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Tijana Martin/ The Globe and MailTijana Martin/The Globe and Mail

At age 68 with little in the way of pension income, Felix is a worried man. His wife Maya is only 42, a newcomer to Canada who has yet to find work in her own field. Together, they bring in $57,940 a year in pension and employment income.

Felix says they could get by with what they have, helped by the dividends from his investment portfolio. He has roughly $120,000 worth of dividend-paying stocks in his taxable account and more than $100,000 in his tax-free savings account. There is $300,000 in his registered retirement savings plan.

They are renting now in Toronto but they’d like to buy a place of their own.

“In the ideal situation, we would like to buy a small condo downtown for around $650,000 to $700,000,” Felix writes in an e-mail.

“In the worst-case scenario, if my wife does not get a job in her own field, how long before my savings run out?” Felix asks. Maya is working in a temporary job grossing $35,000 a year “but this is not what she wants to do.” If she found a suitable job, she could earn $50,000 a year, he says.

Felix is concerned about the longer term as well. “If I die, say, by age 80 or 90, will my wife be able to survive on the balance of my savings?”

We asked Amit Goel, a financial planner and portfolio manager at Hillsdale Investment Management Inc. in Toronto, to look at Felix and Maya’s situation.

What the expert says

“Felix and Maya are at different stages in their life cycle,” Mr. Goel says. “While Felix retired recently, Maya is establishing her career.” Their main goal is to move out of their rented apartment and buy a place of their own in the next year or two.

Felix’s investment portfolio is almost entirely invested in stocks, the planner says. “To begin with, the couple should create a cash position for the down payment on the condo and set aside a minimum of $50,000 for emergency purposes,” Mr. Goel says. That means selling some stocks. Because he is a first-time home buyer, Felix plans to tap his RRSP for part of the down payment. Once they buy the condo, they can use any surplus funds to replenish their savings, aiming for a target rate of return of 5 per cent a year.

“Because the future is uncertain, we have created multiple scenarios for the couple,” Mr. Goel says. In all three situations, Maya sells the condo when Felix dies and rents an apartment.

In the best-case, Maya starts earnings $50,000 a year in the next year or two and they both live to be 95. “In this scenario, the couple can buy a condo for $700,000 and Maya can retire early at age 60,” the planner says. When Felix is 95, Maya will be 69. When Felix dies, his lost pension income will be partly offset by Maya’s own Canada Pension Plan and Old Age Security benefits, Mr. Goel says. The forecast has her getting 40 per cent of the maximum CPP and 50 per cent of maximum OAS starting at the age of 70. By delaying her government benefits, she will get a substantially higher amount than she otherwise would. The forecast assumes Maya will rent an apartment for $2,500 a month (in today’s dollars). At 90, Maya will still be left with $1.2-million.

In the moderate case, Maya continues working at her current income of $35,000 a year. They can afford a smaller condo worth $550,000 and Maya works until she is 65, the planner says. At 90, and having sold the condo, she will be left with $1.1-million in financial assets.

In the worst-case scenario, Maya continues earning $35,000 a year and Felix dies at 80. “While the couple can still buy a smaller condo for $550,000, Maya will have to work to the age of 68, the planner says. After she sells the condo, she can afford no more than $2,200 a month in rent. She will get the CPP survivor pension as well as her own government benefits at 70. At 90, she will be left with a portfolio of $750,000.

All three forecasts assume Felix consults an insurance specialist to increase his $50,000 in coverage. In the forecast, the higher coverage provides Maya with $150,000 in life insurance proceeds, Mr. Goel says. “This can be funded by cancelling his critical illness insurance – intended to replace lost income – because Felix is now retired,” he says. Maya will get another $25,000 from Felix’s existing permanent insurance policy.

What if Maya dies early, leaving Felix to make the mortgage payments on the condo?

“This risk can easily be covered by buying a term insurance policy for Maya until the condo mortgage is paid off,” Mr. Goel says. Because Maya is much younger, increased term insurance will not cost a lot of money, he says. If Maya were to pass away before condo mortgage is paid off, her insurance proceeds would cover the remaining mortgage. They should also increase her critical illness insurance policy from $20,000 to $30,000, he says. With insurance in place, “Felix would not need to sell the condo,” the planner says. Felix’s pension income and investments would be sufficient to take care of his expenses. At the age of 90 he would be left with $500,000 in the investment portfolio and the fully paid condo, which by then will be worth $850,000. That assumes the condo grows in value by a modest 1 per cent a year.

If Felix dies first, Maya should lower the portfolio’s investment risk to a projected 4-per-cent rate of return, the planner says.

“The projected scenarios also assume that the couple spend on additional health care costs during the last 10 years of their lives,” Mr. Goel says. He has factored in $1,000 a month each in today’s dollars, or a total of $240,000. In years when their income exceeds their needs, they should direct the surplus to their tax-free savings accounts, he adds.

His final suggestion is to stop using leverage, or borrowing, in Felix’s margin trading account. “The current investment portfolio is 120 per cent allocated to equities because Felix uses margin in the non-registered account.”


Client situation

The people: Felix, 68, and Maya, 42

The problem: Can they afford to buy a place of their own even if Maya doesn’t get work in her own field? Will they run out of savings? Will Maya be comfortable financially after Felix is gone?

The plan: With so much uncertainty, temper expectations and remain flexible. Increase insurance coverage for both of them. Maya may have to work longer than expected.

The payoff: The prospect of a comfortable retirement.

Monthly net income: $4,685

Assets: Bank accounts $9,000; his stocks $118,915; his TFSA $103,800; her TFSA $20,000; his RRSP $300,000. Total: $551,715

Monthly outlays: Rent, home insurance $1,725; transportation $100; groceries, clothing $500; line of credit $480; credit cards $270; charity $60; dining, drinks, entertainment $690; personal care $60; subscriptions, other personal $120; health care $120; life insurance $195; disability and critical illness $335; cellphones $225. Total: $4,880. Deficit of $195

Liabilities: Line of credit $38,065; credit cards $13,810. Total: $51,875

Want a free financial facelift? E-mail finfacelift@gmail.com.

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

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