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Below you will find a real life case study of a couple who is looking for financial advice on how best to arrange their financial affairs. Their names and details have been changed to protect their identity. The Globe and Mail often seeks the advice of our VP, Wealth Advisor & Portfolio Manager, Matthew Ardrey, to review and analyze the situation and then provide his solutions to the participants.

Written by: Dianne Maley
Special to The Globe and Mail
Published April 14, 2023

Mona and Tony know what they want to do when they retire from work next year: take the trip of a lifetime to the Mediterranean then return home and travel down through the United States to Mexico in an RV.

Mona is 59 and works in health care. Tony is 62 and works as a tradesman. Together they earn $153,000 a year. Both have company pension plans. They have adult children, a mortgage-free home in small town British Columbia and a paid-off rental condo that nets them $8,400 a year before tax, to which they plan to retire at some point.

“Will we have enough to retire next year and maintain our standard of living?” Mona asks in an e-mail. “Will we be able to travel?”
Their retirement spending goal is $80,000 a year after tax.

We asked Matthew Ardrey, a vice-president at TriDelta Financial in Toronto, to look at Tony and Mona’s situation. Mr. Ardrey holds the certified financial planner (CFP), advanced registered financial planner (RFP) and chartered investment manager (CIM) designations.

What the expert says

Mona and Tony are looking to retire next year and do some travelling, but before they make the transition, they want to be sure that their finances are in order, Mr. Ardrey says.

They are spending about $56,500 a year, the planner notes. They are saving $5,200 a year to their RRSPs, $27,300 to their tax-free savings accounts, $8,000 to Mona’s pension and $10,400 to their emergency fund.

In retirement, they plan to increase their spending to $70,000 a year after tax, including a $10,700 annual travel budget that runs until Tony would be 85. In preparing his forecast, Mr. Ardrey assumes the couple’s property and their expenses rise in line with inflation, which is forecast to average 3 per cent a year.

Tony and Mona provided their Canada Pension Plan statements. Based on the information provided, Tony will receive 85 per cent of maximum CPP and Mona 92 per cent. They both will start to collect their CPP and Old Age Security benefits at age 65.

Mona’s company pension plan will provide her with $31,200 a year, plus a pension bridge from retirement to her age 65 of $9,800 a year, Mr. Ardrey says. These amounts are indexed to inflation. Tony’s pension is from a former employer and starts at age 65. It will pay him $11,850 a year and is not indexed to inflation.

In addition, they have about $250,000 in savings and investments, plus $15,000 in an emergency fund, the planner says. Three-quarters of the total is invested in cash and GICs, and the remainder is in a balanced exchange-traded fund, Mr. Ardrey says. “Based on these assumptions, their net rate of return is 3 per cent.”

Mona and Tony asked about the most tax-efficient way to draw down their savings. “Looking at an RRSP drawdown strategy, the maximum benefit was seen by having Tony making a one-time withdrawal of $30,000 the year after he retires,” Mr. Ardrey says.

“That one year at age 64 is the sweet spot for the RRSP withdrawal,” Mr. Ardrey says. That’s because Tony’s income is lower than it will be when he begins collecting government benefits and company pension at age 65. So he will pay less tax on the RRSP withdrawal at 64. After that the benefit diminishes, the planner says.

The couple should continue to make annual TFSA contributions in retirement, the planner says. “This can help them build up wealth if they need to make a large lump-sum withdrawal.” Because TFSA withdrawals are not taxable, they will not affect their OAS payments the following year.

Mona and Tony plan to sell their current home around the time when Mona is 80 and move into the condo, which is their rental property. The current home has an estimated value of $475,000 and it is assumed the value grows in line with inflation until it is sold. “This will provides a substantial injection of cash into their retirement funds,” Mr. Ardrey says.

“Based on the aforementioned assumptions, Tony and Mona can make their retirement goal successfully.”

Still, it is useful to stress test the scenario, the planner says. He does so by using a Monte Carlo simulation. “A Monte Carlo simulation introduces randomness to a number of factors, including returns,” he notes.

“In this plan, we have run 500 iterations with the financial planning software to get the results.” For a plan to be considered likely to succeed, it must have at least a 90 per cent success rate, meaning at least 450 trials out of 500 succeed. If [the rate] is below 70 per cent, then it is considered unlikely to succeed.

“With their scenario, they reached 100 per cent probability of success,” Mr. Ardrey says. That’s mainly because the couple have three-quarters of their financial assets in cash, which has little to no variability when it comes to rates of return.

As well, the monthly spending form Mona and Tony submitted shows a surplus of about $18,000 a year. “Though this is mostly being spent on one-time home renovations, it does call some attention to their budgeting and understanding of their spending,” Mr. Ardrey says. “Thus, a second scenario was run where expenses were increased by that same amount in retirement.”

Even with the increased spending, the result of the Monte Carlo stress test was the same: a successful retirement projection.

Mona and Tony, though investing ultra-conservatively, can make their retirement work because of their real estate, their pensions and their reasonable budget, Mr. Ardrey says.

Client situation

The people: Tony, age 61, and Mona, 58.

The problem: Will they have enough to retire from their respective jobs next year and still maintain their standard of living? Will they be able to travel as planned?

The plan: Tony makes a one-time withdrawal of $30,000 from his RRSP the year after he retires. They continue contributing to TFSAs after they retire. They sell their home and move to a condo about Mona’s age 80, adding a substantial sum to their retirement funds.

The payoff: They achieve their retirement goals with little risk.

Monthly net income: $9,585 (Excludes rental income).

Assets: Cash or cash equivalents $30,725; her TFSA $40,160; his TFSA $10,625; her RRSP $70,455; his RRSP $113,325; estimated present value of her DB pension $999,000 (assuming a 5 per cent discount rate); estimated present value of his DB pension $179,000; residence $475,000; rental condo $354,400. Total: $2.27-million.

Monthly outlays: Condo fee $390; property tax $165; water, sewer, garbage $50; home insurance $55; electricity $45; heating $100; maintenance $250; transportation $575; groceries $650; clothing $60; gifts $85; vacation, travel $900; dining, drinks, entertainment $675; haircuts $50; pets $100; sports, hobbies $150; subscriptions $5; health care $45; health, dental insurance $150; communications $210; RRSPs $435; TFSAs $2,275; pension plan contributions $665. Total: $8,080. Surplus: $1,500 goes mainly to household maintenance and improvements.

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.

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

Below you will find a real life case study of a couple who is looking for financial advice on how best to arrange their financial affairs. Their names and details have been changed to protect their identity. The Globe and Mail often seeks the advice of our VP, Wealth Advisor & Portfolio Manager, Matthew Ardrey, to review and analyze the situation and then provide his solutions to the participants.

Written by: Dianne Maley
Special to The Globe and Mail
Published February 17, 2023

Ed and Patti are both 58 and itching to retire from their well-paying jobs. Ed works in education and Patti at a government agency, and their combined salaries total $204,000. Both have pensions indexed to inflation.

“I plan to retire on my 60th birthday in 2024,” Patti writes in an e-mail. Ed hopes to quit in 2027 when he turns 63. However, they plan to work part-time until they begin getting government benefits at age 65, although they’d prefer not to. Their short-term goal is to travel, heading to Europe in the fall and to a hot climate in winter.

They want to stay in their Maritime home as long as they can – then leave it to their two children, now in their late 20s. Their retirement spending goal is $80,000 a year after tax.

We asked Matthew Ardrey, a financial planner and portfolio manager at TriDelta Financial in Toronto, to look at Ed and Patti’s situation. Mr. Ardrey holds the certified financial planner (CFP) and the advanced registered financial planner (RFP) designations.

What the expert says

“Patti and Ed are within striking distance of their retirement, but before they finalize their decision, they want to ensure that they will have the necessary resources in place to make their dreams a reality,” Mr. Ardrey says. Their defined-benefit pension plans are “a luxury today,” the planner says. Many employers no longer offer DB plans, turning instead to defined-contribution plans, he notes. Patti will receive a pension of $27,600 per year, plus a bridge benefit – a payment provided from date of retirement until 65 – of $7,150 per year. Ed will receive a pension of $18,750 per year. All pension figures will be indexed to inflation.

After Ed retires at 63 and Patti at 60, they will work part-time till they turn 65, earning $12,000 per year each.

Their Canada Pension Plan benefits will be about 75 per cent of the maximum. When they are fully retired, they will start taking CPP along with maximum Old Age Security (subject to any OAS clawback). Inflation is assumed to be 3 per cent a year and their life expectancy is assumed to be age 90.

Patti and Ed have two low-interest mortgages, one of which comes due in 2025 and the other in 2026. At the current rate of payment, mortgage one will be retired in 2028 and mortgage two in 2031.

A major concern is the current budget, the planner says. Patti and Ed say they earn $9,745 per month net, but their net income is actually much higher – $12,430 a month. “There is nearly $2,700 each month that is not accounted for. This is a substantial difference.”

Using simple math, from the information they provided, their gross income is $17,008 a month. Subtracting income tax, CPP and EI contributions of $4,635 leaves net income of $12,373 a month. Their spending and savings total $9,745 a month, leaving a surplus of $2,619 a month unaccounted for, the planner says.

“With retirement planned right around the corner, when the ability to earn income becomes fixed, understanding their budget will be imperative for their future financial success,” Mr. Ardrey says. “Without this in place, there is no way to accurately predict their future spending.”

Despite the budget shortcomings, he has used their retirement spending target of $80,000 per year for his projection. That is in addition to the cost of debt repayments.

Their investment portfolio is 97 per cent stocks and 3 per cent cash and bonds, for which the historic rate of return is 5.62 per cent, the planner says. Such a high proportion of stocks is too risky given how close they are to retiring. “They should already be reducing their risk to avoid a potential portfolio decline with a limited time horizon for recovery,” he says.

In retirement, Mr. Ardrey assumes they will move to a balanced portfolio of 60 per cent stocks and 40 per cent fixed income. This reduces the projected return to 4.55 per cent. As most of their portfolio is self-managed, no fees were assumed, the planner says.

“Under these circumstances, Ed and Patti are unable to meet their retirement goal, running out of [investment assets] at age 88,” Mr. Ardrey says. “When the Monte Carlo analysis was used, it showed only a 41 per cent probability of success.” A Monte Carlo simulation introduces randomness to a number of factors, including returns, to stress test the success of a retirement plan, he says.

“To increase the probability of success, they could work longer, spend less, save more or, the ever-unpopular die earlier,” the planner says. For example, Patti could work another three years, to age 63, retiring at the same time as Ed. In addition, they could review their budget and increase their savings by $1,000 per month each from now to the time they retire, he says. They would contribute the extra money to their tax-free savings accounts.

“These two changes have a significant impact on the Monte Carlo simulation, increasing their probability of success to 93 per cent,” Mr. Ardrey says.

“Patti and Ed need to make some tough choices to make their retirement dream a reality,” the planner says. “They first need to get a good hold of their budget and spending so they will have more to spend in retirement.” Second, they need to work longer to increase the time they have to save. “Over all, having defined-benefit, indexed pensions will give them a good base, but they need some extra savings to enjoy some of the sweet things in life.”

Client situation

The people: Ed and Patti, both 58, and their two children.

The problem: Can they afford to retire early and spend $80,000 a year?

The plan: Track their spending a little more closely to see where the money is going. Plan to increase their savings by $1,000 a month. Patti could consider working three more years so they both retire at the same time.

The payoff: The lifestyle to which they aspire.

Monthly net income: $12,373.

Assets: Cash $6,900; her TFSA $28,700; his TFSA $2,105; her RRSP $45,085; his RRSP $175,770; residence $775,000; estimated present value of her defined-benefit pension $684,865; estimated present value of his DB pension $402,865 (based on 3 per cent inflation and a 5-per-cent discount rate). Total: $2.1-million

Monthly outlays: Mortgages $2,095; property tax $455; water, sewer, garage $65; home insurance $75; electricity $110; heating $250; security $40; maintenance, garden $110; transportation $436; groceries $800; clothing $180; gifts, charity $475; vacation, travel $600; dining, drinks, entertainment $350; personal care $120; club memberships $40; sports, hobbies $50; miscellaneous personal $300; drugstore $10; life insurance $380; cellphones $275; TV $50; internet $130; RRSPs $800; TFSAs 0; pension plan contributions $1,545. Total: $9,745. Unallocated surplus $2,619.

Liabilities: $87,420 at 1.99 per cent due 2025 and $64,140 at 1.92 per cent due 2026.

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

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

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

Below you will find a real life case study of a couple who is looking for financial advice on how best to arrange their financial affairs. Their names and details have been changed to protect their identity. The Globe and Mail often seeks the advice of our VP, Wealth Advisor & Portfolio Manager, Matthew Ardrey, to review and analyze the situation and then provide his solutions to the participants.

Written by: Dianne Maley
Special to The Globe and Mail
Published December 28, 2022

After 20 years in tech sales, Duncan has been laid off and is turning to consulting. He figures he can bill about $125,000 a year on average. His wife Lorna, who is self-employed, earns more than $100,000 a year. Duncan is age 53, Lorna is 43. They have two children, ages 9 and 13.

Duncan hopes to retire from work completely in about three years, when he will be 56. Lorna wants to retire by 2030, when she will be 51.

“I’ve been pretty successful to date by most standards,” Duncan writes in an e-mail. He says he managed to save a fair sum by working hard and being sensible with money.

The pandemic caused Duncan to question the need to go back into the job market, he writes. By changing careers and becoming an independent consultant, he hopes to improve his family life. “I started a family late in life and my wife is 10 years my junior,” he writes. “This makes me anxious about the limited quality time I have with them.” He’s also concerned about “providing a solid financial foundation for them later in life, when I’m gone.”

Although Lorna makes a good living as an independent contractor, she has no workplace benefits or pension plan.

Can Duncan and Lorna afford to retire so early? Their retirement spending goal is $100,000 a year after tax. Duncan, a do-it-yourself investor, also wonders whether he should consider a more balanced investment portfolio.

We asked Matthew Ardrey, a financial planner and portfolio manager at TriDelta Financial in Toronto, to look at Duncan and Lorna’s situation. Mr. Ardrey holds the certified financial planner (CFP), advanced registered financial planner (RFP) and chartered investment manager (CIM) designations.

What the expert says

Duncan is wondering how much longer he needs to work given that he is 10 years older than Lorna, Mr. Ardrey says.

They are saving $10,000 a year to Lorna’s registered retirement savings plan and $22,500 to Duncan’s. They also make maximum contributions to their tax-free savings account. Any additional surpluses go to their savings account.

In the coming year, they plan to complete a $50,000 home renovation, which will be funded by their cash savings, the planner says. They also plan a large vacation each year with a cost of $10,000.

In 2027 and 2031, respectively, each of their children will be starting a four-year postsecondary degree and will likely be living away from home. The average cost in current-year dollars is $20,000 a year, Mr. Ardrey says. The registered education savings plan Duncan and Lorna have set up, plus an additional $20,000 in the children’s savings account, will pay for about 65 per cent of the cost. The remainder will come from the couple’s savings.

In addition to their Toronto home, Duncan and Lorna own two rental properties worth a total of $1.25-million with about $795,000 of mortgages on them. The properties are cash flow negative, which means they are costing more than they are bringing in, Mr. Ardrey notes. This causes concerns because the mortgages renew in 2024 and 2026, at which time the expected interest rate will be much higher than the 2.66 per cent they are paying now.

In retirement they plan to spend $100,000 a year, plus an additional $6,500 wintering in the United States with Lorna’s family. Their current lifestyle spending is about $105,000 a year. They plan to give each of their two children $200,000 toward a down payment for a house in 2033 and 2037.

In preparing his forecast, Mr. Ardrey assumes Duncan and Lorna begin collecting Canada Pension Plan and Old Age Security benefits at age 65. CPP is expected to be 70 per cent of maximum for both spouses owing to early retirement, he says. Inflation is assumed to be 3 per cent and life expectancy age 90.

Their current investment portfolio is 80 per cent stocks and 20 per cent cash. “This produces an expected future return of 5.05 per cent, but with significant volatility,” the planner says. As most of the portfolio is in direct stock holdings and low-cost exchange-traded funds, fees are negligible. “This portfolio is too high-risk given their proximity to retirement,” Mr. Ardrey says. “Thus, we assume they move to a balanced 60/40 portfolio, which reduces the future expected return to 4.57 per cent.”

Under these assumptions, their retirement spending goal fails, the planner says. They run short of funds by Lorna’s age 84.

“One of the ways we stress test a scenario is by using a computer program known as a Monte Carlo simulation,” the planner says. This introduces randomness to a number of factors, including returns. Under the Monte Carlo simulation, Duncan and Lorna’s probability of success is only 37 per cent.

“To heighten the chances of success, they could always spend less, save more, work longer or the one everyone wants to avoid, die early,” Mr. Ardrey says. If they want to avoid these choices, a better option is to improve their investment strategy. This would include liquidating their rental properties in retirement in favour of other investments that produce more income, especially given the expected higher cost of borrowing, he says.

As well, they should look to minimize cash holdings, increase their fixed-income allocation and include an allocation to some non-traditional asset classes such as privately traded real estate investment trusts, Mr. Ardrey says. These investments typically have little or no correlation to the equity and fixed-income markets. “Underlying assets of the REIT are an important consideration. I prefer those that focus on the residential multi-unit market or specific areas of growth like 5G infrastructure versus those who have more exposure to areas like retail,” he says.

By diversifying their portfolio and eliminating cash investments, he estimates they could achieve a 5.50-per-cent return, net of fees, and significantly reduce the volatility risk of the portfolio. As well, many private real estate investment trusts are tax-efficient, having distributions that are part or all return of capital, the planner says. “With this adjustment, the change in the Monte Carlo simulation is material, moving it up to a 70 per cent probability of success.”

There still is a statistical chance that the projection will fail. To increase the chance of success to more than 90 per cent, they would need to work about five years longer or cut their retirement spending by $1,000 a month, Mr. Ardrey says. “They’d also have to reduce the amount gifted to each child by half.”

Lorna and Duncan have some decisions to make, the planner says. They must decide whether it is more important to enjoy the life they want, including an early retirement, or to focus more on giving their children down-payment money and leaving a big estate.

Client situation

The people: Duncan, 53; Lorna, 43; and their children, 9 and 13.

The problem: Can Lorna and Duncan afford to retire early and still live the lifestyle they want?

The plan: Make adjustments to their portfolio to lower risk and improve returns. Prepare to work longer or spend less. Be less generous with the children’s down-payment gifts.

The payoff: A clear idea of the tradeoffs they face.

Monthly net income: Variable.

Assets: Cash and short-term $350,000; his stocks $1,353,100; her stocks $485,220; children’s savings account $20,070; his TFSA $118,505; her TFSA $112,805; his RRSP $901,670; her RRSP $243,285; registered education savings plan $89,835; residence $1.5-million; investment properties $1.25-million. Total: $6.42-million.

Monthly outlays: Mortgage $2,565; property tax $460; water, sewer, garbage $110; home insurance $120; heat, electricity $200; garden $20; car lease $410; other transportation $400; groceries $800; clothing $20; gifts, charity $140; vacation, travel $1,000; dining, drinks, entertainment $520; personal care $20; club memberships $120; golf $50; sports, hobbies $250; subscriptions $25; other personal $200; health care $100; health, dental insurance $515; life insurance $320; cellphones $200; TV, internet $200; RRSPs $2,710; RESP $415; TFSAs $1,000. Total: $12,890

Liabilities: Residence mortgage $75,710; rental mortgages, $794,340. Total: $870,050

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

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

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

Below you will find a real life case study of a couple who is looking for financial advice on how best to arrange their financial affairs. Their names and details have been changed to protect their identity. The Globe and Mail often seeks the advice of our VP, Wealth Advisor & Portfolio Manager, Matthew Ardrey, to review and analyze the situation and then provide his solutions to the participants.

Written by: Dianne Maley
Special to The Globe and Mail
Published October 21, 2022

When Russ’s employer offered him a buyout package a few months ago, it was an offer he was keen to accept. He was earning $87,000 a year working in manufacturing.

Russ’s plan is to work part time for a few years. His wife, Vicky, plans to retire at age 55. Vicky earns $42,000 a year working in health care. Both have defined benefit pension plans but only Vicky’s is indexed to inflation. Russ is age 52, Vicky 47.

They have two children, one still at home and going to university. Among their short-term goals is doing some work on their Southern Ontario house.

Naturally, they wonder whether their pensions and savings will allow them to live comfortably for the rest of their lives. They also ask, what is a reasonable replacement ratio for employment income in the current high inflation environment – in short, how much will they need to maintain their lifestyle? Their tentative retirement spending goal is $68,000 a year after tax.

We asked Matthew Ardrey, a financial planner and portfolio manager at TriDelta Financial in Toronto, to look at Russ and Vicky’s situation. Mr. Ardrey holds the certified financial planner (CFP), the advanced registered financial planner (RFP) and the certified investment manager (CIM) designations.

What the expert says

Russ and Vicky want to make sure that they can make their retirement plan work given the early retirement age they have planned, Mr. Ardrey says.

Upon accepting his retirement package, Russ will receive a retiring allowance of $60,000, of which he can transfer $46,000 to a registered retirement savings plan – $6,000 via the eligible retiring allowance provision in the Income Tax Act and $40,000 from his available RRSP room, the planner says. The rest will be taxable to him. Additionally, he will get a $20,000 gross car allowance with a $6,000 withholding tax on it.

Russ plans to continue to work for the next five to 10 years part-time, earning $35,000 to $40,000 a year. In preparing his forecast, Mr. Ardrey assumed Russ works another seven years earning $37,500 a year. Additionally, he will have a non-indexed pension of $24,900 a year plus a bridge to age 65 of $17,300 a year.

When Vicky retires at age 55, they will begin drawing on their savings. She will have an indexed pension of $19,100 a year, plus a bridge to age 65 of $9,700 a year. Inflation is assumed to be 3 per cent.

Because they are retiring early, the planner assumes 75 per cent of maximum Canada Pension Plan benefits for Russ and 50 per cent for Vicky, starting at their age 65, along with maximum Old Age Security benefits at age 65.

Their current investment asset mix is 53 per cent stocks, 20 per cent bonds and 27 per cent cash, mostly in guaranteed investment certificates. The stocks are 40 per cent Canadian, 40 per cent U.S. and 20 per cent international. This asset mix has a future projected return of 4.11 per cent (net of 0.25 per cent in fees for exchange-traded funds).

Next, the planner looks at how much the couple will need to maintain their lifestyle. Russ and Vicky save $6,000 a year each to their tax-free savings accounts, plus another $1,000 a month combined to their non-registered bank accounts. “This, when added to their reported spending, shows a leakage in spending of an additional $10,000 per year over their reported spending of $68,000, which includes the TFSA savings,” Mr. Ardrey says. “Thus, we used a projected expense amount of $78,000 per year instead of the $68,000 indicated to achieve a more accurate projection.”

In 2023, Vicky and Russ plan to have home repairs of $22,500 completed. These could be funded by the savings in their bank account, the planner says.

Based on the above assumptions, Russ and Vicky likely are able to achieve their retirement spending goal of $78,000 a year, Mr. Ardrey says. “That being said, it is always important to stress-test their retirement projections, as investment returns are not earned in a straight line and will vary from year to year,” he says.

The planner stress-tests the forecast using a Monte Carlo simulation, which introduces randomness to a number of factors, including returns. For a plan to be considered likely to succeed by the program, it must have at least a 90 per cent success rate. If it is below 70 per cent, then it is considered unlikely to succeed. Results in between are considered somewhat likely to succeed.

“Unfortunately, Russ and Vicky’s base case plan fails the stress test, with only a 64 per cent probability of success,” Mr. Ardrey says. What causes the concern is the other 36 per cent of the time when it does not work, he says.

“To increase the probability of success, they could certainly do things like work longer, spend less, save more or the ever-unpopular die earlier,” the planner says. Or they could try to improve their investment returns.

A portfolio that is essentially 50 per cent stocks, 20 per cent fixed income and 30 per cent cash equivalents is not the best positioned for today’s investing and inflation environment, the planner says. Instead, they should look to minimize cash holdings, increase their fixed income allocation and include an allocation to more non-traditional asset classes such as private real estate funds, he adds. Historically, these investments have offered attractive returns with little to no correlation to the equity and fixed income markets. The biggest risk would be the lack of liquidity in these investments.

For example, private real estate investment trusts that invest in a large, diversified residential portfolio or perhaps specific areas such as wireless network infrastructure are preferable to ones that have a large exposure to retail.

By diversifying their portfolio and reducing cash investments, Mr. Ardrey estimates they could achieve at least a 5.25 per cent return net of fees and significantly reduce the volatility risk of the portfolio. “Additionally, many private real estate investments are tax efficient, having distributions that are part or all return of capital,” he notes.

With this adjustment, the change in the Monte Carlo simulation is material, moving up to a 90 per cent probability of success. Though this is at the low end of the likely-to-succeed range, they still have their house to fall back on in the unlikely case they do not achieve their goals.

Additionally, they should pay attention to which type of asset class is in each account. “I would not recommend cash in a TFSA, as the goal would be to maximize the tax-free withdrawals.” Instead, the couple should hold more growth assets in their TFSAs so they will increase in value. This way, when they make withdrawals, they will have a larger capital base from which to draw.

Client situation

The people: Russ, 52, Vicky, 47, and their two children.

The problem: Now that Russ has taken a package, can they afford to live comfortably for the rest of their lives without exhausting their savings?

The plan: Review their expenses to better understand their budget and stick to it. Improve their investment strategy to improve their long-term investment returns, which will remove the risk of running out of money before they run out of life.

The payoff: Easy street.

Monthly net income (past year): $7,500.

Assets: Cash $16,500; his TFSA $75,000; her TFSA $75,000; her RRSP $60,000; his RRSP $360,000; estimated present value of his DB pension $650,000; estimated PV of her DB pension $202,000; registered education savings plan $75,000; residence $750,000. Total: $2.26-million.

Monthly outlays: Property tax $360; water, sewer, garbage $80; home insurance $80; electricity, heat $230; maintenance $500; garden $55; transportation $750; groceries $1,125; clothing $120; gifts, charity $85; vacation, travel $300; dining, drinks, entertainment $175; personal care $15; club membership $10; sports, hobbies, golf $20; subscriptions $30; health care $65; health insurance $40; life insurance $140; communications $250; TFSAs $1,000; pension plan contributions $345; unallocated spending $725. Total: $6,500

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.

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

Below you will find a real life case study of a couple who is looking for financial advice on how best to arrange their financial affairs. Their names and details have been changed to protect their identity. The Globe and Mail often seeks the advice of our VP, Wealth Advisor & Portfolio Manager, Matthew Ardrey, to review and analyze the situation and then provide his solutions to the participants.

Written by: Dianne Maley
Special to The Globe and Mail
Published August 19, 2022

Bob had been planning to retire from his sales job this spring, but he was “packaged” – laid off with a severance package – early last year. His wife, Roberta, is planning to work until February, 2023. Bob is age 62, Roberta 59.

“With this unexpected transition, and change in income, we thought it was time for a financial checkup as we begin the next chapter of our lives,” Bob writes in an e-mail. Since he was laid off, Bob has been working part-time, which he enjoys.

Because the couple married late in life, they have had a number of major expenses over the past few years – buying their Alberta house for cash and spending a substantial sum renovating it, joining a country club and buying new vehicles. To pay for it all, they both made large withdrawals from their investment portfolios and “cleaned out” their tax-free savings accounts.

Bob, in addition to his defined benefit pension of $20,580 a year, is drawing Canada Pension Plan benefits of $12,000 a year, for a total of $32,580. Their retirement spending goal is $120,000 a year after tax.

“Can we retire as planned with our income target and not have any financial concerns?” Bob asks. How can they keep income taxes to a minimum?

We asked Matthew Ardrey, a financial planner and portfolio manager at TriDelta Financial in Toronto, to look at Bob and Roberta’s situation. Mr. Ardrey holds the certified financial planner (CFP), advanced registered financial planner (RFP) and chartered investment manager (CIM) designations.

What the expert says

“Looking at their situation, the first thing that jumps out is the significant amount of company stock Roberta owns,” the planner says. The shares in Roberta’s employer represents about 34 per cent of their total investable assets.

“Though the stock has been quite profitable for them, it represents a significant concentration risk in their investment portfolio,” the planner says. If something happened to Roberta’s company, it would have “major ramifications” on their ability to retire.

Including Roberta’s company shares in their investment asset mix, Roberta and Bob have about 79 per cent of their portfolio in stocks, 9 per cent in bonds, 8 per cent in equity alternative investments and 4 per cent in cash. “As they move into retirement, they will need to reduce their volatility risk and increase their focus on income,” the planner says.

Roberta is contributing the maximum to her RRSP and TSFA, which she has built up again. She is making no other savings. Bob is collecting his pension and has just started his CPP benefits.

To rebuild Bob’s TFSA, they asked whether a spousal loan from Roberta might make sense. Instead, the planner recommends an RRSP meltdown strategy in which Bob takes $20,000 a year from his RRSP from now to age 69. That would put him just over the lowest Alberta income tax bracket, which changes from 25 per cent to 30.5 per cent at $50,197 a year of income.

If Bob wanted to withdraw even more, he could do so at 30.5 per cent up to a limit of $100,392, at which point the tax rate would increase to 36 per cent. The planner’s forecast assumes Bob withdraws $20,000 a year and deposits it in his TFSA. Doing this for the next five years would enable him to catch up on his TFSA room, the planner says. Once he had contributed as much as possible, Bob could continue to contribute the annual maximum thereafter.

In 2023, when Roberta retires, she will have an additional $65,000 of income from her stock options and employee stock plan (based on the current stock price). “Thus, she would not start her RRSP meltdown until 2024,” the planner says.

“In 2024, I assume a $25,000 RRSP withdrawal for Roberta and a redemption of company shares of $50,000,” the planner says. Roberta will sell the company stock over 10 years to mitigate capital gains taxes and diversify the portfolio, he says.

Bob and Roberta assume they will live to age 95. Because of that and the meltdown strategies, the planner recommends Roberta wait until age 70 to take her CPP. This will increase Roberta’s CPP benefit by 42 per cent from age 65 and Old Age Security benefits for both of them by 36 per cent.

“This is an important consideration given their expected longevity and inflation,” which the planner estimates will average 3 per cent a year. The forecast rate of return on a balanced portfolio is 5.25 per cent before retirement, and 4.5 per cent after.

The annual fees on their investments average 1.22 per cent, excluding Roberta’s company shares. “They are being charged an account fee of 0.80 per cent, included in the 1.22 per cent,” the planner says. This 0.80 per cent fee is assumed to be on the company shares.

“I would suggest Bob and Roberta request that the fees on the Roberta’s company stock be waived,” the planner says. “I have clients in similar situations and do not charge for holding their company shares. It is a material expense – about $8,000 per year.”

Based on the above assumptions, Bob and Roberta likely can meet their retirement goal of spending $120,000 per year, the planner says. To be sure, he stress tests the projection using a Monte Carlo simulation, which introduces randomness to a number of factors, including returns.

For a plan to be considered likely to succeed, it must have at least a 90-per-cent success rate. If the rate is below 70 per cent, success is considered unlikely. Bob and Roberta’s simulation indicates a probability of success of 76 per cent.

They could benefit by further diversifying their portfolio, and potentially increasing their returns, by adding exposure to non-traditional asset classes such as income-producing, privately owned real estate funds, the planner says. These investments tend not to move up and down with the stock market. As well, they can be expected to offer higher returns than fixed-income securities such as bonds.

“Real estate investment trusts that invest in a large, diversified residential portfolio, or perhaps in specific areas like wireless network infrastructure, are preferable to REITs that have a large exposure to retail,” the planner says.

“By diversifying their portfolio, we estimate could achieve at least 5 per cent return net of fees (post-retirement) and significantly reduce the volatility risk of the portfolio.”

Many private real estate investments are tax efficient because their distributions are part or all return of capital, the planner says. “With this adjustment, the change in the Monte Carlo simulation would be material, moving up to a 97 per cent probability of success.”

Client situation

The people: Bob, 62, and Roberta, 59.

The problem: Can they still achieve their retirement goals even though Bob was laid off?

The plan: Bob begins to melt down his RRSP now. When Roberta retires, she does the same. She also begins to sell off her company stock. They take steps to improve their rate of return.

The payoff: All their goals achieved.

Monthly net income: $14,265.

Monthly outlays: Property tax $525; water, sewer $165; home and car insurance $375; electricity $170; heating $195; maintenance, security $120; garden $100; transportation $250; groceries $1,000; clothing $310; bank fees $75; gifts, charity $210; vacation, travel $3,000; dining, drinks, entertainment $1,050; personal care $300; club memberships $1,000; golf $400; hobbies $105; subscriptions $80; health care $200; health, dental insurance $300; communications $360. Total: $10,290. Surplus goes to RRSPs, TFSAs, health care and other unallocated expenses.

Assets: Her bank account $49,000; his bank account $40,000; her registered stock plan $36,000; her non-registered company stock $95,000; her non-registered investment portfolio $1,107,120; his portfolio $6,600; her TFSA $121,315; her RRSP $1,381,995; his RRSP $571,000; residence $850,000. Total: $4.25-million.

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

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

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

Below you will find a real life case study of a couple who is looking for financial advice on how best to arrange their financial affairs. Their names and details have been changed to protect their identity. The Globe and Mail often seeks the advice of our VP, Wealth Advisor & Portfolio Manager, Matthew Ardrey, to review and analyze the situation and then provide his solutions to the participants.

Written by: Dianne Maley
Special to The Globe and Mail
Published July 10, 2022

In their early 50s, with well-paying executive jobs, Leo and Linda want to sell their two-bedroom Toronto townhouse and buy a larger one, which would mean taking on substantial new mortgage debt.

They have no children “and are in the sweet spot of our respective careers,” Leo writes in an e-mail. He grosses $200,000 a year while she makes $125,000. Their existing townhouse is valued at $800,000 with a mortgage outstanding of $180,000 that they plan to pay off in four years. They have some savings but no work pensions.

“Can we afford to upsize our house and still hit our retirement goals?” Leo asks. “Is it advisable to carry mortgage debt into retirement?”

Leo plans to retire from work at age 67, Linda at 65. They plan to travel extensively for the first few years. Their retirement spending goal is $120,000 a year. “This covers our typical living and spending patterns and would provide a sleep-at-night factor,” Leo writes.

We asked Matthew Ardrey, a vice-president and portfolio manager at TriDelta Financial in Toronto, to look at Leo and Linda’s situation. Mr. Ardrey holds the certified financial planner (CFP), advanced registered financial planner (RFP) and chartered investment manager (CIM) designations.

What the expert says

“First, we looked at a base case scenario where they did not buy a larger home,” Mr. Ardrey says. Each month, they save $2,000 to Leo’s RRSP and $1,400 to Linda’s. They save another $1,000 a month to Leo’s tax-free savings account. Each year, they have a surplus that also goes to savings. They spend about $9,500 a month on their lifestyle, plus another $3,400 on accelerated mortgage payments.

“In this scenario, we first assume from their surplus that they maximize their RRSPs,” the planner says. “Being in high tax brackets, this makes sense for their retirement.” The remaining surplus is assumed to be split between each of their TFSAs.

By 2026, Leo’s TFSA is maximized and by 2028, so is Linda’s, Mr. Ardrey says. They continue to make maximum annual TFSA contributions and any additional surplus is saved in a joint non-registered investment account.

Leo and Linda both spent part of their lives working abroad so they will have a slight reduction in their Old Age Security and Canada Pension Plan entitlements. Some of the CPP benefits may be offset by other social security agreements.

Leo and Linda went into the recent tumble in financial markets fully invested in stocks. They have since pared their holdings to 60 per cent with the balance in cash. They intend to rebuild their stock portfolio in time. They’ve asked the planner to assume they are 100 per cent in stocks going forward while they are working.

“Though I did use their assumption, I do have concerns with them liquidating a substantial part of their portfolio during a downturn,” he says. “I feel that their asset mix may not have been appropriate for their risk tolerance.” Indeed, “history has shown us that one of the worst things you can do for your returns is to exit when the market goes down. Not only do you crystalize your losses, but you also often miss out on a good part of the market recovery.”

In preparing his forecast, Mr. Ardrey assumes Leo and Linda shift from 100 per cent in equities to a balanced portfolio of 60 per cent stocks and 40 per cent bonds when they retire. He assumes they live to age 95 and the inflation rate averages 3 per cent. They earn 6.01 per cent on their investment while they are working and 4.74 per cent after they have retired. Total assets at Leo’s age 65 are estimated to be $3.1-million in future dollars.

“Under these assumptions, they do not meet their spending goal,” the planner says. Leo runs into a shortfall at age 92. “When we run the Monte Carlo simulation, the result is only a 38-per-cent probability of success.” (A Monte Carlo simulation is a computer program that tests a forecast against a number of random factors.) For a plan to be considered likely to succeed, it must have at least a 90-per-cent success rate.

Leo and Linda could benefit by further diversifying their portfolio, and potentially increasing their returns, by adding exposure to non-traditional asset classes such as private real estate funds that are not correlated to the stock market, Mr. Ardrey says. As well, many private real estate investments are tax efficient because they have distributions that are part or all return of capital, he adds.

Real estate investment trusts that invest in a large, diversified residential portfolio, or perhaps specific areas such as wireless network infrastructure, are preferable to ones that have a large exposure to retail, the planner says.

For Linda and Leo to reach the likely to succeed range, they will need to not only improve their investment returns, but also reduce their spending in retirement to 90 per cent of their target; that is, from $10,000 a month to $9,000, “which is not unrealistic.”

In the second scenario, the planner looks at what would happen if Leo and Linda sell their current home and buy a larger one for $1.5-million. They would need to take on a mortgage of about $870,000.

“It’s not surprising that the larger home purchase further impairs their ability to retire as planned.” They face their first shortfall at Leo’s age 81. The Monte Carlo simulation shows only a 6-per-cent probability of success.

To reach the likely area in the Monte Carlo simulation, they would need to improve their investment returns and also reduce their retirement spending to 60 per cent of their target, the planner says. This would be a material change in their lifestyle. “Linda and Leo must decide what is more important to them, a larger home or a larger lifestyle.”

Unfortunately, there is no magic bullet when it comes to retirement planning, Mr. Ardrey says. “If the plan is not working, we have to look to higher returns, an increase in the amount and duration of savings or a reduction in spending.”

With the increasing cost of housing in Canada’s major cities, the decision facing Leo and Linda is the one facing many Canadians, the planner says: their house or their lifestyle.

Client situation

The people: Leo, 55, and Linda, 52

The problem: Can they afford to buy a bigger house without jeopardizing their retirement spending goal?

The plan: Give up the idea of upsizing and taking on debt. Take steps to improve investment returns and lower expectations for retirement spending from $10,000 a month to $9,000.

The payoff: Understanding their financial limitations, which will help them feel more satisfied with what they have.

Monthly net income: $19,870

Assets: Bank account $30,000; his TFSA $13,000; her TFSA $1,000; his RRSP $225,000; her RRSP $300,000; residence $800,000. Total: $1.37-million

Monthly outlays: Mortgage $3,400; property tax $250; home insurance $50; electricity, heat $250; maintenance $1,050; transportation $600; groceries $1,300; clothing $300; car loan $700; vacation, travel $1,200; dining out $1,000; entertainment $1,000; other personal $1,000; health care $225; health, disability insurance $250; communications $350; RRSPs $3,400; RESP for niece and nephew $350; TFSAs $1,000. Total: $17,675

Liabilities: Mortgage $180,000 at 3.17 per cent; car loan zero per cent $9,000. Total: $189,000

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

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

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