Special to the The Globe and Mail – By Dianne Maley
Bruce and Bonnie are “middle-aged and still enjoying their professional careers in the non-profit sector,” Bonnie writes in an e-mail, but they’re looking ahead to what they hope will be a comfortable retirement. “Because we don’t have large defined benefit pension plans, and because we’ve been busy raising a child and paying off a mortgage, we feel we have some catching up to do on our savings,” Bonnie writes. Bruce is 52 and earns $104,000 a year, Bonnie is 58 and earns $74,600.
Their most valuable asset by far is their Vancouver house, which makes up the bulk of their assets. They have a mortgage of about $47,500, “which we expect to pay off completely in five years,” Bonnie writes. As well, they plan to spend about $20,000 renovating their home. In future, they’d like to be able to help their son – who has moved out to attend university – with a down payment on a condo.
They’re hoping to retire on $75,000 a year after tax without having to sell their house, Bonnie at age 65, Bruce at 62. “We are both healthy and physically active and hope to live into our 90s,” Bonnie adds. When they retire, they plan to travel and be active in their communities.
They wonder whether they should defer taking Canada Pension Plan and Old Age Security benefits to age 70.
We asked Ngoc Day, a financial planner at Macdonald, Shymko & Co. Ltd. in Vancouver, a fee-only financial planning firm, to look at Bruce and Bonnie’s situation.
WHAT THE EXPERT SAYS
The strength of Bruce and Bonnie’s situation is that they have little debt, they will get nearly full CPP and OAS benefits, and they have a modest retirement income goal requirement, Ms. Day says.
Bonnie and Bruce’s lifestyle spending is about $84,360 a year, including their mortgage payments, the planner says. They contribute $2,200 a month to their registered retirement savings plans, while Bonnie’s employer contributes about $535 a month to one for her. As well, Bonnie contributes $100 a month to her tax-free savings account and Bruce contributes $455 a month to his defined contribution pension plan.
In addition to these savings, they have the capacity to save another $1,500 a month or so. “They should consider directing this surplus to pay off the mortgage as soon as possible,” the planner says. “Once the mortgage is paid off, their monthly expenses will drop down to about $5,800, and cash that used to go to the mortgage ($1,255) can be invested for their nest egg.”