Edmonton woman considers financial implications of move to Manitoba

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Bonnie says moving to Winnipeg will make visiting the grandkids a whole lot easier. Instead of shelling out hundreds of dollars for a plane ticket, she will only be limited by her enthusiasm to make the long drive to Minneapolis. (WAYNE GLOWACKI / WINNIPEG FREE PRESS ARCHIVES) Photo Store

Bonnie's finances

INCOME:

Work: $51,076 ($3,200 net a month)

Rental: $1,695 a month

Part-time work: $300 a month

 

MONTHLY EXPENSES: $3,340

 

DEBTS:

Mortgage: $187,000 owing at four per cent fixed rate

 

ASSETS:

Home: $357,000

RRSP: $116,863

 

NET WORTH: $286,863

Bonnie is going against the flow.

While Winnipeg has suffered several defections in recent years -- former citizens seeking fortune, fame and fairer weather elsewhere -- Bonnie is an Edmontonian who wants to move here in the next year.

"My daughters live in Minnesota," says the 55-year-old health-care professional.

"And my grandchildren are growing up so fast I don't want to miss it."

Bonnie says moving to Winnipeg will make visiting the grandkids a whole lot easier. Instead of shelling out hundreds of dollars for a plane ticket, she will only be limited by her enthusiasm to make the long drive to Minneapolis.

Yet she's not sure how such a move would affect her finances. Even now, she is just getting into sound financial shape after recently landing full-time work. Prior to getting the full-time position, she had to take in a couple of renters and worked two part-time jobs to pay for her $187,000 mortgage.

Now, she earns about $3,200 net from her full-time job, about another $1,700 from renters and $300 from a part-time position every month. While she is now flush with cash to pay down the mortgage, Bonnie is working with her accountant to determine how much money she needs to set aside to pay additional taxes on income earned from part-time work and the renters.

She also needs to build up her savings again after recently taking an overseas vacation, which depleted her chequing account.

Despite these recent financial challenges, however, Bonnie says she's determined to make the move to Winnipeg, and she would like to know how relocating will affect her financial outlook, especially retirement.

"I want to know if I'm doing what I should be doing to get myself ready for retirement."

Certified financial planner Valerie Chatain-White says Bonnie's plan clearly brings up a number of questions she needs to consider before making a decision that will profoundly affect her financial future.

Among the most important are her expected income and future housing costs.

A good idea is for Bonnie to lean heavily on the expertise of her accountant to crunch numbers.

"It would be good to verify with her accountant what she might need to net as income from a new job if she moves," Chatain-White says, adding Bonnie may be eligible for relocation tax credits if she moves to Winnipeg for a job.

As for housing costs, moving from Edmonton to Winnipeg was a lucrative proposition a decade ago because of the large difference in housing prices. Since then, Winnipeg prices have caught up substantially and the market here remains fairly robust, whereas Edmonton's has stabilized.

According to WinnipegRealtors' housing price index, the most active price range in the city is between $250,000 and $299,999. In Edmonton, the average price is about $331,000 so Bonnie can still expect to come out a little bit ahead moving to Winnipeg, providing she can sell her home for about what she paid for it in 2008.

Bonnie bought her home for $357,000, and she may be able to seize upon a number of tax deductions available to her because she has been using her home to generate income. But the fact she has been renting out rooms also clouds the tax picture for her.

When selling a home, most people can use the principal-residence exemption to avoid paying any taxes on capital gains made on the sale. In some circumstances, homeowners may have to pay capital gains on parts of the home that were used for producing income, such as renting out rooms.

Chatain-White says Bonnie will again need the services of her accountant to help her figure out the possible tax implications.

If Bonnie does find work in Winnipeg and buys a home here, she still faces a big challenge: building up her savings for retirement.

Early retirement is certainly out of the question, Chatain-White says.

Even retiring at 65 will be challenging.

Chatain-White made a number of conservative estimates of Bonnie's retirement income, including her CPP.

Chatain-White says in her calculations she low-balled Bonnie's CPP at $500 a month, so Bonnie should log onto the Service Canada website to get a more accurate figure for her expected payments at age 65. With OAS added (Bonnie is old enough to receive full OAS at 65), CPP will make up about half her retirement income.

The remainder will come from her RRSP, about $116,000 at the moment.

"She could use up her money quite quickly if she retires early," Chatain-White says. "If she wants the income from her RRSP to last as long as she does, the rule of thumb is to withdraw five per cent per year -- about $500 a month."

That means Bonnie's estimated monthly retirement income at age 65 would be about $2,000 short of her monthly expenses today of about $3,300.

That's a substantial savings shortfall to make up in the next decade.

Moving from Edmonton to Winnipeg could have a positive effect on her financial situation. She could make a few thousand dollars profit on the sale of her home, which should be invested for retirement. But she could just as easily end up breaking even while possibly earning less at a new job. And she'd be paying more in taxes. Alberta has no sales tax except GST, and its income taxes are a flat 10 per cent rate whereas Manitoba's highest rate marginal rate is 17.4 per cent for earnings more than $67,000.

Needless to say, Bonnie has lots of homework to do before making a major decision.

Yet regardless of where she lives, she can count on one certainty.

"Bonnie would need to work at least for another 10 years if she wants to maintain the lifestyle she now enjoys."

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Republished from the Winnipeg Free Press print edition December 29, 2012 B13