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By Gigi Suhanic
National Post
FP Money
Saturday, July 5, 2003
57-year-old Dawn earns a minimal income and
lives frugally. To meet her retirement needs,
she needs to make more money, financial planners
say
Dawn's 28-year marriage was modelled on tradition:
she was a housewife and her husband was in
charge of the couple's finances. Following
her divorce in 2000, she has been trying to
make a living as a language instructor at different
schools in Vancouver.
Adrian
Mastracci, investment counsel and
financial
advisor at ‘fee-only’ KCM Wealth
Management, says, “What would be important
to me would be to elevate skills to get a
bigger income. That's number one. If I can
do that,
a lot of other things fall in to place.”
"I've been thrown into the world," says
Dawn (not her real name).
Knowing she needs to "learn the ropes," she
asked FP Money for advice.
For 2002, she made $22,000 but she says a
safer estimate of her annual income is closer
to $15,000 to $17,000.
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| With the end of her
28-year marriage, Dawn was "thrown
into the world" and says she needs
to "learn the ropes" financially. |
"This year my employment income from
January to April is only about $3,000 so I
expect that my projected 2003 income will not
be the same as 2001 and 2002," she says.
She needs about $18,000 a year or $1,500 a
month to cover expenses, despite what she calls
a bare-bones existence.
She lives rent-free with an elderly relative
and drives a 10-year-old car. Still, she finds
she is regularly making withdrawals from a
dividend account.
"I'm not a spendthrift type," she
says.
But that decade-old car of hers cost $3,600
last year for gas, insurance and repairs. And
she expects it's going to need more fixing
up this year.
A more serious expense is the $10,000 in dental
work she had done over a period of 18 months.
And she's bracing herself for $16,000 worth
of gum surgery and dental implants scheduled
to start this month. She'd also like to help
her 20-year-old son with his tuition expenses.
And she's wondering if she should look at
buying an apartment given that her current
tenuous living arrangements. She would be willing
to rent out her unit until she needed it.
While there are lots of competing needs in
Dawn's life, she isn't completely without resources.
She received a divorce settlement of $100,000
which is invested in a term deposit.
She has another $59,000; $38,000 of which
is invested in preferred Canadian equities
that produce a dividend. The other $21,000
is in income trust units.
At age 57, she has no pension plan and no
RRSPs.
"What I would like is a scenario aimed
at retirement security and tax effectiveness," she
says.
"If [Dawn] does nothing with the money
she has right now which is about $160,000,
if she let it sit and it was able to return
5% annually, she'd have about $248,000 by the
time she was ready to retire [in 2011 when
she is 65]," says Carole Aronovitch, one
of three financial planners consulted by FP
Money. "I suspect based on what little
I know that the amount of money she has won't
last. I suspect she may have to draw down on
it further because her income seems to be declining," says
Ms. Aronovitch, who also suggested Dawn may
have to work past age 65.
"If that continues, she's robbing Peter
to pay Paul." All the planners agreed
that the most critical step Dawn must take
is to
make more money. Continued
on page 2...
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