At 61, Bill is looking to retire after a factory closure recently cost him his job. Darlene, 56, is employed as a controller for a produce sales company, but would like to stop working in four years. Despite Bill’s setback, the couple is doing quite well overall: their home is paid off, their kids have left the nest and they have $485,000 of mutual funds in RRSPs. Problematically, though, these funds are spread across several different accounts with no consolidated approach to asset mix or management of the funds. They plan to spend about $42,000 per year in retirement, but are unsure whether their portfolio will sustain them.
Warren Baldwin of Toronto-based T.E. Wealth took a closer look at Bill and Darlene’s accounts. Right now, the couple is overweighted in fixed income (60% of their entire portfolio). That won’t provide enough growth to support them over the next 30 years. Equally concerning is their high management expense ratios (MERs) of 2.2%, which means they’re paying about $10,000 in fees every year. “Quite likely this portfolio has struggled for the last couple of years,” Baldwin says.
He suggests the couple should switch to a lower-cost portfolio that is largely based on ETFs with an asset mix of 40% bonds, 20% Canadian equities, 20% U.S. equities and 20% international equities. “This not only gives them a more effective management structure for their portfolio but also saves them over $9,000 a year in management fees,” says Baldwin. Provided that Darlene saves $23,000 annually in her RRSP over the next four years, the couple should be able to comfortably meet their retirement goal.