Couple with $500,000 in assets on track to reach modest retirement goals


Martin and Maria’s goals are achievable, but they’ll have to manage their savings tightly, expert says

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A couple we will call Martin, 52, and his wife, Maria, 55, live in Manitoba. Martin works as a technician for the federal government, Maria as an administrative assistant for a private company. They take home $7,135 a month. They have five children: four live alone and one is at home paying off student debt. They combined RRSP savings of $51,206 and TFSA savings of $33,506.

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Maria has a payment of $30,000 owed by her employer upon retirement. They estimate their 2018 pickup truck is worth $46,000. Finally, their house has an estimated value of $350,000. Their assets amount to $510,712. They have no debt other than a balance of $15,000 on their car loan. That leaves a net worth at $495,712. The challenge is to devise a plan that balances expected cash flow with expenses and to make it work reliably for decades.

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Family Finance enlisted Eliott Einarson, a financial planner who heads the Winnipeg office of Ottawa-based portfolio management firm Exponent Investment Management Inc., to work with Martin and Maria. Their side in retirement planning is that they have no debt.

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Martin has worked for his current employer for seven years. If he works until age 65, adding 13 years, his total term will be 20 years and his pension will be about $31,000 a year. Maria does not have a company pension plan.

Current plan — Maria expects to retire in five years at age 60. Martin would work another 13 years until the age of 65. Their cash retirement goal is $5,000 after tax. It is possible, but they will have to manage their savings closely.

Maria’s income

If Maria retires at age 60, she would be eligible for 80% of the current $15,048 of the current maximum CPP pension at age 65. Applying early would cost him 36% of that amount, leaving him with about $7,700 in annual taxable income.

At age 65, she could add Old Age Security at the current rate of $8,004 per year.

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His RRSP, valued at $31,200 and with $3,900 in annual additions over the next five years, will see the account grow to a new total of $57,496 by age 60, assuming an annual return average of 3% after inflation. The RRSP would then be able to maintain a maximum income of $2,688 per year for 33 years until age 93. The sum of CPP, RRSP and OAS income totals $18,392 per year. After an average tax of 8%, she would have $16,920 per year or $1,410 per month.

Maria’s TFSA, currently valued at $23,506, would grow with annual contributions of $4,800 to reach a new total of $53,491 in five years with the same assumptions. She could put her retirement payment of $30,000 into the TFSA, bringing the balance to $83,491. The TFSA would then add $3,900 per year or $325 per month of tax-free annual income for the next 33 years until he turns 93. His total after-tax income would then be $20,820 per year.

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Martin’s Retreats

Martin will receive CPP income at age 65, estimated at 90% of the current maximum or $13,543 per year. He will qualify for his full OAS by adding another $8,004 of annual taxable income. That’s a total of $21,547.

Martin will receive his work pension of $2,583 per month or $31,000 per year at age 65. His RRSP is valued at $20,000 today and with $2,604 in annual contributions over the next five years, then it will grow 3% per year after inflation for another eight years. at age 65 will become $47,418 and this amount, with the same assumptions as Maria’s account, can provide an annual income of $210 per month or $2,520 per year until age 90.

Finally, Martin has a TFSA with a current balance of $10,000 and annual contributions of $2,400 whereas if they were paid in for another five years and allowed to grow until age 65, they would have a new value of 31,318. $. Although the TFSA can provide income, we will leave it out of the calculation because it is approximately the amount Martin expects he will need in retirement to replace his truck.

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disposable income

At age 65, excluding TFSA payments but adding his pension, RRSP and government benefits, Martin would have a total taxable income of $55,067 per year or $4,588 per month. After an average tax rate of about 20% after splitting and deductions, that would leave him with an annual after-tax income of $44,050. That’s $3,670 per month.

If we add Maria’s monthly after-tax income of $1,735 to Martin’s after-tax income of $3,670, the combined after-tax family income will total $5,405 per month. This would be enough to cover their budgetary needs of $5,000 per month.

Retirement at age 60 for Maria is possible if Martin continues to work until age 65. Assuming retirement at age 65 for Martin, they will have their home equity intact as an emergency asset later in life.

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Content of the article

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Reverse Mortgage Option

A reverse mortgage could be a solution to any long-term cash crunch, suggests Einarson. With a typical loan of 55% of estimated market value, they could add $192,500 in investment capital. On a linear basis, because we don’t know when they might hit that milestone, at 3% after inflation, the reverse mortgage would yield $5,775 per year in 2022 dollars. Finally, any overtime pay Martin generates can be paid into their RRSP, which adds potential income and reduces tax payable.

“It’s a retirement plan based on regular savings, modest growth and well-controlled spending,” suggests Einarson. “Our calculations show that Martin and Maria can reach and maintain their monthly goal of $5,000 by keeping pre-retirement expenses within budget. “

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