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Adjusting your RRSPs to suit an RV lifestyle; putting your financial picture on target

Empty nesters Joe and Susan, 68 and 51, would like a second opinion on their finances. They want to determine if their retirement plan is realistic or in need of adjustments. Joe is retired, but working part-time. Susan wants to switch to half-time or casual employment within four years.

Empty nesters Joe and Susan, 68 and 51, would like a second opinion on their finances. They want to determine if their retirement plan is realistic or in need of adjustments. Joe is retired, but working part-time. Susan wants to switch to half-time or casual employment within four years.

"I took over management of my own portfolio in 2002, and have been fortunate in making good selections in recent years. My investment criteria (have) served us well so far, but I may be getting over my head," Joe told me. He has a good grasp of basic investing strategies.

The Vancouver Island couple lives below their means, and enjoys a modest lifestyle. They would like some extended RV travel in the colder months, and want to tend their gardens at warmer times of the year. Both enjoy good health, the outdoors, and are preparing for a carefree lifestyle.

Family priorities include achieving a balance between protecting and growing their RRSPs, making some upgrades to their home and vehicles, and adding savings to the portfolio.

The home mortgage was recently paid off. This allows savings to be redirected to home repairs and vehicle upgrades. And perhaps an extended RV trip when Susan goes to a half-time work schedule.

Joe and Susan have combined incomes near $80,000. Joe receives CPP, OAS, and a small employer pension. They now save about $300 per month toward Susan's RRSP; another $200 per month to a savings account; and about $700 per month for the home, vehicles and travel.

The unused RRSP room is $12,000 for Susan and $500 for Joe. About $3,000 of Susan's 2007 RRSP deposit has been made. She is enrolled in the employer pension plan, which will pay her $8,000 per year at age 55.

This family has accomplished a number of financial things well: Regular RRSP contributions; equally split RRSP accounts; the home mortgage is gone; they carry no credit card balances, and have no other debts. Moreover, they have a healthy saving capacity.

Joe has taken a keen interest in the family portfolio and managed it well. Mostly a do-it-yourself investor who seeks some counsel from his adviser, he is an avid reader of investing materials. "Asset allocation is a key question that needs addressing now," Joe says.

Joe and Susan want to know if a retirement goal of $70,000 before-tax annual income, in today's dollars, is realistic starting in four years. Their planning horizon is estimated at 20 years for Joe, and 37 years for Susan.

I've assumed a 2.5-per-cent inflation rate, and return on investment of six per cent per year. CPP entitlements are 80 per cent for Susan and 100 per cent for Joe. Susan is expecting to start CPP early at age 60. Both are entitled to full OAS.

My estimate is that in four years Joe and Susan will require $770,000 of investment assets to fund their desired retirement goal. That sum is over and above their residence, CPP, OAS and the two employer pensions.

This is tall order. The good news is that a retirement income closer to $50,000 should suffice. Hence, the capital sum reduces to $350,000. The continued casual work will help.

Organizations: OAS

Geographic location: Vancouver Island

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