5705 Cancross Court, Mississauga, ON L5R 3E9View on Map »
If any good can come from an economic downturn it is that people are forced to think more seriously about their financial success strategy. Many people affected by the economic damage wrought by the recent COVID-19 pandemic will change their financial habits by cutting back on spending, reducing debt and increasing their savings. But, for many other Canadians, life will likely continue as usual where the pursuit of an optimal life style now overshadow concerns about future financial security.
It's not uncommon for successful people in their 30s and 40s to conduct their financial lives under the impression that they have a vast time horizon for achieving their retirement goals. Many people at this age have a difficult time envisioning retirement much less planning for it in light of a present-day consumption lifestyle. So, it's not unusual to find a couple like James and Linda, ages 44 and 43 respectively, who have thus far lived a charmed life, suddenly faced with some fairly drastic decisions over their financial future.
Back to the Beginning
James, 44, and Linda, 43, developed a pattern of unfettered consumption early on once they were both securely settled in their well-paying jobs. James, now an executive with a fast growing technology company, and Linda, now with 15 years of tenure with a government agency, have always expected their pension plans and James' company stock to lift them to retirement security.
Even with the arrival of this recent global economic crisis, they are still forging ahead with a life of consumption by taking advantage of low interest rates to refinance a bigger mortgage and two big auto loans. Virtually everything that adorns their well-appointed home is financed.
They have only made minimal contributions to their two children's RESP thinking there will always be more time.
While they have managed to save some money, their non-registered assets of $156,500 are dwarfed by their outstanding debt of $493,200 which includes a mortgage that has been reset for another 25 years. They have $31,200 in cash savings and the rest in a mutual fund. While they aren't insolvent, they are certainly on a path that can lead there unless some drastic changes are made.
The Path to Retirement Security
After their Financial Advisor let James and Linda down easy on their hopes for early retirement, it was suggested that they target the normal retirement age of 65. They simply don't have the personal resources to bridge the gap between an early retirement and the time at which they could begin to draw from the government pension and Old Age Security at the full rate, which they will need.
From this point forward, their focus needs to shift to debt payoff. By focusing on paying down their expensive debt, they could free more cash flow that could be applied to paying down other debt.
The combination of current lifestyle changes and accelerated debt payoff should enable James and Linda to sail into retirement with enough income from their government pensions, Old Age Security benefits, Linda's pension and James' RRSP fund to generate nearly 90% of their current income in today's dollars.
Fictional characters were used in this article for illustrative purposes only.
Copyright © 2020 AdvisorNet Communications Inc. All rights reserved. This article is provided for informational purposes only and is based on the perspectives and opinions of the owners and writers only. The information provided is not intended to provide specific financial advice. It is strongly recommended that the reader seek qualified professional advice before making any financial decisions based on anything discussed in this article. This article is not to be copied or republished in any format for any reason without the written permission of the AdvisorNet Communications. The publisher does not guarantee the accuracy of the information and is not liable in any way for any error or omission.
This publication and website are intended for Ontario residents only and the information contained is subject to change without notice. Mutual Funds are offered and regulated through Global Maxfin Investments Inc. (GMII). Insurance products (including Segregated Funds) and Income Tax Planning is provided under the name of Ausim Mobeen. GMII does not supervise these activities and will not be accountable, responsible or liable for such activities. This publication contains opinions of the writer and may not reflect opinions of GMII. The information contained herein was obtained from sources believed to reliable, but no representation, or warranty, express or implied, is made by the writer or GMII or any other person as to its accuracy, completeness or correctness. This publication is not an offer to sell or a solicitation of an offer to buy any of the securities. The securities discussed in this publication may not be eligible for sale in some jurisdictions. If you are not a Canadian resident, this report should not have been delivered to you. This publication is not meant to provide legal or account advice. As each situation is different you should consult your own professional advisors for advice based on your specific circumstances.
