Situation: Woman, 59, wants to accelerate retirement to age 60, but worries she can’t afford it
Solution: Work to 65 for financial security, raise income and lower taxes on retirement portfolio
Cindy, as we’ll call her, is 59. She makes her home in British Columbia. Divorced, her two children are in their thirties and are financially independent. She brings home an average $7,222 per month, but has grown tired of her very competitive business as an independent financial services consultant and of trying to live on fluctuating income.
“I’ve been through a health crisis when, for five years, I couldn’t work. It was hard to make ends meet then. I feel burned out. I want to retire.”
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Family Finance asked Derek Moran, head of Smarter Financial Planning Ltd. in Kelowna, B.C., to work with Cindy. The challenges are to pay down a $272,000 mortgage with a 30-year amortization which costs her $1,091 per month, to get more income from her $580,609 of financial assets, and to make the most of Canada Pension Plan benefits which could start to flow as early as her age 60 next year.
“The irony of this case is that Cindy has enough assets to make her a millionaire yet she feels broke,” Moran explains. “There are issues, of course. Her income has been sporadic. She has no job pension or medical benefits from her work and her financial assets are not efficiently organized from a tax point of view.”
Cindy has a two-bedroom condo and a lot of debt for her age and situation, Moran notes. The condo could sell for $680,000. She might move to a one-bedroom condo in her building with a $500,000 price tag and liberate $180,000. If she used those funds to pay down her mortgage to $92,000, she could then use her $72,000 of cash less $30,000 for a reserve for emergencies, net $42,000 to pay down the mortgage to $50,000. If she were to maintain her present mortgage payments of $1,091 per month, it would be paid off in full in just four years. Of course, transaction costs and fees for early mortgage payment, usually three months of payments, would raise her costs slightly, and condo sales fees might reduce proceeds, but the principle and process is clear. She would be rid of the mortgage before age 65.