Q: I need some advice. I have a LIRA worth $21,000, an RRSP worth $92,000 and a TFSA worth $38,000. I’ve also been divorced for three years now and I live alone most of the time.
I have two daughters, ages 28 and 29, attending university. One has three months of study left and the other 15 months, and both come and live with me most weekends. I own my own home and have an outstanding mortgage of $57,000.I still have 10+ years on my mortgage which has to be renewed in July 2019 and I’m presently on my final five-year term at 2.9%. I also have a home equity line of credit of $7,000 for a total of $64,000. I have no other debt.
I also went all in as DIY a year ago and my returns have been doing okay. But I’m concerned about how the economy and markets will behave in 2019. I say this because I’m going to be 59 years old next month and am still working although I recently had health issues. I still help my daughters with university costs (hence, the $7,000 on the home equity line of credit.) They have student loans so I try to help them out as much as I can. But I must say I did not expect to be in this situation in my late 50s.
My main question is in regards to how I should position my portfolios. I would like to work till age 62 or 63 although the doctor recommended that I retire soon. Unfortunately, I feel my finances are not there yet to do this.
My main concern is minimizing risk as much as possible since my retirement may be coming sooner than expected. Ideally, age 65 would be the best time to retire for me, but I am not sure I will make it to that point fully employed. I have also thought about downsizing my home to reduce the mortgage or even eliminate it, and sometimes think renting would be a better option for me going forward. I could likely sell for between $190,000 and $200,000. What would you advise? Thank you very much for any input.
A: Danny, I know that you’re asking for portfolio advice but it’s not going to give you what I think you want. You need solutions that will move the needle a lot, not a little. Most financial planning and investment solutions only move the needle a little and rarely do you have any control over the outcome.
Your lifestyle choices, on the other hand, can move the needle a lot! Plus, you’re in control of your choices, so you can pick solutions that suit you best.
My advice to you is to take a look at the things you’re doing now, and want to do, and then apply the Three Cs of financial planning: Convert, Create and Conserve.
Convert: What are some things you own that could be converted to a retirement income? You mentioned downsizing your home. What else do you own that you could convert?
Create: I know your health is a concern but is there a different way you could earn money? Could you rent out a room in your home? What about part-time work after you retire?
You’re creating money through tax savings by contributing to your group RRSP, and your employer is adding to your RRSP.
You’re also creating money through your investment returns.
Conserve: Is there a way for you to save money but still do all of the things you enjoy? Are you spending money on some things that don’t bring you much pleasure?
Vehicles are often a big expense for people. Could you drive a less expensive vehicle and/or purchase new vehicles less frequently? Ideally, you won’t have to cut any of the things you enjoy doing, which is the last resort. Always try to continue doing the things most important to you.
I bet if you really spend some time thinking about the Three Cs of financial planning you’ll find some good solutions that will really move the needle.
Now that you’ve considered the Three Cs, here’s a planning comment:
Paying down your mortgage and making a TFSA contribution are financially the same thing. If you really want a conservative investment, close your TFSA and pay down your mortgage.
If on the other hand, you believe your TFSA investment will return more than your mortgage interest rate, then invest in the TFSA, but remember, you’re taking more risk and you don’t want to make another “unfortunate mistake”—not this close to retirement.
With your mortgage gone by retirement you won’t have to draw from your RRSP/RRIF to make mortgage payments, which means paying less tax.
Does that sound like good advice? You know it doesn’t really matter which way you go, mortgage or TFSA, even if you have to pay a bit more tax in retirement. That advice won’t move the needle much.
What’s really going to move the needle is looking at your current and future lifestyle and then applying the Three Cs of financial planning. Danny, how can you make the Three Cs work for you? You still have lots of time to figure this out.
Allan Norman is a Certified Financial Planner and Chartered Investment Manager for Atlantis Financial Inc. in Barrie, Ont. This commentary is provided as a general source of information and is intended for Canadian residents only. Allan offers financial planning services through Atlantis Financial Inc. and can be reached at [email protected]
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