The goal of Johanne, 57, and André, 61? Retire in two years and live in the sun four months a year as long as your health allows.
Together they have three children from previous relationships who are in their twenties and have left the family nest. The couple would now like to retire in peace, enjoy life and spend the winters in Mexico. They also want to get their finances in order and take care of estate planning, which can be challenging in a blended family.
Johanne has a TFSA and RRSPs and can expect an indexed pension of $40,000 per year from her employer. She also co-owns a $700,000 home with her spouse, for which her share of the mortgage is $62,000.
André has a TFSA and RRSPs and a suspended retirement account (LIRA) from a former employer. In addition to his interest in the family home and associated mortgage, he owns a $950,000 semi-detached home on which he still owes a $216,000 mortgage.
In terms of income, they are aiming for a net income of $80,000 per year until Johanne turns 75 and $65,000 thereafter. Will they have the means to carry out their project? Here’s what their financial security advisor Jean-François Rémillard of Séquito Wealth Management offered them.
First, the advisor recommended that they use some of their cash ($12,000 for Johanne and $31,000 for André) to contribute to their RRSPs or maximize their TFSAs.
“While it gives a sense of security, there is no need to hold that much money in one account. Currently, the always-redeemable Québec Savings Bonds offer a yield of 4%. It’s time to take advantage of it,” says Jean-François Rémillard.
Before retirement, it would also be a good idea to put $5,000 each year (the maximum) into an employee-financed fund to maximize tax returns and put the excess into the RRSPs.
Jean-François Rémillard also suggested cleaning up their investments because they had too many advisors. It would be beneficial for them to associate them with one person who would be, in a manner of speaking, the conductor of their retirement planning.
“Due to the multiplication of consultants, we can get confused by the large number of recommendations,” he emphasizes.
André has kept his maisonette for his children, but they have finished their studies and do not live there. The gross rental income from this building is $48,000 and $24,000 after expenses and taxes. “A sale would probably be better for André, especially if he wants to outsource maintenance because he wants to live in Mexico for several months a year,” notes the consultant.
Once the sale closes, he should be able to net $585,000 after taxes and other fees. If he invests that amount at a 4% interest rate, he could earn $23,400, which is almost the same as keeping the duplex, but with fewer worries!
The money from the sale should be used to maximize his TFSA, then pay off the mortgage on the family home and invest in an unregistered investment account. “Corporate funds are tax efficient and can be paid off over time,” says Jean-François Rémillard.
The advisor simulated retirement with an average return of 5% on investments and 4% on TFSAs. The couple applied for the QPP and old-age pension when they turned 65, and the inflation rate was 2.25%.
“By keeping the pace of life at $80,000 net until Johanne turns 75, they are left with a combined $200,000 in registered investments, $400,000 in TFSAs and $400,000 in unregistered investments.
“Assuming their income from then on is $65,000 and Johanne turns 90 and André turns 94, they would still have $100,000 in registered and more than $800,000 in TFSA at their disposal,” says Jean-François Remillard.
JOHANNA
financial assets
- Cash: $12,000
- TFSA: $28,000
- MSRP: $62,000
- Single family home: $350,000
- Total: $452,000
Passive
- Mortgage for a single family home: $62,000
OTHER
financial assets
- Cash: $31,000
- TFSA: $24,000
- MSRP: $333,000
- Single Family + Semi-Detached: $1,300,000
Passive
- Mortgage for a single family home: $62,000
- Condo mortgage: $216,000
➞ Net Worth: $390,000 Net Worth: $1,410,000
Advice
To avoid conflicts at the time of death, they could take out life insurance for the benefit of their respective children. In the event of the death of André or Johanne, the surviving spouse receives the entire legacy of the house and the children receive the life insurance premium as compensation.
Is it possible to retire at 60 and live in the sun four months a year?