A 58-year-old Hamilton woman is mapping out her financial future with a goal to retire at age 65, but she's seeking clarity on whether her current savings and expected government benefits will be sufficient for a comfortable lifestyle.
Jennifer's Current Financial Picture
Jennifer B., who lives in Hamilton, Ontario, has shared her detailed financial situation with experts. She currently holds a modest mortgage of approximately $140,000 on her bungalow. Her investment portfolio includes $50,000 in non-registered Canadian blue-chip dividend stocks, $60,000 in a balanced Exchange-Traded Fund (ETF) within her Registered Retirement Savings Plan (RRSP), and another $70,000 in a balanced ETF inside her Tax-Free Savings Account (TFSA).
She is actively saving $2,000 per month from her pay. A significant pillar of her retirement plan is a defined benefit pension from her employer, which is projected to pay her $1,600 per month before tax if she continues contributing until age 65. According to estimates from the Canada Revenue Agency (CRA), her Canada Pension Plan (CPP) benefit at 65 will be around $1,100 monthly before tax. She will also qualify for Old Age Security (OAS).
Analyzing the Retirement Income Gap
Financial experts responding to her query noted that her combined pension, CPP, and OAS will provide an estimated annual retirement income of about $42,000. They immediately pointed out that this amount alone may not be enough to sustain her desired lifestyle in retirement.
The key, according to the analysis, is for Jennifer to meticulously evaluate her current and future spending. "Your first step to getting on the right path is to start by identifying your current lifestyle and visualize how it may change in the future," the advice stated. This involves documenting all expenses to understand her true cost of living and whether her assets can bridge any potential income gap.
Strategic Suggestions for Wealth Building
With seven years remaining before her target retirement date, experts highlighted several strategic areas for Jennifer to consider. Her substantial monthly savings rate suggests a relatively high income, making her an ideal candidate to maximize RRSP contributions first to utilize past contribution room and gain immediate tax deductions. This should be followed by topping up her TFSA, and finally, investing in non-registered accounts.
A critical piece of advice focused on her investment and debt strategy. Experts urged her to calculate the after-tax return on her non-registered dividend stock portfolio and compare it to the interest rate on her mortgage. "It may make sense to use your non-registered investments, depending on the size of the potential capital gain, to pay down your mortgage," the analysis suggested. For some, a more advanced strategy could involve re-borrowing to invest, making the mortgage interest tax-deductible while using investment income to pay down the debt.
Ultimately, the financial planners affirmed that Jennifer is on a good path, but emphasized that confidence will come from a detailed, personalized plan. Her liquid assets in her RRSP, TFSA, and non-registered account provide a crucial buffer to supplement her core retirement income. The final step is to run the numbers, either independently or with a certified financial planner, to transform doubt into a clear, actionable roadmap for her retirement years in Hamilton.
