Do Einar and Jamila save enough to retire and provide financial security for their disabled child?

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Einar and Jamila, 48, have a double burden when it comes to planning their future. First, they must save enough for retirement. Second, I must prepare for the lifelong care of my 9-year-old son, who has a disability.

Einar earns $170,000 a year in the technology field, and Jamila earns $52,000 a year in the medical field. Jamila has a defined benefit pension that pays her about $28,000 a year, indexed to inflation, at age 65. Mr. Einar has a $360,000 defined contribution pension plan at work, some of which is in a group RRSP and some of which is in a traditional defined contribution plan.

They own a $400,000 home in Alberta with an $80,000 mortgage. Short-term goals are to pay off the mortgage and make improvements to the home. In the long term, they want to make sure that their children “will be well taken care of when we die or when we are unable to properly care for them,” Jamila wrote in an email.

Einar plans to retire from work at age 60 and Jamila at age 65. Their retirement spending goal is $80,000 per year after taxes, adjusted for inflation.

We spoke to Matthew Eardley, portfolio manager and senior financial planner at TriDelta Private Wealth in Toronto, about Einar and Jamila’s situation.

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What the experts say

Einar and Jamila have built up significant assets for their future, Eardley said. In addition to savings for their children, they have assets of approximately $1.75 million. They continue to make significant contributions.

In addition to his personal RRSP, Mr. Einar participates in a defined contribution pension plan and participates in the plan with his employer. He also puts his savings into a non-registered plan with a 25% employer match to maximize his annual TFSA savings. In addition to her $28,000 annual defined benefit pension plan, Jamila saves about $3,100 annually in a group RRSP. percentage of One third is paid by her employer.

Einar and Jamila regularly save in their son’s Registered Education Savings Plan (RESP) and Registered Disability Savings Plan (RDSP).

Jamila and Einar plan to defer their Canada Pension Plan and Old Age Security benefits until age 70.

In developing his projections, Mr. Ardley assumes a 6% rate of return before retirement, dropping to 5% after retirement. “This represents a growth asset mix before retirement and a balanced asset mix after retirement,” says the planner.

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Inflation is assumed to average 3%. Both Jamila and Einar are expected to live to be 95 years old, he added.

Their retirement spending goal is $80,000 a year, which will increase with inflation, which is about 90% of their current spending, not including savings or debt repayments.

“Based on these assumptions, Einar and Jamila will easily achieve their goals,” Eardley says.

“To truly understand the risks of this plan, you need to go beyond linear forecasting, because investments rarely move in a straight line,” says the planner. To confirm the feasibility of this plan, he stress-tested it using Monte Carlo simulations. This simulation introduces randomness into many factors, including returns, to evaluate the success of a retirement plan.

“For this plan, we ran the financial planning software 1,000 times to get the results,” Ardrey says. “We look at the 75 percent and 50 percent levels to determine how the risk of rate of return differentials affects the success of the plan,” he says. “Volatility stress tests yielded positive results with a 100% success rate.”

When it came to their children, they wanted to make sure they were taken care of even after they died. They asked Mr. Ardley to be conservative, estimating the life expectancy to be 70 to 80 years and the cost of care to be between $6,000 and $10,000 per month.

The planner assumed an age of 80 and assumed expenses of $10,000 per month, or $120,000 per year, which would need to be covered for 30 years starting from the son’s age of 50. The couple will be 89 years old at that point.

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The plan would account for $120,000 of annual spending in today’s dollars, which would be worth about $291,300 in 2067, Ardley said. “To cover these costs with an asset portfolio that returns 5% per year, you would need about $7 million,” he estimates. Jamila and Einar are expected to have a net worth of $14.8 million at the age of 89, meaning they will have enough assets to cover their children’s future needs.

Einar and Jamila also asked about RESP. If your children are 21 or older, the account has been open for at least 10 years, and their condition makes it unlikely that they will attend school, you can transfer them to an RDSP. “Only investment income can be transferred,” he points out. Contributions can be withdrawn tax-free and count toward the RDSP’s $200,000 lifetime contribution limit, but they are not eligible for government subsidies.

As a final note from an investment tax efficiency standpoint, Jamila should maximize her TFSA contributions and use up any unused TFSA room, Ardley says. Additionally, all unregistered investments are in Einar’s name. Because he is a high earner, the taxes on investment income will be higher in his name than in Jamila’s case.

“Equalizing unregistered assets between spouses can be beneficial for tax savings in retirement,” planners say. “Einar and Jamila are well prepared for both their retirement and estate planning goals,” he says. “Now they need to stay on track to move toward the future they have planned for.”

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Client situation

(Income, expenses, assets, and debts are provided by the applicant.)

people: Einar and Jamila are both 48 years old, and their son is 9 years old.

problem: Do they have enough saved for retirement or to support a disabled child?

plan: While the goal is achievable, a few adjustments can make your plan even more tax-efficient.

In return: rest assured.

Monthly income after tax: $10,945.

assets: His unregistered stock portfolio is $600,000. Registered Disability Savings Plan $40,000. His locked-in retirement account is $200,000. His TFSA is $170,000. Her TFSA is $20,400. His RRSP is $300,000. Her RRSP is $76,000. His defined contribution pension plan is $360,000. Her group plan at work is $28,000. $50,000 in registered education savings plans. Housing costs $400,000. Total: $2.2 million.

Estimated present value of her DB annuity using a 5% discount rate: $452,000. This is the amount someone without a pension would have to save to get the same retirement income.

Monthly expenses: Mortgage $1,705. Condo fee $350. Property tax $265. Water, sewer and trash $50; home insurance $40. Electricity is $200. Heating is $50. Maintenance is $50. Vehicle insurance $275. Fuel $200. Other transportation $220. Groceries cost $1,200. Childcare $350. Clothes cost $50. Charity $500. Vacation, Travel $585; Club Membership $60. Food, drinks and entertainment $820. Subscription fee is $35. $500 for other individuals. Health, dental $350; life insurance $400. Disability insurance $525. Correspondence $290. RRSP is $755. Desired $210; TFSA $585. Pension plan contributions are $320. Total: $10,940.

liabilities: mortgage.

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