Plotting a Financial Path: Romesh and Gayle’s Journey to Retirement
Meet Romesh and Gayle, a couple in their mid-50s navigating the thrilling yet daunting world of personal finance. With a combined income of $150,000, they live in Toronto, own a home valued at $1.3 million, and carry a mortgage of $475,000. As they approach retirement, they’re facing three pressing goals: renovating their basement, ensuring a financially sound retirement, and traveling with their son while he’s still young.
Renovation Dreams
Romesh and Gayle aim to renovate their basement at a cost of $125,000. They’re considering whether to spend an extra $50,000 to make it rental-ready for some additional income once they retire. With their son just 11 years old, they’re eager to create cherished family memories through travel. But with retirement looming, they have some big decisions to make.
Short-Term Financing Options
To fund the renovation, Romesh and Gayle might consider increasing their mortgage or tapping into a line of credit. Jeff McCartney, a certified financial planner, analyzed their finances and reassured them: even with the additional debt, they can still aim for their retirement spending goal of $8,000 per month after tax. This amounts to an annual budget of $96,000 in today’s dollars.
Smart Savings Strategies
Build Up Your Tax-Free Savings Account (TFSA)
Gayle should think about opening a TFSA and contributing $300 each month. This strategy allows for tax-free growth, crucial for maintaining their lifestyle into their golden years. Alternatively, they could direct that $300 toward paying down debt, offering the same benefits in terms of financial health.
Utilize Non-Registered Investments
Romesh holds a crypto ETF that could potentially help fund both the renovation and Gayle’s TFSA contributions. Using non-registered accounts to bolster their TFSAs is a savvy move, as these provide tax benefits that can boost their savings significantly.
Future Planning: Delaying Benefits
The couple should also consider delaying their Canada Pension Plan (CPP) and Old Age Security (OAS) benefits until age 70. This strategy can increase their payouts significantly—by as much as 42% for CPP and 36% for OAS. It’s a long-term play that could yield substantial rewards.
Renting: A Double-Edged Sword
By investing an additional $50,000 on making their basement rental-ready, Romesh and Gayle can potentially add $15,000 to their annual income during retirement. However, they need to be mindful of the tax implications related to claiming part of their home as a rental unit. This could affect their principal residence exemption and lead to capital gains taxes down the road.
Educational Funding for Their Son
Currently, the couple is saving $150 monthly in a Registered Education Savings Plan (RESP). With a present value of $50,000, they are on track to cover about $15,000 per year for their son’s postsecondary education. However, considering rising costs, they may need to discuss potential contributions from their son or consider increasing their savings.
Conclusion: A Balanced Approach
Romesh and Gayle are at the beginning of a significant financial journey. By carefully considering their renovation, retirement, and travel goals, and being strategic about their savings and investments, they can pave the way for a secure and enjoyable future. With a few smart financial decisions, they can set themselves up for a fulfilling retirement, rich with experiences and adventures together as a family.
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Bio: Priya specializes in making complex financial and tech topics easy to digest, with experience in fintech and consumer reviews.