Goodbye, Winterpeg, hello, Left Coast

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Don and Marie are eager to move to B.C., but they need to be in a better financial situation first. (JOHN WOODS / WINNIPEG FREE PRESS ARCHIVES ) Photo Store

Marie and Don's finances

INCOME:

Don: $72,000 ($4,223 monthly net)

Marie: $47,299 ($2,850 monthly net)

MONTHLY EXPENSES: $4,215

DEBTS: None

ASSETS:

Home: $200,000

Don RRSP: $229,988

Don TFSA: $21,073

Marie RRSP: $173,251

Marie TFSA: $21,073

Joint savings: $154,828

NET WORTH: $800,213

Don and Marie have endured enough Winnipeg winters and now, they're ready to pull the cord on the block heater for good.

"I want to get out of this city; I have just had it with winters," says Don, in his mid-50s.

The couple want to move west to the coast, where they can buy a little condo or home for about $400,000.

It would be an upgrade in price from their current house, worth about $200,000, which has no mortgage, but they've been saving aggressively for the last decade to prepare, stashing away about $600,000 in GICs.

"If we move out there when he's 60, I'll still be working," says Marie, in her late 40s. "I'd likely try to get a job full-time."

Even then, Marie, who works in manufacturing, wouldn't be eligible for her current employer's defined-benefit pension, which starts at age 55. At that point, she'll receive a reduced amount from the $11,000 annual benefit she will get at 65, but living in a more temperate climate sooner than later would be worth the cost, she says.

Don, in contrast, has no pension plan with his job in sales, but the couple has been saving about $50,000 a year and they're willing to do what it takes to achieve their B.C. retirement dream.

Still, when it comes to investing to reach their goal, Don says he's a little at a loss of where to put his money.

"I don't know enough about investing. We tried it and it didn't work," he says. "Those guys (advisers) just look after themselves."

That said, a little bit of advice wouldn't hurt.

Certified financial planner Jamie Kraemer says Marie and Don might have to scale back their enthusiasm about early retirement if they want to move to the West Coast.

"Certainly they can't retire in three years, but even when we move their retirement date back six years, they are likely going to face some challenges," says the vice-president of TFI Financial Services in Winnipeg.

"I think it may be a little ambitious to retire early without some sort of continuing means of income."

If they retire and move in six years, they'd likely exhaust their savings by the time Don reaches age 70, Kraemer says. This forecast is based on a number of assumptions, including a retirement after-tax income of about $50,000 a year, factoring in earnings from part-time work in B.C.

"Just to make the money last to age 70, he'd have to be earning about $26,000 a year and her about $10,000 to $11,000 a year before taxes."

Kraemer also estimates Don would receive about $6,000 a year in CPP if he started receiving the benefit at age 60, and while he would receive OAS at age 65, Marie, still in her 40s, wouldn't be eligible until age 67 under the new rules.

Although they have saved a tremendous amount of money, Kraemer says appearances are deceiving in this instance.

"I've assumed a very low rate of return if they continue on with their current investment philosophy."

Although they're presently receiving four or more per cent on a number of their GICs, many of those investments will expire soon. And they will not be able to renew for five-year terms at much more than two per cent interest, which will barely keep pace with inflation.

Saving about $13,000 a year going forward, Don's RRSPs, now worth about $230,000, would likely be worth about $315,000 by the time they retire in six years, based on these low rates, and Marie's RRSP would be worth about $210,000.

Kraemer estimates they'd have about $55,000 each in their TFSAs in six years, based on future $5,500 a year contributions. The annual limit will increase by $500 in 2013, he notes.

They also have an additional $155,000 in savings, which will also grow during that time, but Kraemer says much of the money won't be available for income needs.

"Going from a $200,000 house to a $400,000 condo, they're going to eat into all those savings and more, because it's not just the difference in cost of real estate," he says. "There are moving costs, realtor commissions, legal fees and all sorts of other things."

Kraemer says Don and Marie should consider working longer in Winnipeg to save more for retirement or they will need to earn more in B.C. -- working full-time, if possible -- while spending much less. In addition, the longer they wait to retire, the better Marie's pension payment will be, which will help pad their base retirement income, decreasing pressure on their savings.

"She's not eligible for it until age 55, and even then she'll see a 60 per cent reduction," he says. "That only leaves her with $4,400 a year at age 55 from her pension."

Over the course of her retirement, she would be missing out on almost $100,000 in income if she draws on her pension 10 years early.

But Don and Marie could likely extend the life of their savings by diversifying their investment portfolio. Kraemer says they should seek the advice of a financial planning professional who can help them map out a plan with suitable investments that will produce a better return than GICs to grow their money over time.

While they may fear losing money in the stock market, they should be able to create a conservative portfolio of GICs, stocks, bonds and other assets that can give them an annual return that keeps two to three per cent ahead of inflation.

Based on the aforementioned assumptions, this portfolio should at least add another five or six years onto their savings.

Despite what Don says about advisers looking out only for themselves, Kraemer says many investment professionals take their responsibilities to their clients very seriously.

"There is good and bad in the industry, but my advice to them is to work a little longer than they think they should and to talk to an adviser who can help them build a conservative portfolio where they're not putting all their eggs in one basket," he says.

"It's good that they're saving so much, but it's going to take a lot out of their retirement savings to move from a $200,000 house in Winnipeg to a $400,000 condo in B.C."

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Republished from the Winnipeg Free Press print edition December 8, 2012 B13