This couple must turbocharge their TFSA to make up for the financial loss of COVID-19



Eric and Breeze downsized their home and sold their cottage after losing $ 4,500 in monthly income

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In Ontario, a couple we’ll call Eric, 41, and Breeze, 38, are struggling to rebuild a financial life devastated by COVID-19. Their net income has gone from a pre-virus level of $ 10,833 per month to a current level of $ 6,250 per month. They have a child, Emma, ​​7 years old. They sell assets to raise funds. They downsized their home, reducing their mortgage debt by $ 200,000. They also sold a cottage for a profit of $ 80,000 used to pay off other debts. Breeze continues his personal care business, earning $ 3,000 per month after tax, a fraction of pre-Covid income. Eric downsized his hospitality business to earn him $ 3,250 per month after tax. They want to retire when Eric turns 60.

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In this analysis, we will assume, very cautiously, that there will be no significant recovery in their COVID-19 revenue reduction. We’re going to assume that they continue to earn $ 6,250 a month, aggressively save, and build capital they can leverage in retirement.


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The couple’s life will thus be divided into high savings over their working years until Eric’s planned retirement age of 60, then a shift to what will represent a substantial saving of 60 years for what. we’ll assume it’s a three-decade retreat up to age 90.

Family Finance asked Caroline Nalbantoglu, head of CNal Financial Planning Inc. in Montreal, to work with Eric and Breeze.

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Current expenses

Eric and Breeze spend $ 4,010 per month, saving $ 2,240 per month. They put $ 1,500 a month in their TFSA and $ 500 in their RRSP. They add $ 240 per month to Emma’s Registered Education Savings Plan, more than the Canada Education Savings Grant limit, the lesser of $ 500 or 20 percent of contributions. The RESP has a current value of $ 15,406. If the parents continue to make these contributions and receive the Canada Education Savings Grant, the RESP, with an annual growth of $ 3,380 and assuming an annual growth of 3% after inflation, the fund will have a balance of 60 $ 600 in 10 years when Emma is ready for post-secondary education.


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They have combined TFSA contribution room of $ 83,000. They have savings of $ 100,000. This includes the proceeds from the sale of their cottage and Eric’s downsizing of his business. The money should be used to supplement TFSAs. They should contribute up to the limit, currently $ 6,000 per person per year, aggressively filling them up every year for 19 years until retirement, suggests Nalbantoglu.

Debt service is a problem. They have a $ 900,000 house with a $ 250,000 1.9% mortgage that costs them $ 1,034 a month. He will be paid when Eric and Breeze retire. This is a low rate, lower than the current inflation rate. Investments in equities will give them returns that exceed their debt service costs. Let the mortgage roll, suggests Nalbantoglu.


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Retirement at 60

Eric and Breeze want to keep their current lifestyle in retirement. Retirement at 60 and 57 will take place before Breeze can collect Canada Pension Plan benefits from age 60 with a 36 percent discount on amounts at age 65. With their monthly mortgage of $ 1,034 paid off, and with no monthly savings of $ 2,000 and $ 240 in monthly child care expenses, they should be able to get by on as little as $ 32,100 a year.

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In retirement, assuming the couple completes their TFSA to $ 75,500 in 2021, which is the current limit, and contributes the annual limit, $ 6,000 per person per year, for the next 19 years until By age 60, TFSAs with three percent annual growth after inflation will have a balance of $ 575,223 in 2021 dollars, when Eric turns 60, and will pay $ 27,700 per year until the Breeze age 95. . They will be able to keep what they earn.


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Assuming both partners made CPP contributions based on their current earnings until age 60, Breeze would have CPP benefits of $ 9,245 per year and Eric $ 12,365 per year. Amounts are based on the assumption of continued employment income at today’s rates.

With combined contributions of $ 6,000 per year, their RRSPs with a present value of $ 40,867 invested to produce 3% per year after inflation for 19 years until Eric’s age 60 will have increased to 222 $ 360, then pay $ 10,396 per year for the next 33 years for Breeze at 95.

Their income when Eric retires at 60 and Breeze at 57 would therefore be $ 27,700 from TFSAs, $ 10,396 from RRSPs and $ 12,365 from Eric’s CPP. That’s a total of $ 50,461. With the qualifying income splitting and the exclusion of TFSA cash flows from tax, they would have virtually no tax payable. Their monthly income would be $ 4,200. Three years later, at age 60, Breeze could add her anticipated annual CPP to $ 9,245, bringing family income to $ 59,706. With qualifying income splitting, the tax would still be negligible.


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At 65

At 65, Eric will receive $ 7,384 from Old Age Security. Assuming an equal sharing of the income components in the past, their income would be $ 67,090 per year. Without tax on the TFSA cash and assuming taxable income, pension income, and age credits are split, they would pay a small amount of tax, so their disposable income would be around $ 5,500 per month.

When Breeze turns 65, she can add $ 7,384 in OAS to her income, bringing it to $ 74,474 per month. Without TFSA cash tax, a breakdown of remaining income, and age and pension income credits, they would pay an average of 5% tax and have $ 72,135 per year or $ 6,000 per month for expenses. .

Their retirement expenses will have decreased by $ 1,034 with the cancellation of their two-decade mortgage, $ 240 in their RESP, $ 1,500 in TFSAs and $ 500 in RRSPs. This works out to a total of $ 3,274 per month, leaving basic retirement expenses at $ 2,976. The balance of income over expenses would cover deferred travel, gifts to their child, or donations to charitable causes.

The basis of their financial success will have been frugal spending, persistent savings and the wisdom to use their TFSAs to the fullest.

4 Retirement stars **** out of 5

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