Margaret & Ben Francis, Montreal
Now: June 2014
Margaret and Ben Francis used to love thinking about the future. Margaret, 45, earned a whopping $180,000 a year as a vicepresident of sales with a pharmaceutical company. Ben, 56, earned $60,000 a year as a self-employed translator and technical writer. They had no children, lived in a three-story townhouse in an upscale suburb of Montreal and enjoyed carefree vacations in Europe and Hawaii. They planned to leave work behind in five years, when Margaret turns 50, and enjoy an early retirement of reading, painting and traveling. Those plans are now on hold—indefinitely. Margaret was laid off in August. (We’ve changed the Francises’ names and some details to protect their privacy.) Given her age and the grim employment outlook in her field, she has all but given up on finding another job that will match her previous salary. She thinks the most she can hope to earn is about half her previous income and she’s not confident that she will find a job anytime soon. For now, she’s working on three freelance projects from home. “This is my first experience with unemployment,” says Margaret. “It crushes the soul. I’m 45 and this business likes to run on youth. Youth equals cheap.”
If her employment outlook is cloudy, at least it’s brighter than the Francises’ investment picture. Over the past three years, their RRSPs have shriveled to $380,000, down a stomach-churning $70,000. “Ben relies on me to steer the ship,” says Margaret. “It’s time to get humble. I was good at my job but maybe not good at managing RRSP money.” Margaret and Ben realize they’re still well-to-do by most standards, but they’re feeling a newfound sense of vulnerability. Since neither of them has a company pension to fall back on, the losses in their RRSPs threaten to capsize their retirement plans. They wonder if the answer is living a much more frugal existence, but they don’t know if that will solve their problems. Can they get their financial goals back on track?
Margaret grew up in Hamilton, Ont., the daughter of a stonemason and a housewife who came to Canada from Poland in the 1950s. Though her parents had little money, they were determined to give their daughter the best education possible. They managed to scrape together enough to send Margaret to a private school, but her tuition came at the expense of just about everything else. Margaret remembers the wallpaper peeling off the walls at home. “My dad was poor,” she says. “We always bought second-hand clothes and secondhand furniture. And he didn’t start an RRSP until he was 50 because there just wasn’t any money for it.”
Margaret graduated from McMaster University with a degree in English, then moved to Toronto and worked in the sales and marketing departments of several large companies. In 1985, she decided she needed a change and shuffled off to Montreal. Two years later, she met Ben, a soft-spoken, introspective man. They wed in 1989.
In many ways, it’s a marriage of opposites. Margaret is a fullfledged shopaholic despite her working-class upbringing; Ben is a careful budgeter despite an affluent background. He’s made Montreal his home since he was a teenager, when his father retired from his job as a chemistry professor. Before then, Ben traveled wherever his father’s research took him—including France, Italy and Japan, often for months at a stretch. Money was never a problem. He remembers his parents spending whatever income they had. “My parents didn’t have good money habits until they were in their 40s,” says Ben. “I’m frugal myself, mainly because I’ve always been self-employed and had to watch my spending closely. I don’t buy many clothes and I’m very careful where I buy gasoline. We don’t eat a lot of meat and that keeps our food bill fairly reasonable.”
Recognizing their diverse money habits, the couple has always maintained separate accounts and they divide their bills according to means. “I’m working from a much smaller salary of $60,000,” says Ben. “So Margaret pays the mortgage, cable, insurance and newspaper and magazine bills. I take care of automobile bills, gas, food, the phones and electricity.”
This practical approach to finances, combined with an annual income of $240,000, has helped the couple build an impressive list of assets. They figure that their home in Montreal, which they bought two years ago for $330,000, is worth $475,000 today. They also own a rental property in Calgary, worth $375,000, which costs them about $4,000 a year to carry after rental income is factored in. On top of that, they have a timeshare in Hawaii and a still-respectable RRSP balance.
But the recent setbacks have them worried. Margaret and Ben have responded by firing their stock broker. They felt he wasn’t properly communicating with them. “Either we didn’t understand what a stock broker was supposed to do, or he didn’t,” says Ben. “When the Nortel thing was happening and Bombardier was tanking, we got no counsel. There were no phone calls to say, ‘This would be a good time to sell.’ Because of that, we’ve lost quite a bit of money.”
They’ve transferred their combined RRSP portfolio to a privateclient banker, who promises them more personal attention and regular updates about the status of their accounts. He has assured them that he will get them the long-term returns they need. In return, Margaret and Ben will pay a flat annual fee of $7,500 for his services, the equivalent of 2% of the current asset value of their portfolio. Plus, the banker will charge them an additional performance fee if certain benchmarks are exceeded. “We want to try private banking,” says Ben. “When you make money, they make money, is the way they’ve explained it to us. As our returns grow, so will their fees, which seems fair to us.”
Their new adviser has already made his mark. On his advice, Margaret and Ben sold all of their stocks, bonds and mutual funds so that they now hold only cash in a money market fund in their RRSPs. “The private banker didn’t want to be encumbered by the other broker’s decisions,” says Ben. “So we sold everything. He seems very nice and we’re trusting him.” The private-client banker is in the process of purchasing what he considers to be a better selection of stocks, bonds, income trusts and mutual funds for their portfolio.
Besides overhauling their RRSPs, Margaret and Ben plan to sell their duplex in Calgary. They bought the property four years ago for $330,000 when Margaret was transferred out west for a year. It still has a $220,000 mortgage on it. With Margaret’s job loss, the couple feels they can use the money from the sale to help pay down the mortgage on their Montreal townhouse. This would leave them with a very manageable $40,000 mortgage, which they feel they could easily pay off over the next five years.
However, their new adviser is suggesting a different plan. “He recommends that we pay off the mortgage on our townhouse as much as possible with the proceeds from the duplex sale, but then borrow against the townhouse and buy solid investment vehicles,” says Margaret. “To me, the house is gold and I don’t ever want to lose the place I live in. So I don’t know. We’re just not in a position to lose what we have.”
They also wonder if they are adequately protected for an emergency. With no company benefits, they know they must make plans to protect themselves. Each of them has $100,000 of life insurance— a combination of whole life and term life—that costs them about $2,200 in annual premiums. They have no disability insurance. In fact, Ben has never had any disability insurance because he is considered a high risk after suffering a minor heart attack 10 years ago.
If they succeed in giving up their fulltime jobs in five years, Margaret and Ben would consider working part-time if necessary, but only if it would allow them to travel. Fifteen years ago they bought a two-week time-share in Hawaii and since have swapped it for time-shares in other locations. Last year, for example, they spent four days in a resort in Vermont. The year before that, they spent two weeks in New York City. “When we first bought it, we thought we had made a terrible mistake,” says Margaret. “But over the years we’ve made it work for us.” Unless economic necessity demands it, neither one of them wants to leave Montreal. They like to spend evenings in the old part of the city, walking along its cobblestone streets, eating in fine restaurants and participating in the city’s many festivals. As well, they have many nearby friends and they love the range of activities around them, from cross-country skiing to weekend trips to nearby Vermont, Ottawa, Quebec City and the Laurentians.
If things work out, they see themselves enjoying a prosperous and busy retirement in the not-too-distant future. Margaret loves to paint landscapes and floral arrangements. Ben enjoys reading and he would like to try a learning vacation, such as learning a language in a foreign destination. “We’re not going to retire to do nothing,” says Ben. “Our idea isn’t to stagnate and rot. Believe me, we’ll have no problem keeping busy.”