Winnipeg Free Press - PRINT EDITION

The cottage and cabana plan

Couple wants to winter in Florida, summer at the cabin but there's a bump in the road

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Melinda and Greg aren't going to let a not-so-little thing like ill health get in the way of their ambitious retirement plan.

Despite Melinda, in her late 50s, not being able to work due to illness and still waiting for disability pay, it's full steam ahead for Greg, 60, to retire at the end of the year.

"Our plan is to move to the family cottage," says Melinda, a nurse who does not have a work pension. "We will buy the cabin from family members for $100,000 and renovate for $100,000."

But that's only one piece of their vision. They will also sell their home this summer, which will fund the cabin purchase and renovation, and then rent until Greg retires.

Once retired, they will spend the rest of the winter at a Florida property -- real estate purchased at the height of the boom almost a decade ago that's now less than half of what it cost.

"To make a long story short, we inherited the Florida property and its mortgage, so we mortgaged our house here to pay it off," she says about the property, once worth $450,000 and valued at about $200,000 today.

They rent the Florida property when they can, but it costs them thousands of dollars a year to maintain.

Although the Florida home is free and clear, they owe about $134,000 on their home in Winnipeg, which is valued at $380,000.

They also have a rental home producing enough income to cover its mortgage and costs. Worth about $260,000 with a $138,000 mortgage, they plan to sell the house in about a year.

While Greg is collecting a pension of $35,000 a year now, in addition to his $66,000 salary working as an IT consultant, they'll need the proceeds from the sale of the rental to fund retirement because Melinda has no pension.

She is eligible for about $255 in CPP at age 60, and she also has about $105,000 in savings and GICs. But she doesn't foresee saving much more because she expects to retire once her disability pay stops at age 60 in about a year and a half.

Greg plans to begin collecting his CPP -- about $650 a month -- when he retires, and he will supplement his pension incomes with savings, about $118,000 invested in GICs.

They also will sell the Florida property eventually, which will further pad retirement savings.

"We would have sold it by now, but the prices there are terrible," Greg says. "For the time being, we plan to live there for 10 years if we can, but if the economy picks up, we'll sell and use some of the money to rent there."

Financial planner Chris Hunter with Scotiabank in Winnipeg says Greg and Melinda have done some impressive financial acrobatics to build up savings while juggling three properties.

But the feats of financial wherewithal aren't going to become any less difficult early in retirement.

"The challenge for Greg and Melinda is bridging their income from the time they would like to retire -- at end of the year -- until the time the rental and the Florida properties are sold and OAS starts at 65."

The most glaring problem is the Florida home. While the rental here pays for itself, the Florida property is costing them about $16,500 a year.

"If they chose to sell the Florida property now, it would significantly improve their cash flow in retirement," he says.

"Although the market conditions are not favourable to do so at this time, it may need to be considered sooner rather than later to fund their retirement."

Selling the property will free up $1,375 a month in cash flow. Furthermore, they'll have the proceeds to invest and generate retirement income for the extras such as purchasing a new vehicle and vacations.

Until they reach that juncture, Greg and Melinda will need their savings to bridge the income shortfall in their first few years of retirement.

Hunter says the couple could convert their RRSP savings -- about $156,000 -- to a RRIF (Registered Retirement Income Fund) to pay them about $600 a month before taxes for about 30 years. This is based on a conservative return of about 2.5 per cent annually, roughly what they would earn on a five-year GIC.

Once they sell the rental and the Florida home, and start collecting OAS, they can choose to convert their RRIF back to an RRSP to continue using it as a savings vehicle until age 71. At that point, they have to convert their registered saving back into a RRIF.

"These strategies would be contingent on cash flow requirements and also tax implications," he says.

More than anything, they need professional investment and tax advice to determine how best to sell the properties and invest the proceeds as tax-efficiently as possible.

"This is especially the case with the sale of the Florida property because there are U.S. tax implications," he says, adding they'll need an accountant specializing in U.S. tax law.

While they can choose to go it on their own -- as they have done in the past successfully -- Greg and Melinda have many moving parts in their plan that have implications for taxes and cash flow.

A wrong decision could cost them tens of thousands of dollars in taxes alone. And there is also little margin for error early on, so professional advice will increase the chance of their plan's success, Hunter says.

Still, their retirement vision, while complicated, is workable.

"Yes, there are some early shortfalls in their cash flow, but these can be rectified with strategic planning guided by professional advice."

Greg's and Melinda's finances


Greg: $66,000 ($3,000 a month)

Greg pension: $35,000 ($2,397 a month)

Melinda work income: $57,000 (will receive disability pay 66 per cent of normal income)



Home mortgage: $134,000 owing at 3.9 per cent interest

Winnipeg rental property: $138,000 owing at 2.5 per cent interest


Florida home: $200,000

Winnipeg home: $380,000

Rental property: $259,000

Greg RRSP: $112,900 in savings account

Greg TFSA: $5,446 in GICs

Melinda RRSP: $43,271 in savings

Melinda TFSA: $11,380 in savings

Melinda non-registered: $50,476 in GICs

NET WORTH: $790,473

Republished from the Winnipeg Free Press print edition May 4, 2013 B11

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