so and move to their forever home.

"Our goal is to get to the point where we can make the leap to a larger condo or townhouse, but that's been hard since the value of our condo has really stagnated," Howard writes in an e-mail. "We were really hoping to be a bit further along by now."

The centrally located townhouse they have in mind would cost $700,000. How soon can they move?

A real bright spot in their financial outlook is Howard's defined benefit pension plan, indexed for inflation, that will serve him well if he stays with the same employer.

We asked Kurt Rosentreter, a chartered accountant and a senior financial adviser at Manulife Securities Inc. in Toronto, to look at Kristen and Howard's situation.

What the expert says

Kristen and Howard can easily afford a $700,000 townhouse, Mr. Rosentreter says. They have $150,000 equity in their current home plus $112,000 of non-registered savings.

"Let's ignore the money in the tax-free savings account and treat it as an emergency fund," he says. Their new mortgage will be $488,000 (allowing for $50,000 of real estate commissions and moving costs). A mortgage of $488,000 amortized over 25 years at 5 per cent interest (higher than current rates to be conservative) would require a payment of $2,838 a month, or about $34,000 a year.

"Given they currently have savings of $65,000 a year, it appears they can easily handle the higher mortgage payment and still have money to pay down the mortgage faster," Mr. Rosentreter says.

Indeed, they may be better off buying the home of their dreams now rather than going through the intermediate step of moving to a townhouse. He suggests they weigh whether the cost of the extra move offsets the higher financing cost of the detached house.

Having a child could affect their plans because Kristen's income all goes to savings. "That would be gone while she is on mat leave," Mr. Rosentreter says. If she is off only one or two years, they will still get back to "a healthy cash flow situation" even with daycare costs.

They would also need to budget for the cost of the child's post-secondary education, estimated at $100,000 in today's dollars.

Looking further ahead, the couple's retirement spending target is $80,000 a year, a goal that could well be met, or close to it, by the combination of Howard's pension and their Canada Pension Plan benefits, Mr. Rosentreter says. How much pension Howard will get depends on how much his salary increases.

"If he stays in the [DB] pension plan to age 65, there is a good likelihood his pension will be six figures," Mr. Rosentreter says. "It's a great position to be in."

Because of this, Howard can put less emphasis on his registered retirement savings plan, especially since the withdrawals may well be taxed at a higher rate after he has retired. "If he does want to save anyway, he can focus on his tax-free savings account."

Not having to worry about retirement will leave Howard with more money for paying off the mortgage, saving for their future children's education – and travelling, "which appears important to them," Mr. Rosentreter says.

Finally, Howard wonders whether he should endeavour to save money by managing his own investments.

"Lower costs are always better," the adviser says. A one percentage point fee saving every year for 30 years earning 5 per cent a year would mean $147,000 more in their pockets, he notes.


Client situation

The people

Howard, 37, and Kristen, 34

The problem

Have they saved enough to get out of their cramped condo into a larger townhouse?

The plan

Go ahead and make the move. In fact, they might want to buy the detached house now.

The payoff

The peace of mind to get on with the rest of their lives.

Monthly net income



RRSPs $208,000; TFSAs $42,000; non-registered investment $112,000; condo $450,000; her defined contribution pension plan $47,000; estimated present value of his defined benefit pension plan $27,500. Total: $886,500

Monthly disbursements

Mortgage $2,000; condo/strata fee $275; property tax $120; home insurance $40; heat, maintenance $110; transportation $570; groceries $400; clothing $375; gifts $40; vacation $500; entertainment $460; grooming $100; hobbies $200; dentists, drugs $15; telecom $105; RRSP $800; TFSA $400; pension plan contributions $800; group benefits $200; miscellaneous $100. Total: $7,610. Surplus: $5,455


Mortgage $300,000 at 4.27 per cent

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