Tom and Judy's retirement plan is a complex financial puzzle, and it's up to them to decide the best course of action. With a $1.16 million portfolio, they're in a strong position, but there are many factors to consider. The key question is: can they afford to retire by 63 with their current plan? The answer lies in a careful analysis of their finances and a strategic approach to retirement planning. Here's a breakdown of their situation and the options they have.
The Numbers Game
Tom and Judy's financial situation is robust. They have a $1.16 million portfolio, with $620,000 in RRSPs and $460,000 in a locked-in retirement account, both heavily invested in equities. They also have $80,000 in TFSA, with 65% in equities. Their employer pension will provide an annual income of $100,000, and they'll receive 66% of that as survivor benefits for Judy. This is a solid foundation, but it's not without its challenges.
The Pension Dilemma
One of the key decisions is whether Tom should delay his pension until age 65 or later. Ed Rempel, a financial planner, suggests that delaying the pension could cost them in terms of lifetime income. Pensions typically offer a guaranteed rate of return, but Tom and Judy's investments, with a higher equity allocation, might provide a better return. Rempel recommends income splitting when the pension starts and maximizing their investment returns.
The Bicoastal Lifestyle
The couple's dream of a bicoastal lifestyle adds another layer of complexity. They want to divide their time between British Columbia, where their son lives, and Nova Scotia, where they own their home and a cottage. The question arises: should they buy a home in British Columbia, where prices are higher, or rent? Rempel suggests that with a safety margin, they could afford a home in B.C. worth up to $1.25 million, providing a higher after-tax income in the province.
The Emotional Comfort of Debt
Tom and Judy are aware of the importance of their decisions. They don't want to be debt-free just for the sake of it, as it might limit their financial flexibility. Rempel advises keeping a large mortgage with the same amount of investments, as their equity investments could provide a higher return after tax over time. This approach could allow them to afford a higher lifestyle.
The Final Word
In conclusion, Tom and Judy's retirement plan is a delicate balance of numbers and emotions. They have the financial means to retire comfortably, but they must make strategic decisions to ensure their long-term financial security. The key is to carefully consider their options, seek professional advice, and make decisions that align with their goals and values. With a thoughtful approach, they can navigate this financial journey and enjoy a fulfilling retirement.
