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Janna was planning to renovate her kitchen, buy a new car and eventually visit Europe – and then she lost her job.Matthew Sherwood/The Globe and Mail

When Janna first contacted Financial Facelift, she was earning $100,000 a year working at a consulting firm and anticipating a fat bonus. She planned to use the money to fix up her kitchen or buy a car.

Once the kitchen was done, she'd spruce up the bathroom of her suburban condo townhouse and perhaps buy new appliances. Her longer-term goals included visits to Italy and France and "preparing for retirement." She will be 55 this year.

Then she lost her job.

"It was a surprise," Janna said in an interview. "Those things – the renovation, the new car – are still important, but they're all on hold until I find another job." She figures it could take three to six months to find full-time work again and she may have to take a cut in pay.

Selling her home is out of the question, she says. "I'm only 10 years away from paying it off." She bought the townhouse nine years ago for $212,000 and thinks it would sell for $390,000 or more today. "That's a pretty good return for any financial investment," she says. Selling it and investing the proceeds in the stock market "would make me very nervous."

Her goal now is to find work before her three months of severance pay runs out so she doesn't have to borrow.

We asked Warren MacKenzie, a principal at HighView Financial Group in Toronto, to look at Janna's situation.

What the expert says

With 30 years of experience, Janna feels confident that by the end of June she will have another job paying about $80,000 a year, Mr. MacKenzie says. "This expected reduction in salary means Janna has to reduce her spending or work longer." She had planned to retire at age 65.

Longevity runs in her family, so she has to put enough money aside to support herself until at least age 95, the planner says. "She has to be confident about the future because she's not going to be able to enjoy life today if she is constantly worried about running out of money in her old age."

His calculations assume she gets a job paying $80,000 a year, works until age 65 at this salary, and continues to consult part-time, earning half of her former salary, for another five years to age 70. She begins collecting Canada Pension Plan benefits at age 65 and Old Age Security at 67.

"She can maintain her lifestyle if she earns this income; otherwise, she has to cut spending," the planner says. Selling her home would be the easiest way to reduce spending, but Janna is reluctant to do so.

If Janna works until age 70, in retirement she will need an investment portfolio of about $900,000 to provide the cash flow to support herself for the following 25 years, Mr. MacKenzie says. The planner assumes in his calculations that Janna will sell her home at age 70 for $550,000. He also assumes she will save another $75,000 from now to age 70. These savings, investment growth of 4.6 per cent a year and the proceeds from the sale of her home would provide the required $900,000.

At age 71, she will convert her RRSP to a registered retirement income fund. At 72, she will be getting about $28,000 from CPP and OAS. She will draw about $27,000 from her non-registered holdings and about $21,000 from her RRIF, for a total of $76,000. With inflation, her spending, including rent, will have risen to that amount by then.

"Janna needs to watch every dollar and she also needs her investments to perform as they should," Mr. MacKenzie says. "Unfortunately, they are underperforming, she has no investment strategy and she pays too much in investment-management fees."

Janna has been working with the same mutual fund salesperson for the past 15 years and she feels very comfortable with him – so much so that she never asks about fees or performance compared with benchmarks, risk or the investment strategy, he says. She is in a high-risk (90 per cent equity) and poorly diversified portfolio (over 70 per cent of her equities are invested in Canada), he says. "Over the past five years, seven of her nine mutual funds have underperformed compared to the proper benchmark, with the average underperformance being 1.7 percentage points per annum." Her salesperson recently talked Janna into borrowing an additional $5,000 to invest in these funds.

"In today's economic climate, a balanced investment portfolio might be expected to earn about 4.5 per cent [a year] after all fees," Mr. MacKenzie says. "However, over the next 30 years, if she continues to underperform by about 1.5 percentage points per annum [only averaging a return of 3 per cent a year], she will have to sell her home sooner than planned or find another way to reduce spending by 10 per cent a year in retirement."


Client Situation

The person: Janna, 54

The problem: Staying on track financially after losing her job.

The plan: To continue working part-time past age 65 and sell her home at age 70 – or be prepared to spend less. Take charge of her investment portfolio or risk falling short.

The payoff: Financial security.

Monthly net income: Uncertain

Assets: Cash $340; RRSP (mutual funds) $135,440; non-registered savings $8,000; TFSA $3,240; residence $390,000. Total: $537,020

Monthly disbursements (past year): Mortgage and taxes $1,455; utilities $375; maintenance fee $365; home and car insurance $235; fuel, oil, maintenance, parking $210; groceries $400; clothing $95; line of credit $100; gifts, charitable $120; vacation, travel $170; other discretionary $100; drinks, dining, entertainment $220; grooming $150; pet $300; sports, hobbies $20; doctors, dentists, drugstore, health insurance $65; telecom $325. Total: $4,705

Liabilities: Mortgage $162,345; line of credit $800. Total: $163,145

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