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FINANCIAL FACELIFT: Can travel plan blossom if she works part-time?

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Below you will find a real life case study of a couple who are looking for financial advice on when they can retire and how best to arrange their financial affairs. The names and details of their personal lives have been changed to protect their identities. The Globe and Mail often seeks the advice of our VP, Wealth Advisor, Matthew Ardrey, to review and analyze the situation and then provide his solutions to the participants.

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Written by: DIANNE MALEY
Special to The Globe and Mail
Published Friday, Oct. 14, 2016

At age 39, Barbara and John are mortgage-free with money in the bank, good professional jobs, a young child and a strong desire to see the world.

John earns about $97,000 a year, while Barbara brings in $39,120, on average, working part-time. They wonder whether she can continue to work part-time until John semi-retires at age 55, and then spend the next 15 years travelling the world together and working part-time.

“We think the world is going to change and travel will become an extreme luxury item,” Barbara writes in an e-mail, adding, “international travel will not be a valid option after 70.”

fotolia_119537068_xs2The Ontario couple have already given in to their wanderlust, travelling extensively over the past two years, but they realize they have to pare back a bit. They need to do some work on their house and save for their daughter’s postsecondary education.

“Are we okay if Barbara works part-time from now until full retirement at age 70?”

We asked Matthew Ardrey, a vice-president and financial planner at TriDelta Financial in Toronto, to look at Barbara and John’s situation. Mr. Ardrey holds the certified financial planner (CFP) designation.

What the expert says

First, Mr. Ardrey looked at the couple’s short-term financial goals. They want to spend $18,000 in 2017, $6,000 in 2018 and $6,000 in 2019 on travel, plus $10,000 for new floors in 2018 and $10,000 for a new furnace and air conditioning unit in 2019. They show a surplus of $20,700 a year, more than enough to cover these expenses. “So there is no need for Barbara to work more hours to cover their short-term spending needs.”

When they semi-retire at age 55, they plan to spend $60,000 a year after tax in today’s dollars, close to what they are spending today after savings are removed, Mr. Ardrey says, plus an additional $20,000 a year in today’s dollars on travel.

John is saving 4 per cent of his income, plus a 4-per-cent matching contribution from his employer, to his defined-contribution pension plan, adding $2,400 a year to his tax-free savings account and $7,200 a year to his registered retirement savings plan. Barbara is contributing $6,000 to her TFSA and $1,200 to her RRSP. The planner assumes all savings end when they semi-retire.

They will both receive Old Age Security at age 65 and Canada Pension Plan benefits at age 70. John will get full CPP, but the planner assumes Barbara will get 70 per cent of the maximum. He further assumes a rate of return on their investments of 5 per cent, an inflation rate of 2 per cent and that they will both live until the age of 95.

Based on these assumptions, the couple will be able to meet their retirement goals, Mr. Ardrey says. They would leave an estate of about $800,000 on top of their real estate and personal effects.

But a couple of items need to be addressed, the planner says. The first is budgeting and saving. After the large expenses are addressed in the next few years, they will have a budget surplus of $30,000 a year.

“They should take a good look at their budget to ensure this surplus is really there because their ability to make large expenditures without taking on additional debt depends upon it,” Mr. Ardrey says.

If they do have a big surplus, “it would be good to save at least half of it to their TFSAs and RRSPs.”

The second item concerns the investment costs they’re paying. For their assets outside of John’s defined-contribution plan, they are investing in mutual funds, which can come with high fees. “Depending on the level of service and planning this couple is receiving, those costs may or may not be justified,” Mr. Ardrey says.

To illustrate how these suggestions could make a big difference, the planner ran a second retirement plan. In it, John and Barbara increased their savings by $15,000 a year until they semi-retired and lowered their cost of investing by half a percentage point a year. It could make a big difference. “Their estate, excluding real estate, would more than double to about $1.98-million.”

Meanwhile, to fully cover their daughter’s postsecondary education costs, assumed to be $20,000 a year in today’s dollars, John and Barbara will need to increase their education savings by $175 a month from now until their daughter is 18. As it is, they will only cover about 70 per cent of this cost. Finally, he suggests they both take out disability insurance.

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The people: Barbara and John, both 39, and their daughter, 6.

The problem: Can Barbara continue to work part-time without jeopardizing their long-term travel plans?

The plan: Once short-term expenses are paid, review spending to get a firm handle on surplus. Consider saving half of it to RRSPs and TFSAs. Review investment fees.

The payoff: A clear road map to their financial destination.

Monthly net income: $8,445

Assets: Cash $7,160; her TFSA $5,090; his TFSA $31,440; her RRSP $154,185; his RRSP $107,440; his DC pension plan $51,220; RESP $22,960; residence $350,000. Total: $729,495.

Monthly disbursements:
Property tax $310; utilities $180; home insurance $70; maintenance, garden $190; transportation $485; groceries $750; child care $250; clothing $360; gifts $220; charitable $130; vacation, travel $325; other discretionary $500; dining, drinks, entertainment $365; grooming $50; pet $100; sports, hobbies $250; doctors, dentists $150; life insurance $45; cellphone $17; Internet $60. RRSPs $700; RESP $210; TFSAs $700; his pension plan contributions $300. Total: $6,717. Monthly surplus: $1,728.

Liabilities: None.

Want a free financial facelift? E-mail finfacelift@gmail.com.

Some details may be changed to protect the privacy of the persons profiled.

Matthew Ardrey
Presented By:
Matthew Ardrey
VP, Wealth Advisor
matt@tridelta.ca
(416) 733-3292 x230

Plan a ‘free’ Thailand vacation and… surgery.

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We’re fortunate in Canada given that we have a great health system, but we’re often subjected to long waits for important lifesaving surgery or wish for better access to specialists. New options have emerged in recent years and more of us are taking advantage, particularly medical tourism.

thailand2According to Wikipedia, Medical tourism or health tourism is the travel of people to another country for the purpose of obtaining medical treatment in that country. Traditionally, people would travel from less developed countries to major medical centers in highly developed countries for medical treatment that was unavailable in their own communities. The recent trend is for people to travel from developed countries to third world countries for medical treatments because of cost and other considerations.

Medical tourism is however controversial for a number of reasons, especially in Canada given our national health care system and its expense.

A number of our hospitals are considering ways to boost profitability by hosting international patients. For example Sunnybrook Hospital’s board quietly approved a program at the end of last year. So far they have welcomed a Barbadian woman who paid about $60,000 for radiation treatment for breast cancer, and a Jamaican man who paid $20,000 for radiotherapy for prostate cancer according to the Globe and Mail.

Canada’s publicly funded health-care system is respected globally and would easily attract medical tourists, according to a 2011 analysis from Deloitte Canada’s health services division. The question is, can Canada offer medical services to foreigners without displacing locals whose hefty taxes built the health care system. Opponents argue that patients from abroad could displace tax-paying Canadians or enable wealthy locals to buy their way to the front of the queue.

The Registered Nurses Association is calling for an outright ban; http://rnao.ca/news/ban-medical-tourism-rnao-speaks-out-medicare

Then there is the other side, Canadians traveling abroad for health care services, whatever the reason. This presumably won’t hurt our health care system in the short term, but will start to raise questions why we pay taxes if better health services are available elsewhere.

Regardless, medical tourism continues to grow and provide affordable alternatives. An excellent CNN documentary aired last week  titled; ‘Surf, sand … and surgery? Inside the world of medical tourism.’ This is a must watch program that brings much needed perspective to this controversial topic and will help you decide if its good, bad or indifferent
This means that you can get what amounts to a free vacation given the significant savings on your next medical bill by having the work done in Thailand or another medical destination offering lower costs than Canada.

At TriDelta Financial we strongly believe in a balanced lifestyle, which incorporates wealth and health amongst other aspects, which is why we see medical tourism as a viable alternative in certain situations.

Anton Tucker
Written By:
Anton Tucker, CFP, FMA, CPCA, FCSI
Executive VP
anton@tridelta.ca
(905) 330-7448

Travel tips

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The busy winter travel season is now firmly here. To avoid the many pitfalls of travel, here are a few pointers to ensure your trip is properly organized.

  1. Valid passport. Check that your passport has at least six months before expiry. Many countries refuse entry to individuals who do not have six months or more before expiry. Starting in July 2013, Canadians will be able to renew their passports for 5 or 10 years. See http://travel.gc.ca/
  2. Visa requirements. Check if the country you are visiting requires an entry visa. Many countries require a visa, prices can range from zero to $800.00 depending on location and duration. Remember too that if you are breaking up a long journey by doing a stopover, that country may require a visa simply to transit through the airport for a few hours. See http://travel.gc.ca/
  3. Health. If you are travelling to a hot climate, ANYWHERE, it is wise to ask your doctor which protective vaccinations or inoculations are recommended. Health Canada always recommends that Hepatitis vaccinations be up to date for foreign travel; that’s advice worth listening to as it could save your life, or that of a family member. See http://www.hc-sc.gc.ca/hl-vs/travel-voyage/general/index-eng.php
  4. Insurance. One should never travel without travel insurance, including out of country/province health insurance, trip cancellation and interruption insurance. Many credit cards offer some form of cover, but very few offer ALL coverage’s.

    It is a popular misconception that your particular credit card covers ALL contingencies, which is why you must verify your coverage well before your trip and purchase coverage of things that are not covered. See https://tridelta.ca/The-Canadian-Financial-Planner/2013/01/15/travel-insurance-is-a-must/

    For rental cars, check whether your coverage at home covers you out of the country, if not, you can sometimes upgrade to this for as little as $30.00 per year. Your travel advisor can assist you with a car rental prior to departure.

  5. Use a travel advisor. These days people love to get online and research their trip, which is a great idea.

    At Wanderlust Travel, we encourage this and work with clients on gathering information to select the best choices and compare options etc. However when booking travel online people are committed often without knowing exactly what they have purchased.

    The internet is both good and bad. The ‘good’ refers to the on hand research capability, whilst the ‘bad’ includes making commitments that are binding and being drawn into travel deals that are big on promises, but small on delivery.

    The internet can depict beautiful resorts, but the reality often delivers nasty surprises. A good travel advisor will know (or find out) if the resort or hotel is “Heaven” or “Hell”, plus you have the comfort of knowing that any registered agent selling travel in Ontario is covered by the Travel Industry of Ontario should a supplier default. See http://www.tpiworldwide.com/AnneBarclayTPI/testimonials.asp

  6. My top destination for this winter get-away.

    In Canada we aspire to travel during Winter to escape the lousy weather.

    Here is my suggested destination for those of you looking for a week’s break to recharge those battery’s:

    Anitgua’s Galley Bay Resort;

    This all-inclusive resort is designed for people looking to totally relax in a beautiful setting right on the beach. When I inspected the resort, a feeling of total relaxation came over me unlike the hundreds of other properties I have visited.

    The resort is small and intimate. The accommodation is also quite unusual offering traditional Caribbean and Tahiti styles right on the beach or located alongside the natural lagoon. I enjoyed the bungalow type rooms, which were really unique. I am recommending this resort for its value, limited size and intimate setting. Although I should also mention it is rated among the top 10 romance resorts in the Caribbean! See http://www.galleybayresort.com

Article complied by Anne Barclay, Certified Travel Consultant www.wanderlusttravel.ca

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