Reed and Tara are living their retirement dream in a custom-made home on the shore of a scenic Manitoba lake.
Tara, in her early 50s, is still working while Reed, in his mid-60s, is retired.
And she is beginning to question if their dream retirement is affordable.
"It is our dream home and I'm struggling," says the office worker who commutes to the city to work.
"I'm working and I wonder how I'm ever going to retire."
Tara earns about $66,000 a year, netting about $3,618 a month, while Reed nets about $2,917 a month from CPP, OAS and his RRSP is worth about $272,000.
Despite a $6,500-a-month income to cover expenses, they're just getting by in large part because of housing costs.
Their home is valued at about $700,000 and they owe about $212,000 on the mortgage, with 19 years remaining.
It isn't just the debt costs that are eating into their finances.
"Our expenses are big out here," she says. "Our property taxes alone are $600 a month."
They also pay for septic, gas for long-distance travel, satellite television and even a monthly payment on a riding mower.
On top of that, they're paying a substantial amount for life insurance.
"We ended up just recently buying a policy for him, but it's costing us $363 a month for a $100,000 death benefit."
Tara says she manages the finances in the house and she's uncertain they can keep going at their current pace.
"My fear is that for the next eight or 10 years I will work and when it's time for me to retire we're going to realize we can't afford to stay here, so I've commuted all this time and then I have to move."
Certified financial planner Bob Challis says Tara should trust her gut feeling. Their dream home is turning out to be financial nightmare.
"They're in trouble," says the Winnipeg adviser with Nakamun Financial Solutions. "She's correct to be concerned."
The finances reveal their predicament. They have a net worth of more than $800,000, but most of it -- about $487,000 -- is tied up in their home.
"The first observation is they're spending more than they're netting by about seven per cent per year," he says. "They're spending about $84,500 per year, and what's coming into the household appears to be about $78,400."
This is obviously unsustainable.
If they hold onto the home, they will run out of money within the decade -- before she can even retire.
Or one of them will die, more likely Reed, statistically speaking, and the survivor will have to sell the house.
Alternatively, they would have to borrow against the home and by the time Tara lives to her life expectancy at age 89, she'd be $1.8 million in debt.
While they have life insurance, "it's woefully inadequate," he says.
Tara has only $250,000 in coverage. If she died, it would not replace her income for more than a few years and then Reed would be forced to sell the home or borrow against it. To address this risk properly, Tara needs about $1 million in coverage.
In contrast, Reed doesn't likely need insurance.
"There might be something I'm missing here, but he sure shouldn't be paying $363 a month for a $100,000 death benefit."
If he dies, it's likely Tara would sell the home and move to something more manageable for one person. Not to mention, the $363 monthly premium could be redirected to pay off their credit card debt of $2,700.
Challis says there's no magic solution for their problem. If they want to continue to live in the house for as long as possible, they need to cut their costs dramatically. While not impossible, it will be tough because their housing costs take up 37 per cent of their after-tax income. That figure should be no higher than 25 per cent at their life stage.
Because they live outside the city, they're also paying a lot for transportation, about 20 per cent of their after tax income.
Incidentally, more than six per cent of their after-tax income is going toward life insurance while only 4.5 per cent is going toward an RRSP.
"Simply put: What's the cost of living there?"
It's costing them $15,000 a year in taxes, utilities and other costs associated with ownership and another $15,000 in mortgage payments. Furthermore, if they had the $420,000 in equity sitting in the bank in conservative investments, they'd earn about $8,000 in interest a year.
"They should sell and either buy a house or find a place to live that's going to cost them less than $38,000 a year," he says.
"Even if they could find accommodation that they can rent for $2,000 a month, they'd be $14,000 a year ahead."
Clearly, they have to make a choice about their future.
"They either have to stop spending this much money and redirect that cash flow to her savings, or they have to be prepared to liquidate the real estate, pay off the debt and find some manner of living that's less expensive," Challis says.
The status quo is staying in the home as long as they can and selling it when their savings are bled dry in less than a decade. At that point they risk not being able to sell the home at its market value because they're in a desperate situation.
Yet if Reed and Tara make some savings adjustments and restructure their investments -- a dog's breakfast of mediocre to bad mutual funds -- they might be able to live longer in their dream home.
"If they're choosing to move in 15 years, it might work out for them, but then they'd have to move into an apartment of some kind," he says. "Regardless of what they decide, they need to dump his expensive insurance policy."
Reed's and Tara's finances
Tara: $66,288 ($3,618 net a month)
Reed: $2,917 net a month from CPP, OAS and RRSP (taxes withheld at source)
ñü MONTHLY EXPENSES: $6,374
Mortgage: $212,815 owing at 3.09 per cent; five-year term, 19 years amortization
Credit card: $2,700 at 1.9 per cent until August
Line of credit: $32,180 at 3.49 per cent (car loan)
Reed RRSP: $272,863
Tara RRSP: $96,369
Net worth: $821,537