|
By Susan Heinrich
National Post
Money Makeover, FP Money
Saturday, October 20, 2001
 |
| Anneke and Peter Schroder hope to retire
at age 55, with the help of investments and their business. |
With four children between the ages of 11 and 18 and the stress
of running their own greenhouse business in Woodstock, Ontario,
Peter and Anneke Schroder look forward to the day when they can
slow things down a bit.
The couple, aged 46 and 47, came to FP Money wondering if their
dream of retiring at 55 is within their
reach.
"At this stage of our lives, I feel time is running out to
provide for an adequate income for our twilight years," says
Mrs. Schroder.
Although they have put money away in RRSPs and RESPs and trust
accounts for their children, the couple is carrying considerable
debt on their business as well as mortgages on both their home,
located on the farm property, and on a family cottage. And they
are expecting large expenses in the next few years as they put four
children through university.
Their business, which employs 13 people, pays the Schroders a combined
annual after-tax salary of just over $52,000. And even though the
business pays the mortgage on their cottage and some of their vehicle
expenses, Mrs. Schroder is concerned about the family's current
debt level.
"Especially in the winter when the bills are higher,"
she says. "I feel we are carrying too much debt and taking
too many uncalculated risks."
The couple have loans for the cottage and car of about $198,000,
as well as a variety of business loans totalling about $465,000
and shareholder loans of $163,000 payable to their company.
FP Money asked two financial planners to review the Schroders'
finances and come up with recommendations to help them achieve a
comfortable retirement and limit the financial stress along the
way.
Adrian Mastracci, a financial planner and president of KCM
Wealth Management Inc. in Vancouver, says the Schroder's have
done many things right, "especially paying themselves first."
They have saved around $50,000 in their RRSPs, $17,000 in RESPs,
$40,000 in trust accounts for the children and have an additional
$20,000 in savings. By far the most significant asset is their business,
which if they were to sell would be worth about $730,000 after all
debts were paid.
That interest in the business is very important to their retirement
plans, said Warren Baldwin, a registered financial planner.
"They will need 100% of the value of the business for their
retirement capital," he said.
As far as retiring at 55, both planners see that as impossible
unless the Schroders sell all or part of their business.
If they want to retire at age 55 with an annual combined gross
income of $75,000, they will need about $1.95-million of investment
assets, excluding their homes, according to Mr. Mastracci. "A
more realistic goal would be to move the retirement age to 60,"
he said.
Mr. Baldwin calculated their retirement needs based on a more modest
income.
"Assuming a $40,000 lifestyle in retirement at age 55, the
Schroders can afford to stop work if, and only if, they are able
to realize on the $730,000 they have accumulated as value in their
business," he said.
 |
|
Mastracci says,
“A more realistic goal would be to
move the retirement age to 60.”
|
|
In order for them to determine when they can afford
to retire, they must analyze all of their current spending and then
come up with a budget for their retirement years. Once they know
what annual income they will need in retirement, they can calculate
the capital required to finance that.
Both planners advise that growing the RRSP is crucial
to their retirement plans and Mr. Baldwin recommends they continue
to max out annual RRSP contributions of at least $6,200 each. And
they should attempt to achieve equal incomes in retirement from
RRSPs, other investments and any CPP payments they get.
"This sort of income splitting may require some
adjustment to their RRSP contributions, as Mr. Schroder has less
than his wife in the RRSP right now." To rectify this, Mrs.
Schroder could contribute to a spousal RRSP until his assets catch
up to hers.
Both Mr. Baldwin and Mr. Mastracci suggest the Schroders
change the investment mix in their RRSP from the current 100% weighting
in equities.
"All of their RRSP assets are currently invested
in equity funds and from this I can easily understand the pain they
must have felt from the recent market volatility," Mr. Mastracci
said. He recommends equity funds make up no more than 60% of their
portfolio.
"They should also pay closer attention to the
way they are paying for advice in their mutual funds through the
deferred sales charges commission structure, which may not be the
best option," he said.
As for the children, Mr. Baldwin suggests that they
work in the family business for several reasons. "This will
help them save on income tax and help them understand which children,
if any, may be candidates for carrying on the business."
Both planners also suggest the Schroders take several
steps to protect their livelihood. With either existing or new savings,
they should create an emergency fund that would cover three to six
months of the family's expenses.
"This may be a simple savings account, which
can be accessed quickly," Mr. Mastracci said, adding they should
hold that account at an institution where they have no debt.
Also, they should have disability insurance to protect
them against an injury that kept them from working, as well as life
insurance. And an estate plan backed up by properly executed wills
and powers of attorney are crucial. As part of that they should
consider who could operate the business if they were unable to do
so.
YOUR MONEY
Do you have an interesting experience or challenge that deals with
money? Whether it's spending or saving, taxes or retirement, FP
Money wants to know. Your story may become a Money profile, complete
with financial experts' advice. E-mail FP Money at investing@nationalpost.com
or write Money Profiles, FP Money, 300-1450 Don Mills Rd., Toronto,
Ont. M3B 3R5
|
