A few years before their retirement, Sylvain and Julie realize that they have hardly saved anything for their retirement years. The awakening is brutal and they wonder if they can make up for lost time.
Sylvain, 54, works in a factory and earns $44,000 a year. Julie, 50, is a kitchen manager at a nonprofit organization and earns $47,000. The couple has no children and moved in together about ten years ago.
They live comfortably with their two salaries and didn't have to worry about their budget. Over time, they barely saved anything, $1,000 to $2,000 a year. They currently have RRSPs of $43,000 and $29,000, respectively.
These low savings indicate a meager retirement, especially since they cannot count on a pension fund from their employer. They would like to make up the shortfall, but is that still possible since they are only a few years away from retirement?
Better late than never…
Financial security consultant Jean-François Rémillard from the Gestion de Patrimoine Squito looked at her file. At first glance, he found that their financial safety net was indeed thin. “The good news is they still have a few years to make up for lost time,” he says.
However, he adds that they must, however, demonstrate good discipline and increase their efforts to achieve their goals. While there are no miracle solutions, good returns and the support of a professional can still help.
Contribution plan to their RRSP
“First of all, they need to change their budget and give greater importance to savings, which they need to put at the top of their priorities. In their case, I would prefer RRSP contributions so that they benefit from tax deductions,” explains the advisor.
He adds that the RRSPs offered by the FTQ or CSN employee funds are excellent accumulation vehicles as they offer an additional tax deduction of 30%. “We have access to these funds as long as our annual salary is less than $112,655. You can invest up to $5,000 per year,” he explains. To make it easier to maintain their savings discipline, he recommends automatic withdrawals: To achieve $5,000 in annual savings, the withdrawal per paycheck is $96.15 per week.
Invest tax refunds in a TFSA
By working until age 65, Sylvain will have accumulated $150,000 and Julie will have accumulated $175,000 four years later. You can then expect a net retirement income of $40,000, including pensions from both levels of government (QPP and superannuation). Their budget is relatively tight and they need to cut back on certain expenses, most notably getting rid of one of their two cars.
Jean-François Rémillard's calculations assumed a return of 4% for RRSPs and an average inflation rate of 2.5%. In this scenario, the couple will have exhausted their personal savings by the time Julie is 82 and Sylvain is 86. “It's a bit short, but if they put their $1,500 tax refund into a TFSA for every year they contributed $5,000, they will be able to gain five additional years before their entire capital is used up!” mentions Jean-François Rémillard. Good news for this couple, who are therefore encouraged in their efforts.
YOUR FINANCIAL SITUATION
Sylvain
Annual income: $44,000
MSRP: $43,000
JULY
Annual income: $47,000
MSRP: $29,000
Would you like an expert opinion on your retirement planning? Write us a detailed message and we will refer your situation to a professional. The answer will then be published in The Montreal Journal And The Quebec Journal. [email protected]