Q.

I’m a 58-year-old woman living in Hamilton, Ont., and I would like to retire at age 65. I have a small mortgage on my bungalow of about $140,000. As for savings, I have $50,000 invested outside registered accounts, all in Canadian blue-chip dividend paying stocks. I also have $60,000 in a balanced

exchange-traded fund

(ETF) in a

registered retirement savings plan

(RRSP) and $70,000 in a balanced ETF in a

tax-free savings account

(TFSA). I save about $2,000 per month from my pay. I have a defined benefit pension plan with my employer that will pay me $1,600 a month before tax if I contribute to age 65. My

Canada Pension Plan

(CPP) at age 65 is estimated to be $1,100 a month before tax, according to the

Canada Revenue Agency

(CRA). I will also receive

Old Age Security

(OAS). Am I on the right path to a comfortable

retirement

? Any thoughts, ideas or suggestions to increase my wealth would be most welcome.

—Thank you, Jennifer B.

FP Answers:

Jennifer, I don’t know if you are on the right path to a comfortable retirement, but you are certainly on a good path. Look, lifestyle drives everything. It is the reason you get up and go to work and the reason you make smart money choices so you can maintain your lifestyle. Your first step to getting on the right path is to start by identifying your current lifestyle and visualize how it may change in the future. Do this by writing down how much you spend and on what. It’s simple but most people don’t do it.

Now you want to make sure you can maintain and maybe enhance your lifestyle without the fear of ever running out of money, no matter what. To confirm this, list out your current and future assets and income and project them into the future. Will you have sufficient income to maintain your lifestyle? If you become disabled or suffer a critical illness, will you continue to live with dignity? If there are any gaps, what do you need to do to close them?

I am sensing you have doubts, which is why you are looking for suggestions on how to increase your wealth. Work through the steps above, either on your own or with a planner, to see if you even have a gap. You may find you have no reason for doubts to enter the picture.

From what I can see you will have a retirement income of about $42,000 annually based on your pension, CPP, and OAS, which I am sure is not enough. You have your liquid assets, RRSP, TFSA and non-registered money, which you can draw on at any time to bring your income up. Plus, you are saving $24,000 annually, which has me thinking you have a high income. If this is the case, likely your best option is to contribute to an RRSP first, which allows you to use up your past contribution room over time. This is followed by the TFSA and finally, the non-registered investment account.

Have you given some thought to your savings and mortgage strategy? What is the after-tax return on your dividend paying Canadian blue-chip stock portfolio? That is the return that counts, not the return you see on your investment statements. I bet most people don’t even think about after-tax returns because it is difficult to calculate and the tax is paid out of a different pocket.

Guestimate your after-tax return and compare it to the interest rate on your mortgage. It may make sense to use your non-registered investments, depending on the size of the potential capital gain, to pay down your mortgage. The odd person will take this one step further and re-borrow the money to invest. They will have their non-registered investments and mortgage back but the mortgage interest is tax deductible and they can use the dividends to pay down the mortgage.

You might even want to collapse your TFSA and pay off your mortgage within a year. Financially, there is no difference between paying down a mortgage and making TFSA contributions if the interest rate is the same for both. If there is an inheritance in your future, you can reload your TFSA.

Jennifer, if you have doubts about your retirement readiness find a planner who will do a projection for you. I find it surprising the number of people that come to me with enough or more than enough but just don’t know it.

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Allan Norman, M.Sc., CFP, CIM, provides fee-only certified financial planning services and insurance products through Atlantis Financial Inc. and provides investment advisory services through Aligned Capital Partners Inc., which is regulated by the Canadian Investment Regulatory Organization. He can be reached at alnorman@atlantisfinancial.ca.