After a job loss and a long illness, how do you enjoy life while saving for your old age?

“We went through several very difficult months,” Marie-Ève*, 47, said on the phone. We lived paycheck to paycheck. It was not obvious. »

Her husband Benoit*, 48, decided to go back to school in his early 40s. Graduated, he got the job he wanted, but was then fired. Then illness struck for several months.

The ups and downs of life mean that they enter their 50s with a thin wallet: no tax-free savings account (TFSA) or registered education savings plan (RESP), no investments registered and few Registered Retirement Savings Plans (RRSPs) for Benoit. But no debt except the mortgage.

“Fortunately, all of that is behind us,” the mother continues with a hopeful voice. Our two children aged 13 and 19 are in school. And we both have new jobs with defined benefit pension plans. »

Now that the worst is over, the couple know they need to maximize their retirement investments. He also knows that life can hold bad surprises for us.

“We really enjoy cruises,” adds Marie-Ève. Alaska, Portugal and Spain are on his list.

“I discovered cruises through my sister and I love it. We dream of taking this amazing 150 day world cruise. The costs are staggering…$30,000 per person. »

“How do you save for retirement while making at least one big trip every two years…or more if possible?” Without losing sight of saving for our old age? “, she asks.

At first glance, the couple’s desire to get away seems incompatible with the need to catch up on savings for retirement.

“This is the typical case of a family having to make heartbreaking choices over the next few years between enjoying life through expensive travel and saving for their old age,” says Antoine Chaume, financial planner and management consultant Wealth Management at Assante Capital Ltd. Team Major.

Tracing the financial portrait of the couple, Antoine Chaume observes that the money available for investment represents only 23% of the net assets of Marie-Ève ​​and Benoit. Most of the assets are in their home.

“If you want to stay in your home and not have to sell your house to support your standard of living in retirement, the value of your house should represent no more than 30% to 40% of your total assets, explains the financial planner.

“Here, we are in an inverted pyramid. There is a huge job to be done for retirement savings. And at the same time, we’re on the eve of our 50s and we’re talking about spending $20,000 every two years,” says Antoine Chaume.

Considering their cost of living of $48,000 after taxes and net family income of $66,000, the couple has an annual net surplus of $18,000.

How to distribute this surplus between the head and the heart?

The planner estimates this balance to be 66% savings and 33% lifestyle. It is this basis that he took to develop the first scenario.

The adjuster followed the couple’s wishes by aiming for a retirement cost of living of $60,000, higher than the current cost of living of $48,000, when it usually is. reverse that is planned.

Is it realistic to save $12,000 each year until age 65 while spending $6,000 on cruises and expecting a safe retirement? Without jeopardizing his old age?

Contrary to what one might think, this route holds up.

The reason ? Their new employer’s defined benefit pension plans that act as travel insurance. Marie-Ève ​​and Benoit know exactly the indexed amount of the pension that will be paid to them until the end of their life.

“The game changer for the couple is their new pension plans. Even if they’re partial, because they come in mid-career and won’t contribute for 35 years, it gives them a good boost. They will have a total of approximately $25,000 indexed for life,” says the planner.

According to calculations, the couple will be able to finance the annual lifestyle of $60,000 until age 96 without having to sell the house. Antoine Chaume also advises them to take the Quebec Pension Plan pension at age 65, which will be more profitable for them.

What if they decided to allocate $6,000 to savings until age 65 and spend $12,000 on travel? To finance a living cost of $60,000 per year, they would need to sell the house when they are in their 80s to cover the total shortfall of $346,580 through age 96.

Illness is a reminder of the importance of protecting your assets. “When you’re young, your biggest asset isn’t your car or your house, it’s your ability to be able to work for the next 25-40 years. Having critical illness insurance can help protect your assets,” says the planner.

Being a de facto spouse, you have to make sure you have an up-to-date will and name the surviving spouse as the beneficiary of the new employer’s pension, recalls Antoine Chaume.

As for the $25,000 inheritance that Benoit will soon receive, the planner advises using it to make contributions to an RESP. Until the year his youngest turns 17, Benoit could catch up on unused contributions at the rate of $5,000 per year for five years.

The two governments will add a total of 30% grants, a gift of $7,500. The capital invested by the parents can be taken back and reinvested in an RRSP or a TFSA. “It’s not inconsistent with a catch-up retirement savings strategy and the money is available,” says Antoine Chaume.

Given Benoit’s income, the planner advises him not to take RRSPs, but TFSAs. Marie-Ève, for her part, must maximize her RRSPs in order to then fill her TFSAs.

In conclusion, it is not too late, but they have to get started, concludes Antoine Chaume. What makes a big difference are the pension funds that will generate $25,000 for a period of 30 years. That’s a lot of money. We are talking about $750,000 indexed that they will receive over 30 years.

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