Special to The Globe and Mail – By Dianne Maley
Vancouver professionals Nancy and Nathan are in the enviable position of being able to contemplate retiring from their jobs at age 55 while still enjoying a comfortable standard of living.
He is 42, she is 40. They have two children, age 6 and 9. Together Nathan and Nancy bring in $170,000 a year in employment income plus $4,000 a year in net rental income from an investment property. Nancy has a private practice that she plans to continue part-time after she leaves her current job. Both contribute to defined benefit pension plans at work indexed to inflation. At age 55, Nathan will get a pension of $27,345 a year in today’s dollars, while Nancy will get $13,415 a year plus a bridge benefit from 55 to age 65 of $5,350.
“We are wondering how we should be dividing up our extra money among RESPs [registered education savings plans], RRSPs [registered retirement savings plans] and mortgage prepayments,” Nathan writes in an e-mail. If they retire early, will they still be able to pay for their children’s university education? “How much should our RESP account have when the kids are 18, assuming a four-year degree?” Nathan asks. “Are we saving enough to retire at age 55?”
Their retirement spending goal is $80,000 a year after tax.
We asked Brinsley Saleken, a fee-only financial planner and portfolio manager at Macdonald, Shymko & Co. Ltd. in Vancouver, to look at Nathan and Nancy’s situation.
What the expert says
Mr. Saleken starts with the retirement question. It would appear that the family has a surplus of about $1,850 a month for savings or additional mortgage payments, the planner says.
In preparing his forecast, Mr. Saleken assumes income, university costs and real estate prices rise in line with inflation. He assumes Nancy and Nathan take Canada Pension Plan and Old Age Security benefits at age 65, getting only 75 per cent of the maximum CPP benefit because they retired early. He assumes the rate of return on their investments is 4.64 per cent a year based on an asset allocation of 57-per-cent equities and 43-per-cent fixed income. Finally, he assumes a life expectancy of 92 for Nathan and 96 for Nancy.
“While their goal of about $80,000 after tax, or $96,000 before tax in today’s dollars, is within reach (assuming full income-splitting), it is not a certainty,” Mr. Saleken says. Given the “backbone” of their work pensions, government benefits and the asset base they have already built, their dream “is not out of the question.”