Winnipeg Free Press - PRINT EDITION

2 incomes... too many goals?

After six-figure reno, couple wonders about impact on future plans

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Murray and Addison recently completed a $200,000 renovation on their home. While they're happy in their newly refurbished abode, Murray is uncomfortable about carrying so much debt.

"I don't like debt," says the government worker in his mid-40s.

"We live quite normally, but my comfort zone is when I retire in another 10 to 15 years, I'd like to be mortgage-free, and now I don't think we will be."

While the couple earns a combined income of almost $150,000 before taxes and deductions, they now owe about $319,000 on their mortgage.

Although their home is worth more than $500,000, they're not exactly house poor. They do have other assets, such as a rental property worth about $230,000 that is free and clear. And they also have about $98,000 in RRSPs, TFSAs and other savings, including about $17,000 in a savings account. Murray says he contributes about $600 every two weeks to the account, which is used mainly for emergencies.

Ideally, they want to retire in their 50s. Addison, also a public servant, plans to retire at 55 with Murray hopefully retiring at the same time at about age 58.

By then, their only child should be midway through college. Addison and Murray hope to pay the tab, and already have reached the maximum for RESP grant money, with $22,000 in savings set aside. On top of that, they'd also like to send their child to private school but wonder whether they can afford the additional cost.

Until recently they haven't worried too much about these kinds of issues, but following the big renovation, they're a little more anxious about money.

"Does our lifestyle make sense?" Murray says. "Are we saving enough?"

Certified financial planner Darren Quiring with Edward Jones in Winnipeg says Addison and Murray should have little trouble achieving all their goals, providing they keep their eyes on the prize, or prizes, in their case.

This means they need to pay more attention to where their money is going.

"I see what they're clearing as income and then look at their expenses, and somehow about $800 a month is going somewhere," says the financial adviser.

This fact points to a need for better budgeting.

Although they have been living quite well, able to pay down debt and even save substantially, they are spending about $10,000 a year on expenses that are unaccounted for in their expenses list.

This is money that could go a long way toward reaching their goals.

For example, they could use the additional cash to increase their bi-weekly mortgage payments from $720 to $930. Taking that step alone will see their mortgage eliminated by the time they retire.

That's an early retirement too -- just the way they want it.

Quiring says based on his projections, Addison can retire at 55 and Murray at 58 and be comfortably funded well into their 80s.

"They are in good shape because of their pensions."

Yet they will need their savings, too.

Based on current contributions to RRSPs and a four per cent annual growth rate, the couple's savings will last until their late-80s. At that point, they would still have their home and rental property as assets to draw upon if they need additional cash.

Yet Quiring says it's likely the long-term picture could be a little rosier because he deliberately included wiggle room in his estimates.

"I underestimated their incomes from their pensions by not factoring increases in their income over time and overestimated their expenses, leaving in a fudge factor," he says.

So they can retire early -- but what about their child?

Quiring says their RESP will be worth more than $55,000 by the time their child is ready for college, likely enough to fund a couple of degrees at least at Winnipeg post-secondary institutions.

The X-factor, however, is private school because tuition can be costly. At the low end, it's about $5,000 a year, but some programs exceed $17,000 annually.

Yet with a little planning, they do have the ability to cover the cost, Quiring says. If they designate $600 a month -- one half of what they're contributing to general savings now -- to an account specifically for this purpose, they should have about $30,000 saved by the time their child enrols in private school. Furthermore, once enrolled, they will no longer have $420-a-month daycare payments. That's money that can also be used to pay for tuition.

Of course, they still have the mystery cash flow that is evaporating annually on various untracked expenses. This is money that likely could go a long way to helping them achieve all their goals and more.

And while Murray and Addison are in good shape, they need to be mindful of a couple of potential risks.

"One risk is rising interest rates," he says. "That would lengthen their mortgage amortization and make paying it off before retirement that much more difficult."

Their plans could also be derailed if one of them falls seriously ill, so they should examine their work disability plans closely and, if need be, bolster them with critical illness and additional disability insurance coverage.

Otherwise, the only obstacle in their way is really themselves. Given their high incomes and history of saving and living within their means, they likely will cross that retirement finish line early, at the same time knowing their child has been given the best educational opportunities possible.

"They seem like normal Winnipeggers, concerned about saving for their future," Quiring says. "And I see no real big problems for them."

Republished from the Winnipeg Free Press print edition November 9, 2013 B13

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