Special to the The Globe and Mail – By Dianne Maley
At the age of 50 and recently divorced, Abby is making independent financial decisions for the first time in her life. She knows what she has to do.
“I’m trying to learn about finances and investing, and I need to come up with a stepped plan that will help me live a balanced life now while saving and investing for retirement,” Abby writes in an e-mail. She has no work pension. Her spousal support payments will end when she is 65.
She has two children in their 20s, the younger of whom is living at home and going to university. When her son graduates in a couple of years, the family house will be sold and the proceeds divided between Abby and her former husband.
In addition to the family home, Abby and her ex-husband jointly own a company. Under the settlement, he will buy out her share over 15 years. Abby herself has a small business teaching pottery classes, which brings in about $10,000 a year.
“I would like to retire with modest income and be able to travel and enjoy the simple life and live within my means,” Abby writes. Soon, though, she will need to find a place to live.
We asked Ian Black, a fee-only financial planner at Macdonald, Shymko & Co. Ltd. in Vancouver, to look at Abby’s situation.
WHAT THE EXPERT SAYS
For the next couple of years, Abby will get spousal support of $8,800 a month, falling to $7,100 a month (or $85,200 a year before tax) thereafter to age 65, Mr. Black says.
When the family home is sold and the mortgage and line of credit are repaid, Abby will be entitled to half the net proceeds, or roughly $250,000 after accounting for accrued rental costs she will eventually pay to her former spouse, Mr. Black says. “At this point, her other major asset, a $1-million promissory note, comes into play.” The note, from her former spouse, will cover her share of the family business. She will get a lump sum of $370,000 with the remainder being paid out over 15 years.
The planner recommends Abby take $550,000 to buy a new home free and clear. Given how expensive the Toronto-area market is, “this may not be enough capital to provide the kind of home she feels she can live with,” Mr. Black says. As well as living space, she needs space for her pottery studio. Yet renting would be expensive and precarious. “Abby should be ready to look beyond the city in her search for a suitable home.”
Assuming she purchases the $550,000 home with no debt, she will be able to spend up to $57,000 a year, Mr. Black says. She will be entitled to 65 per cent of Canada Pension Plan benefits at the age of 65 and full Old Age Security. The balance of her retirement income will come from her savings and investments...