Maria Tucker, Toronto
Now: June 2014
At 42, Maria Tucker is a successful marketing executive, earning a six-figure salary as director of sales at a Toronto telecommunications company. She’s also a single mom, but despite the expenses of child-rearing, she is just a year away from paying off the mortgage on her modest townhouse. And she’s tucked $91,000 into her RRSP.
So what does this paragon of financial success want to do now? Why, turn her life upside down. (We’ve changed her name and some personal details to protect her privacy.) She’s tired of work-related stress and 70-hour workweeks. She would like to kick back, take a few courses in cooking and photography, and spend more time with her daughter, Christina, 13. “I feel like the world is whipping by and I’m stuck in the corporate wind tunnel,” she says. “I want to spend time exploring interests that I think would be more fulfilling.”
Maria figures she’s earned the break. She was orphaned at 12 and has been working hard since she was a teenager. She’s willing to take part-time jobs—even tending bar or bagging groceries—to finance her escape from corporate life. But she doesn’t want to kiss her big salary good-bye if it will endanger Christina’s university education or the quality of their life together. Can Maria afford to leave her current job behind? And how much does she have to earn to make it possible?
Maria’s upbringing was anything but easy. Her parents were immigrants from Italy who arrived in Toronto in the 1950s. They raised two daughters on a carpenter’s salary and thought they were done with diapers—until Maria came along as a mid-life surprise. When she was born, her mother was 44.
A year after her birth, her father died of a heart attack. Her mother, left with a baby to raise on her own and a huge mortgage, had to find a job outside the home for the first time in her life. Six days a week, she arose at 6 a.m., dropped Maria off at a neighbor’s house, and left for work at a local chocolate factory. Life was tough, but Maria credits her mother’s strong work ethic with teaching her the importance of financial independence.
Her mother died of a heart attack when Maria was 12. Parentless, Maria moved in with her older sister, who was married with two small children of her own. The living arrangement was difficult. Her sister had family and health concerns of her own and didn’t welcome the extra burden of caring for her younger sister.
So, at 16, Maria moved out on her own. She cashed in the only asset her father had left her—a life insurance policy with a $500 cash value attached to it—and paid first and last month’s rent on a cheap apartment. Since that day, Maria has always worked, taking “any job that was legal” to pay her bills. “I’ve supported myself since I was a teenager,” she says. “In high school, I cleaned toilets, distributed coupons at the supermarket, waited on tables and processed payroll—anything to earn enough to pay the rent. I bought a few pieces of furniture and life just went on.”
Once she graduated from high school, Maria started work as a clerk at a local telecommunications company—the same one that employs her to this day. There, she took every available training course she could and worked her way up the corporate ladder. She also married and gave birth to Christina. But then her husband left her for another woman. Once again, Maria found herself alone. But this time, she had a demanding two-year-old daughter and thousands of dollars of debt. “I’m from an immigrant European background,” she says, “and paying off your debts is very, very important. From that point on, I’ve worked hard to pay off my mortgage and credit card debt.”
Maria’s ex-husband has dutifully paid $9,300 a year in child support, but Maria has built most of her nest egg on her own. Today, she earns a $137,500 salary and drives a company car that costs her nothing. Her assets include a three-bedroom townhouse, valued at $230,000, as well as nearly $100,000 in RRSP and non-sheltered investment accounts. She has just two liabilities—a small mortgage and a line of credit—which total $52,050.
Maria is proud of her financial accomplishments, but she wants more out of life than material comforts. She yearns for more time to devote to her daughter and to expanding her education. Two years ago, she devised a schedule to pay off her mortgage and eliminate the balance on her line of credit by the end of 2004. She’s on track to attain both goals and is now looking forward to her next move—quitting her job and returning to school, perhaps a year from now. “I ask myself all the time, ‘Do I want to continue to work towards further monetary goals? Or is there something more?’” she says. “Because I really do think that it’s easier to move towards monetary goals than it is to work on some other facets of your life.”
Maria knows that she must maintain a fairly simple lifestyle if her return-to-school plan is to work. She already lives frugally, with total personal expenses amounting to just over $23,000 a year. Both she and Christina love to cook and Maria brown-bags her lunch most days. She figures her clothing budget will shrink when she leaves her job. So will her vacation expenses, since she will no longer have to escape from a stressful job.
Maria thinks that she’ll be able to get by if she can earn about $2,000 a month in addition to the $775 a month in child support that she receives. But she’s not sure if she’s covered all the bases. For instance, she will probably have to buy a vehicle since she will no longer have a company car. And she will have to pay for insurance and dental costs out of her own pocket rather than relying upon her employer’s benefit program. There’s also the question of what she should do with her company-sponsored pension plan. She’s been contributing to the defined-benefit plan for 16 years. Should she leave her contributions in the plan payout when she quits her job?
As important as those financial questions are, Maria doesn’t want to let money deter her from her objective. She is awaiting the day when she can spend more time studying, cooking and watching movies with her daughter. But first she wants to spend a few weeks just sitting back and enjoying her independence. “As a kid, I remember hanging around the monkey bars at school, doing some arts and crafts, and bike-riding in the driveway,” she says. “There’s freedom in all that. And I want to recapture it.” Maria Tucker can leave her job and return to school without any big hardships—but that doesn’t mean she should. Our two Toronto-based experts, Malcolm Hamilton, a consulting actuary at Mercer Human Resource Consulting Ltd., and Sandra Foster, an author and fee-for-service financial planner at Headspring Consulting, both wonder if Maria is chasing the wrong dream.
They think she may regret giving up a successful career when all she needs is a break from her job. “When you’ve worked for almost 30 years, it’s not uncommon for people to assess where they’ve been and where they want to go,” says Foster. “In a way, she’s escaping or running away from the stress. If she’s working for a good employer, they may be willing to help her.” Perhaps she can arrange to take a sabbatical, embark upon an exciting European trip with her daughter or even redefine her job so that she doesn’t have to work as many hours.
Trouble is, if she quits altogether she may find that low-paying jobs aren’t quite the low-stress, relaxing paradise that she expects. “The risk is that she gets four or five years down the road and decides that she doesn’t like the new job,” cautions Hamilton. “She’s not spending that much time with her daughter and she’s trying to remember all the reasons why she’s not earning $137,000 a year anymore. It’s not that easy to go back.”
Foster has seen people try to scale back from high-stress jobs, only to discover they still have to work long hours to make ends meet. Foster‘s calculations are eyeopening. She feels that Maria will need to earn about $30,000 a year before tax. If she ends up earning $15 an hour at her local supermarket, she’ll have to work 2,000 hours a year. As Foster points out, “That’s a full-time job.”
If Maria is still set on leaving her current job, our experts have a few tips to make the transition easier. Paying off her mortgage and line of credit is an excellent idea. Maria should also build up an emergency fund of $8,000 to $15,000 to handle six months of unforeseen day-to-day expenses, especially if she has any worries that her child-support payments could dry up. She will need to set aside about $40,000 for her daughter’s university education—more if her daughter moves away to attend school. She should put this money into a Registered Education Savings Plan (RESP) to take advantage of the up-to-$400 annual grant provided by the government. Add on the expense of a car and Maria might be better off working for a second year before packing in her career.
Our experts agree that Maria is probably best to leave her pension with her company rather than transfer it to her RRSP, but they caution that pension plans vary from company to company. Hamilton says Maria should find out if her company plan includes cost-of-living adjustments to offset inflation. If so, that’s a strong reason to leave money in the company plan rather than transfer it to her RRSP. She should also ask her company’s human resources department to explain how pension benefits are calculated. Many plans base their payoff on the average amount you made in the last five years of your employment. If Maria has seen her income rise sharply in recent years, she may want to work an additional year or two so that her five-year average is as high as possible. On the other hand, she might be able to enjoy a one-time tax advantage if she transfers her money out of the pension plan and into her RRSP. Since the calculations are complex, Maria should consult an actuary before making a decision.