For the first time in years, Nadia* has a comfortable cushion in front of her.
“I wonder what to do with the money in my savings account, she says: put it in my RRSP [registered retirement savings plan], in a TFSA [tax-free savings account]? Also, I wonder if it is possible for me to buy a condo in Montreal or if it would be more advantageous for me to stay in my apartment. »
The 47-year-old Montrealer lives full-time with her 10-year-old daughter. She receives a salary of $95,000, along with a defined benefit pension plan.
“I’m starting to be able to put money aside after a divorce where I had to do a consumer proposal, at the end of the process, because it cost me too much in attorney fees,” she explains.
Filed in 2016, the consumer proposal was settled in the fall of 2021. Since then, she has accumulated $6,500 in her RRSP and $26,500 in her savings account. About $1650 a month, we’d say, or about $19,800 a year.
” It’s not bad ! she appreciates. I feel like Seraph with a woolen stocking under his mattress! »
She is a tenant in a six-room apartment on the ground floor, the rent of which was increased to $1,390 per month in July. “I also have the basement, the yard, the parking lot. I don’t have that many incentives to leave. I’m fine, but I think to myself, wouldn’t it be better to buy a condo, possibly for my retirement? »
She’s worked for her employer for 18 years, and she wants to stay there “until the end of time, probably,” she jokes. “I’m in no rush to retire, and that’s not the point. »
The issue is rather to know if, at his age and now that the budget surpluses are accumulating, it would be appropriate to acquire a condo.
“Wouldn’t it be better to invest that money?” But at the same time, I have a good pension plan with my employer. Is it really necessary to put it in my RRSP? »
If she opted for a condo, she would go for a two-bedroom apartment for her and her daughter. Near a metro, “to be able to make [his] life on foot without buying a car”.
In short, she wonders “if taking a 25-year mortgage, at [her] age, is really worth it”. “What I would like is to keep the same pace of life. I wouldn’t want to buy a condo and only have $200 left in play per month. »
But at the same time, how do you make sure you “put on cotton wool for [his] old age”?
Salary: $95,000
Defined benefit pension plan
FAMILY: $6500
Savings account: $26,500
Lives in an apartment
A 12 year old car, paid for
No debt
Nadia’s priorities “don’t seem quite defined yet,” notes financial planner Raphaël Hainault, a wealth management advisor on the Hainault-Harvey-Simard team, attached to FDP Private Management.
To dissipate the fog that prevents Nadia from seeing clearly, he suggests clarifying her current situation, projecting it in time, and thus defining her room for maneuver.
Based on his annual income, minus taxes, a pension plan contribution and his current savings of $19,800, he estimates his cost of living at $40,250.
At age 65, she should receive a retirement pension of $51,600, to which will probably be added $15,678 from the Régie des rentes du Québec (RRQ) and $8,251 from the Old Age Security (PSV) pension – all in today’s dollars.
In short, without yet putting his savings to work, “nearly 80% of his current salary will be met by the various retirement annuities”, notes the planner. In fact, his savings continue to grow indefinitely during his retirement – unsurprisingly, since his expenses will be less than his net income.
Nadia wanted to put cotton wool in her old age? She can rest easy, believes Raphaël Hainault.
“His annuities are an excellent foundation that provides long-term stability. What’s more, she puts enough money into her mattress to maintain good long-term comfort. Now let’s see if it is possible to get a cozy pillow and thus aspire to sweet dreams. »
Pushing the machine, he institutes RRSP contributions of $4,800 a year – the rights she accumulates each year – and he brings his annual expenses to $57,000. Under these conditions, the savings thus accumulated are exhausted “at the venerable age of 95 years”. In short, it has an additional margin of maneuver of $17,000 here, compared to the current $40,250.
Does this leeway allow Nadia to consider buying a property?
Raphaël Hainault makes the “far from far-fetched assumption” that his $1,390 monthly rent will be equivalent to the related expenses of a property: condominium fees, property taxes, maintenance, insurance, etc.
Under these conditions, the mortgage payment must not exceed $17,000 per year (or $1,417 per month) for the 18 years that separate her from retirement.
Assuming an interest rate of 5.25%, notary and inspection fees of $2,000, transfer duties of 1%, a down payment of $33,000 and the substantial loan insurance premium of 2%, the planner calculates “she could buy a condo worth about $225,000”.
In the current Montreal market, it is unlikely that she will be able to find a condo according to her tastes.
Our planner suggests other sunny avenues to improve its situation.
If Nadia isn’t ready to make her decision yet, or if she wants to prepare for a possible end of lease, she could make tax-deductible payments of $8,000 per year for five years into the new CELIAPP plan (account tax-free savings plan for the purchase of a first home). She would accumulate a total of $40,000, not counting the return and the annual tax reduction of $2,960.
If she then renounces an acquisition, the amount can be transferred to her RRSP.
His budgetary leeway also allows him to contribute $9,000 a year to his RRSP, taking advantage of the contribution room accumulated so far. Again, this results in a tax reduction of $3,300, for total refunds of $6,290 per year.
Of this new influx, $5,000 could be spent annually on an RESP in her daughter’s name. In seven years, Nadia will have contributed $35,000, plus $10,500 in federal and Quebec grants. If the annual return remains at 5%, “she will have accumulated $55,600 to help her daughter with her studies”, or almost 60% profit compared to the $35,000, points out the planner.
And of the $6,290 in repayments, she still has $1,290 left over per year, which she can use at her leisure or put into a TFSA.
These measures would add a lot of wadding to her retirement – or her early retirement – but are in no way a necessity “if she sticks to the basic scenario”, insists Raphaël Hainault.
Nadia has the luxury of time.
She is happy in her six and a half ground floor with backyard. Where is the urgency to acquire a four and a half on the third floor?
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