It's been a wild ride for Theodore and Delores. Few people can boast a TFSA of about $115,000, but over the past few years, Theodore has played the penny stocks and obviously played them well.
"I'm still in one penny stock, but after this, I am done and will be more conservative with investing," says the 53-year-old manager in the private sector.
"I don't want to do it anymore. It's too hard on me. I can't sleep at night."
The couple plans a more guarded approach in the home stretch for retirement. They want to retire when he turns 60, so he plans to set aside $6,000 a year in his RRSP and as much as he can in his TFSA, aiming to have $450,000 in seven years.
At the moment, they have about $194,000 in their RRSPs in addition to their TFSAs.
"My goal when I retire is to find a monthly income fund and put it all into that and then, between our pensions, if I could get four per cent on a monthly income fund, that would pay the bills," he says. "So my principal will stay intact, and then I can just draw that income."
Theodore earns $80,000 a year before taxes and deductions, netting about $4,000. It's been more than enough to cover their current living expenses of $3,500 a month.
"The goal was originally to see how we could do in retirement," he says, adding they own their home and have no debts. "We tried to live off one paycheque with the other going into savings."
But Delores, 54, has fallen ill and is on disability, earning about $42,000 a year -- or about $1,800 a month -- and it's uncertain whether she will ever return to work as a civil servant.
Both will receive a work pension when they retire. Theodore will get $1,550 a month at age 60 and Delores will get only $381 a month at age 60.
If they were both earning full-time wages, retiring at 60 shouldn't be a problem. But they say they fear for the worst and wonder if their plan is too optimistic.
By taking a worst-case-scenario approach, Theodore and Delores can create a baseline of what they need to meet their most rudimentary retirement goals, says Winnipeg-based certified financial planner Jamie Kraemer.
For the time being, Theodore's salary covers their monthly expenses and is enough to contribute about $6,000 a year to his RRSP.
Delores's disability money pays for her additional medical costs, and any additional money she can contribute is gravy, says the adviser with TFI Financial Services.
"I decided to treat their question as if Theodore was single, because that's really the worst-case scenario," he says.
"If I do that, and say 'What's his situation at age 60?' and then take their current savings and include contributions and market returns for the next seven years, I came up with the following numbers."
Their RRSPs in seven years, based on $6,000 a year in contributions and four per cent market return, will be about $250,000.
In addition, if they can contribute $5,000 a year combined to their TFSA, they will have about another $150,000.
Off the RRSPs alone, a four per cent yield will provide them with about $850 a month in income at age 60.
With CPP, his pension and OAS, their income would be $42,312 a year.
"On an after-tax basis, that would leave him about $33,800, which is in the ballpark of their living expenses right now," he says. "We haven't adjusted for inflation, but I've been very conservative in terms of the numbers."
Theodore won't get OAS until age 66, so they will need to use the TFSA to bridge their income for a six-year span. "The reason he won't get OAS until age 66 is because of the recent changes where it's delayed until 67, and he falls in the middle of the transition from receiving the benefit at age 65 to 67."
Based on a four per cent return as well, the TFSA in retirement would generate about $500 a month tax-free.
This strategy doesn't involve them touching any of the principal, but Kraemer says they would need to take steps to guard against a market downturn that could reduce how much they earn from their investments.
"One step is they should diversify their portfolio and not just rely on one fund for income."
Even investing in three or four income funds may not be ideal because they often contain the same investments. An alternative may be to diversify into a three or four income funds across geographical areas, but it's likely a good idea to own a few other investments that may be more growth-oriented to help keep pace with inflation when times are good, and others that are more defensive in market downturns.
A good defensive strategy is to set aside a "cash stash."
"One we often recommend is to set aside one or two years of retirement income that he's going to be drawing each year so he can ride out any financial storms like we saw in 2008."
The money would sit in conservative investments such as a savings account so it's readily available if markets drop.
"If they hit a rough patch in the markets, they can live off that money awhile and they don't replenish it until the markets have come back again so they're not selling in a down market."
Given that Theodore has a history of good investment choices, he has some time to figure out on his own -- or with the help of an investment adviser -- how best to get that four per cent return on his investments in retirement.
But overall, their plan seems to work, Kraemer says.
"He's not touching any of the principal and we haven't accounted for any of her income," he says. "If she gets better, returns to work and then collects her pension, then they can split incomes. It's just one benefit after another. There's no downside there with her finances in the picture."
Theodore and Delores's finances
Delores: $42,000 disability ($1,800 a month net)
Theodore: $80,000 ($4,000 a month net)
Monthly expenses: $3,500
Theodore RRSP: $113,400
Theodore TFSA: $65,000
Delores RRSP: $61,000
Delores TFSA: $50,000
Theodore work pension: $1,550 a month at age 60
ñü NET WORTH: $639,400