Sheila is almost 56 and earns about $187,000 a year in salary, bonus and incentives
Sheila is single, almost 56 years old and a recent empty nester, with four kids in postsecondary school or living on their own, she writes in an e-mail. “I’m thinking about retirement and wondering what my financial future looks like.”
Her retirement spending target after the mortgage on her home is paid off is $80,000 a year after tax. The analysis assumes the inflation rate will be 6.8 per cent for two more years. “After two years, the assumption is that we shift back to the longer-term Bank of CanadaIt is also assumed that Sheila saves and invests her surplus cash flow and that her investments earn a return of 5 per cent a year after fees and before taxes, which is in line with the long-term balanced portfolio rate of return.
“Maintaining this level of contributions throughout her employment is crucial in ensuring that she can meet her retirement goals,” the planner said. Because Sheila’s marginal tax bracket is about 48 per cent, each dollar of contribution will provide as much as a 48-cent reduction of her tax bill. For Sheila, the tax savings can be as much as $15,600 each year.
“Given the anticipated increase in interest costs , we recommend increasing the payment by $692 biweekly upon renewal,” Mr. Malcolm said. This would increase the mortgage payment from $23,400 a year to $41,400, resulting in a full repayment by 2031, when Sheila will be 65. “Sheila can use her lower-income retirement years to deregister her RRSP, locked-in retirement account and defined contribution pension at lower tax rates,” the planner said.
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