Retirement should be a time of relaxation and enjoyment, but for Cyril, 65, and Dina, 59, it’s shaping up to be a financial puzzle. Their dream of retiring comfortably hinges on one bold move: downsizing their home. But here’s where it gets controversial—is letting go of their $1.5-million house the only way to secure their future? Let’s dive into their story and explore the expert advice that could change their retirement trajectory.
Cyril, a municipal government employee earning $76,000 annually, and Dina, a healthcare worker earning $41,500, recently married and moved to the city. This change means Cyril now faces a longer commute, prompting him to consider retiring sooner rather than later. When he does, he’ll receive a defined benefit pension of about $28,000 a year, indexed to inflation. Dina, however, has no workplace pension, adding another layer of complexity to their financial planning.
Their home, valued at $1.5 million with a $400,000 mortgage, represents a significant portion of their assets. But as Cyril puts it, ‘We don’t want to add new stress by not having enough income to enjoy our retirement.’ Their goal? A comfortable $80,000 a year after taxes. But is this goal realistic, especially given the economic uncertainties of the past 25 years?
To answer this, we turned to Ian Calvert, principal and head of wealth planning at HighView Financial Group. Here’s what he found: Cyril and Dina have a net worth of $1.36 million, but their liquid assets outside their home are just $286,000—a modest sum that requires careful management. Their retirement plan has two key strengths: Cyril’s pension, which provides a stable income stream, and their plan to downsize in 2029, which will reduce debt and expenses.
But here’s the part most people miss: deferring government benefits to age 70 could significantly boost Cyril’s income later, but it leaves them with little liquidity in the meantime. By age 70, Cyril’s combined income from his pension, CPP, and OAS would total $60,500 annually, indexed to inflation. However, this strategy would deplete his RRSP, leaving them with limited cash reserves for unexpected expenses.
Their plan to downsize in 2029 is crucial. Selling their detached house for $1.5 million and buying a $1.1-million townhouse would net them about $320,000 after expenses. This move would simplify their finances, reduce debt, and free up cash flow. But should they prioritize paying off their mortgage or building up cash reserves? It’s a question that sparks debate—and one that depends heavily on future mortgage rates.
Dina’s TFSA, with $140,000, is another piece of the puzzle. Drawing $10,000 annually would deplete it by age 90, but combined with her CPP and OAS, it would help them reach their $80,000 retirement goal. ‘As long as they downsize before Dina turns 90, they should be on track,’ Calvert notes.
But here’s the controversial question: Are they sacrificing too much liquidity for the sake of future stability? And what if unexpected expenses arise before age 70? These are the thought-provoking questions Cyril and Dina—and perhaps you—must consider. What would you do in their shoes? Let us know in the comments below.
Client Situation:
- The People: Cyril, 65, and Dina, 59.
- The Problem: When can they retire and meet their $80,000 annual spending goal?
- The Plan: Defer government benefits to age 70 for higher income, but manage liquidity carefully. Downsize in 2029 to reduce debt and expenses.
- The Payoff: A clearer path to retirement with a focus on long-term stability.
Financial Snapshot:
- Monthly After-Tax Income: $10,315.
- Assets: Cash $7,000; Dina’s TFSA $139,530; Cyril’s RRSP $138,755; Residence $1,500,000. Total: $1,785,285.
- Liabilities: Mortgage $394,780; CGHL $25,915; Car Loan $5,690. Total: $426,385.
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