# From one of ours....



## Cal (Jun 17, 2009)

Well done....

http://www.theglobeandmail.com/glob...or-this-single-income-couple/article22278347/


----------



## My Own Advisor (Sep 24, 2012)

Nice 

Thanks for sharing Cal.

Good assessment of the couple.


----------



## Synergy (Mar 18, 2013)

Since they're relying on the 900K equity in their home, here's to hoping that the RE market doesn't tank too much within the next 10 years. I guess one could say the same about the stock market. Either way, in that particular situation I'd be inclined to continue working until age 65 - better pension, more savings, etc.


----------



## Guban (Jul 5, 2011)

I am confused by the title. Cal, are you referring to MoneyGal, who is a much missed formerly frequent poster to CMF? Or the couple?

I found Ms. Macqueen's suggestions puzzling too. The RRSP contributions for the wife and deferring the deduction make no sense to me. I've posted this before, but why would they not max out on her TFSA before doing this? Tax free is better than tax deferred.

I am also at a loss about the RESP contribution. Why not pump up the contribution more? It would attract more government grant money. Why not do this until the kids are over 17? I know that the article says that they should cover only basic tuition, but the parents can take back more of the principal, and use the additional growth and grant to cover the basic schooling costs.


----------



## Synergy (Mar 18, 2013)

Guban said:


> I found Ms. Macqueen's suggestions puzzling too. The RRSP contributions for the wife and deferring the deduction make no sense to me. I've posted this before, but why would they not max out on her TFSA before doing this? Tax free is better than tax deferred..


Since the deductions aren't lost I would have to agree with you, why not max the TFSA first. Doesn't seem to make much sense.



> She would defer taking the deduction until the house is sold and they begin earning taxable income on the invested proceeds.


They also don't appear to have any car expenses? If they plan to get a automobile in retirement this will be an added expense that they may or may not have planned for - capital costs, insurance, repairs / maintenance, fuel, etc.


----------



## steve41 (Apr 18, 2009)

Guban said:


> Tax free is better than tax deferred.


 Uh.... no. The strategy which minimizes the present value of those future tax pmts is the preferred one. In many cases this is the 'maximize RRSP first' strategy.


----------



## AMABILE (Apr 3, 2009)

Tax free is better than tax deferred.
i agree with guban, not steve41


----------



## Guban (Jul 5, 2011)

steve41 said:


> Uh.... no. The strategy which minimizes the present value of those future tax pmts is the preferred one. In many cases this is the 'maximize RRSP first' strategy.


If the RRSP payments are not deducted immediately, the future tax payments are greater than zero. TFSA have a zero future tax payment.


----------



## Xoron (Jun 22, 2010)

Not to make presumptions on their family makeup, but...

If Marika went back to work, wouldn't that get them to their retirement goal faster? Even a part time job would add to the family's income (and hopefully not add any extra costs).


----------



## PrairieGal (Apr 2, 2011)

The first problem they need to address is the $150 shortfall in their budget every month. That makes no sense to me.


----------



## yyz (Aug 11, 2013)

No TFSA but $25000 sitting in a bank account? Or make that RRSP contribution and get the money working for you.
I also find it doubtful that they will need $5-6K a month forever,surely the expenses will go down when they downsize.Maybe cut back on some of those expenses as well.Seems to be another case of big house they probably don't really need and can't really afford. 
I'm sorry but there is better advice available than what they were given.


----------



## My Own Advisor (Sep 24, 2012)

I had the same basic observation PG.

They have a small shortfall.

So, they have a few, limited options right now:

1. Earn more and/or
2. Spend less.

In the future, whichever option they choose, they either need to continue 1 and/or 2 above and include yet another option, #3, work longer.

I suppose that wouldn't make a great story though.

I do like the balanced approach/advice of MoneyGal in retirement:
"Retirement savings accounts are assumed to be allocated 60 per cent to equities and 40 per cent to fixed income, earning a total return of 4.3 per cent a year after fees."

Alexandra is one sharp cookie and I really liked her book _Pensionize Your Nest Egg._


----------



## MoneyGal (Apr 24, 2009)

Logged in after months to see this. 

I posted a whole series of tweets and LinkedIn updates to provide more content and context on this post. I'll paste all of it in here: 

The first Globe Financial Facelift of 2015 focussed on creating a plan for "Martin and Marika" to get to retirement -- but space constraints meant creating a plan for their income once in retirement didn't make it in.

Leaving aside sequence of returns risk, if Martin retired as originally planned (at age 60) and the couple spends as currently planned, the Facelift noted they run a "substantial risk" of depleting assets by his early 90s. How concerned should they be about that? 

Pretty concerned: There's a ~30% chance that at least one member of a couple with a man aged 50 today and a woman aged 48 today in "good" (not "excellent") health will be alive in 40 years. 

Takeaway: Longevity (and sequence of returns, and inflation) risk is real, and your retirement plans need to protect you!

(p.s. The fastest, easiest way for them to improve their retirement prospects would be to spend less now, and plan to spend less in retirement)


----------



## MoneyGal (Apr 24, 2009)

To respond to "why RRSP" and "why not TFSA first" etc. comments - there is one optimal scenario, defined mathematically based on tax rates and other assumptions, and that's what the plan includes. I don't think behaviourally it makes much sense to contribute to "Marika's" RRSP, defer the contributions, and take the deduction later, but that's what the math tells me is the optimal solution; hence, that's what gets provided. 

The way these FFs get created is the planner (me in this case) prepares a full plan and the journalist (not me) pulls out whatever they think the "story" is. 

I personally did not want to focus on the RESP issue because I think they have larger fish to fry than whether they can afford to pay for their kids' schooling. Their overall retirement income plan is full of very concentrated risk! 

As for the question of "why not contribute more to their kids' RESPs?" the answer is twofold: first, the plans already have almost enough to fully fund tuition costs for two kids at their local university, and (much more importantly) *they can't afford to*. The plan as outlined is already quite fragile; continuing to focus on funding kid needs at the expense of handling their own financial futures would be foolhardy.


----------



## MoneyGal (Apr 24, 2009)

PrairieGal - I have no real faith in their budget. Note all of the expenses that were NOT included. However, they didn't report that they had any debt, so they must be making their budget work. But the reporting on the allocation of spending is suspect


----------



## cainvest (May 1, 2013)

That article was a good read. There appear to have a number of options available to them with a 10+ year time frame till retirement. It'll really come down to their priorities and how willing they are to act on them.


----------



## yyz (Aug 11, 2013)

Here's the best advice....downsize the house now and take advantage of the freed up cash.


----------



## My Own Advisor (Sep 24, 2012)

cainvest said:


> It'll really come down to their priorities and how willing they are to act on them.


I think so. 

Too bad the G&M doesn't do more "where are they now" articles. It would be interesting to see if folks actually execute on the professional advice provided.


----------



## MoneyGal (Apr 24, 2009)

I was just talking about that with my dad...The NYT does a feature where they follow up on marriages they profile in their "Vows" section. Would be interesting to follow up on financial facelifts. I have to say, though, people who make that kind of coin and want "free" (partial) financial advice...how useful is it really?


----------



## MoneyGal (Apr 24, 2009)

yyz said:


> Here's the best advice....downsize the house now and take advantage of the freed up cash.


They can't downsize now: they have to house two kids through university.


----------



## banjopete (Feb 4, 2014)

Have to? want to? Thanks for providing the behind the scenes look too MoneyGal I suspected there was more to the story than what they allowed room for but was never sure. I think a follow up would be a great part to these seemingly popular sections in the newspaper these days. It would be encouraging to have a summary at year's end of where are they now and what if any of the advice was taken into account.


----------



## Jon_Snow (May 20, 2009)

These profiles in the Globe, and the similar ones in the Financial Post are like crack to me... can't get enough of 'em. Then again, I've never had crack, so... anyway, I really enjoy these articles.


----------



## Guban (Jul 5, 2011)

MoneyGal said:


> To respond to "why RRSP" and "why not TFSA first" etc. comments - there is one optimal scenario, defined mathematically based on tax rates and other assumptions, and that's what the plan includes. I don't think behaviourally it makes much sense to contribute to "Marika's" RRSP, defer the contributions, and take the deduction later, but that's what the math tells me is the optimal solution; hence, that's what gets provided.
> 
> The way these FFs get created is the planner (me in this case) prepares a full plan and the journalist (not me) pulls out whatever they think the "story" is.
> 
> ...


Welcome back MoneyGal! Nice to see you posting again!

I am not sure how deferring the RRSP deduction can be mathematically optimal, unless we assume that their investments will decrease in value. If the money grows tax free inside of her TFSA, then when she wants to use an RRSP deduction, she can pull the money out of her TFSA, and put it into her RRSP. Assuming an increase in her TFSA, this should allow for a larger contribution to the RRSP or an overall smaller tax bill in the end if she just wants to put the smaller original amount in to get the same deduction. That is why I said tax free is better than tax deferred.

As to the RESP, I note that just because the money is in the RESP, the principal still belongs to the parents without tax implications so that the danger of overfunding the kids post secondary education is likely quite small. If the overfunding "danger" exists, the parents can always take back the principal and use it for their retirement. Used this way, the RESP is a way of splitting investment income to have it taxed in the hands of the children.


----------



## Guban (Jul 5, 2011)

Jon_Snow said:


> These profiles in the Globe, and the similar ones in the Financial Post are like crack to me... can't get enough of 'em. Then again, I've never had crack, so... anyway, I really enjoy these articles.


I really enjoy them too, but rarely see profiles that match my own situation.


----------



## Itchy54 (Feb 12, 2012)

I love these articles too!
One thing I don't quite understand. Right now we know they live in BC, in a university town. They are planning to downsize to a home worth $315,000. Are they planning to leave the province? Maybe a very small condo....
To keep a very expensive home solely to house university age students seems a little off to me.


----------



## Jon_Snow (May 20, 2009)

Guban said:


> I really enjoy them too, but rarely see profiles that match my own situation.


Yeah, I'm waiting for a profile that looks like my own scenario, but it's probably not likely to happen. Maybe they would say "go back to work!".


----------



## CPA Candidate (Dec 15, 2013)

Call me cynical, but these people your typical G&M story, great income, totally clueless spenders. Mix in public sector worker and it all comes together.

Vacations/dinner/entertainment budget of nearly $8000 a year. 1st world problems.


----------



## MoneyGal (Apr 24, 2009)

Itchy54 said:


> I love these articles too!
> One thing I don't quite understand. Right now we know they live in BC, in a university town. They are planning to downsize to a home worth $315,000. Are they planning to leave the province? Maybe a very small condo....
> To keep a very expensive home solely to house university age students seems a little off to me.


I will reiterate that the "job" of the financial planner is not to recommend "life" changes (like, "you should consider moving 10 years before your stated moving timeline" or whatever), but to illustrate the consequences of their choices. 

In this specific case, the couple can make it work IF they free up a huge amount of equity from their home to fund their retirement. The house is now (a) housing their family, which includes children who are just 11 and 13 now (no way to actually "downsize" at this point), and (b) growing, assumed at the rate of inflation, tax-free (if they sold now and invested the proceeds, given their relatively low levels of RRSP room they would be bringing what is now a tax-free asset into taxable accounts 10 years before they need to). 

I actually went and looked at RE listings in their region (not specified beyond "BC" in the Globe, but I have the specific city) to confirm they could actually buy something for $315K all-in.

Edit: and yes, it is going to need to be a small condo. This is the consequence of hitting 50 with moderate retirement savings, a low "Wealth to Needs" ratio (see Pensionize for this) and planning to retire at 60 while keeping spending constant.


----------



## gardner (Feb 13, 2014)

Guban said:


> I am not sure how deferring the RRSP deduction can be mathematically optimal


I would like to see this explained in detail. It makes no sense to me either.

When I compare using the TFSA first, then swapping over to the RRSP later, it comes out ahead.
Better yet is just leaving it in the TFSA.


----------



## andrewf (Mar 1, 2010)

MoneyGal said:


> Edit: and yes, it is going to need to be a small condo. This is the consequence of hitting 50 with moderate retirement savings, a low "Wealth to Needs" ratio (see Pensionize for this) and planning to retire at 60 while keeping spending constant.


Can't have your cake and eat it too, I guess. It's sad that you need to point this out to them.


----------



## cainvest (May 1, 2013)

CPA Candidate said:


> Call me cynical, but these people your typical G&M story, great income, totally clueless spenders.


I wouldn't say clueless, they are more "here and now" people ... the spend and enjoy now as you might not be here tomorrow type.
While it may not be the case here, something I've heard others say when asked about retirement money, they have two potential incomes to support them in the future if things get bad.


----------



## My Own Advisor (Sep 24, 2012)

I guess what I always think about (others will likely differ on this) is, while you might want to work, and have the ability to work, it doesn't always guarantee you a job, a good paying one at that.

Nothing wrong with "here and now" people but at some point if they don't disaster-proof their life, those same people could be "feeling the pain later" people.


----------



## kcowan (Jul 1, 2010)

The only worry such articles creates for me is that it puts other people in similar circumstances at ease with their situations. What me worry?


----------



## Plugging Along (Jan 3, 2011)

Very interesting read. Thanks MG, I hope you do post more, you were one of the reason I ever started on this forum.


----------

