Special to the The Globe and Mail – By Dianne Maley
At age 48, Gavin and Audrey have been diligently paying down the mortgage on their Calgary house, setting aside money to help with university costs for their two children, 15 and 17, and saving for their own eventual retirement. Gavin earns $84,000 in the non-profit sector, Audrey earns $165,000 in the oil patch.
“Together, our income sounds big,” Gavin writes in an e-mail, “but there is never any money left over after the mortgage, savings and expenses are paid.”
Short-term, they want to spend about $100,000 renovating their house. As well, they made a big lump-sum payment of $50,000 to their mortgage this fall, money that came in part from Audrey’s annual bonus.
Their main question is a familiar refrain: “When can we retire? The sooner, the better.” They hope to escape the working world at age 58 with a spending budget of about $100,000 a year after tax – roughly the same as they are spending now.
Their second question is also one shared by many people. “Should we stay with our portfolio manager, find a different manager, or go with lower-fee self-management?” And finally, “What might we be able to leave as an estate?”
We asked Ian Black, a fee-only financial planner at Macdonald, Shymko & Co. in Vancouver, to look at Gavin and Audrey’s situation.
WHAT THE EXPERT SAYS
Gavin and Audrey’s retirement plans have two significant areas of uncertainty, Mr. Black says: their Canada Pension Plan entitlement and their long-term investment returns. Neither has a defined-benefit pension plan.
“There is a real question as to the value they will receive from the CPP,” the planner says. They have not provided statements of CPP contribution, and they are considering retiring at age 58.
“Everyone gets, essentially, eight years of CPP low-earning dropout in calculating their CPP, so if Gavin went to work at age 18, and made the maximum CPP contribution every year until he retires at age 58, then he could afford to add seven (age 65 minus age 58) zero-contribution years and still receive near-maximum CPP,” Mr. Black says. “However, if a few of those years at the start were less-than-maximum, and maybe there were a couple of years off work in there, the math can really change,” he adds. The same factors apply to Audrey, although the child-rearing provision tends to help her.