Four years ago, Mark and Antonia were unsure whether to move ahead with retirement. They listened carefully to the planner’s advice but did not jump to act on all of it immediately, a decision that turned out well for them.Kevin Van Paassen/The Globe and Mail
In 2012, Mark and Antonia found themselves at a turning point. Mark's long-time contract job came to an end a few months before his 60th birthday. Antonia, who was age 55 at the time, was a stay-at-home mom. Together, they raised three children and put them through university.
Their big question at the time was whether Mark should look for work or whether he could afford to retire without their having to rein in their comfortable lifestyle. "Our target monthly cash income is $6,500 to $7,000 (after tax), which includes a provision for travel and winters in the sun," Mark wrote in an e-mail at the time.
Neither had a company pension of any sort, although they did have a mortgage-free home valued at $600,000 as well as substantial savings. They wanted to hang on to their Mississauga house and not be forced to downsize for at least 10 years. They wondered also if their $1-million-plus in financial assets was too heavily invested in stocks.
Warren Baldwin, the financial planner, said Mark and Antonia's savings appeared modest compared with their expectations for how they will live in retirement. "Making ends meet may present a challenge for this couple," Mr. Baldwin said. Mr. Baldwin was regional vice-president of T.E. Wealth in Toronto.
According to his plan, the couple risked running out of savings by the time Mark was age 79. That assumes a return on investment of 5 per cent a year and an inflation rate of 2 per cent. If they sold their house after 10 years, they would be better off, but they'd still run out of savings by the time Mark would be 86.
He suggested they pare their long-term expenses while at the same time earning some income for a few more years. As for their investments, he recommended they shift their asset allocation gradually so that they would have 40 per cent to 50 per cent of their holdings in fixed income. As well, he suggested they better diversify the equity portion among Canadian, U.S. and international stocks.
Well, Mark and Antonia listened carefully to the planner's advice but did not jump to act on all of it immediately, a decision that turned out well for them as stock markets – and the Toronto-area real estate market – rose steadily over the ensuing four years and lifted their assets higher.
Their investment portfolio is now worth $1.36-million, a gain of $307,000 over the four years. Their house rose in value from $600,000 to $900,000.
"In hindsight, if we had acted aggressively upon the advice in 2012, we would have missed significant market gains during the past four years," Mark says. They are taking advantage of the advice now, selling some stocks, realizing the gains and moving more into fixed income.
"The 35 per cent/65 per cent equity split will change over the next six to 12 months to lower the equity percentage," Mark says. "We both fully understand the 2012 advice that at our age, 65 per cent in equity is aggressive and presents a higher risk profile," Mark adds.
In 2013, Mark took the planner's advice and went back to work full time. That job ended last year. By working a couple more years, they were able to put off having to draw on their investment portfolio until 2015. Mark, now 64, and Antonia, who is almost 60, will both begin collecting about $1,400 a month in combined Canada Pension Plan benefits in January. They can collect Old Age Security when they turn 65.
Their budget is still $84,000 a year after tax, so they will have to draw the balance from dividend and interest income, supplemented by capital withdrawals from their registered and non-registered investment accounts, Mark says.
They are still in the family home where they have lived for more than 30 years, but they've "tentatively decided to right-size in 2020," Mark says. As the planner suggested, they plan to use a portion of the house sale proceeds to augment their investment portfolio with the balance used to buy a new home. Now that house prices have risen so much in the area, "Where to move is the big question" they are now exploring, Mark says.
They have no plans to reduce their $7,000 in monthly spending right now, he adds. "Based on my forecasts, with the recent increase in our portfolio from market gains, plus the future injection of new funds from a house sale, our portfolio should be adequate to support our living and travel expenses and leave our heirs a sizable estate," Mark writes.
They expect their spending will decline "after we reach 80 years old, so this also provides us with added comfort in our forecast and the adequacy of our financial plan."