Retirement saving: Middle years case study

Squeezed

They have a high income, but the Cookes worry they’re not saving enough to retire on

Sarak Barmak 0

Photo by Jason Franson

THE DILEMMA: The financial worries that keep Chris and Sue-Ann Cooke up at night are the same ones discussed in the bedrooms of middle-class families across the country. Is it best to pay down debt or save for retirement? Should we buy the kids piano lessons, or forgo that so one parent can stay at home?

The Cookes are, in many ways, lucky. With Chris’s $104,000 salary as a manager at a utilities company, Sue-Ann was recently able to leave her part-time job as a dental assistant to look after their two daughters, aged 8 and 9, full time.

Considering they’re only 35 and 39, the pair has built healthy savings. Chris has a $65,000 RRSP, a $20,000 spousal RRSP for Sue-Ann, and they have a $10,000 RESP for each of their daughters. Chris has a defined contribution pension plan at work, but it’s worth only $5,500 now since he only recently started the job. With a $320,000 mortgage on their $450,000 house in St. Albert, Alta., and $4,000 on a line of credit, their debt is reasonable.

Yet the Cookes still feel squeezed. “It seems like every month we barely have enough to cover our living expenses,” says Chris. “Our kids are typical, involved in activities and other events that seem to be getting more expensive each year.”

The couple hopes to have the mortgage paid off by the time they retire between 60 and 65. They expect to live on 60% of their current budget of $4,000 a month, after tax and mortgage payments. “The biggest question I have is, are we saving enough?” says Cooke.

THE SOLUTION: “They feel torn between contributing to their RRSP or paying down debt,” says Jason Heath, managing director of Toronto-based firm Objective Financial Partners. “If debt is what keeps them up at night, focus on debt repayment.” His tips:

¦ “Right now is a great opportunity to take advantage of low rates” and pay down mortgage principal, Heath says, “since less of your payment is going to interest.”

¦ “I’d definitely max out the defined contribution pension plan contributions, since the employer match is $3 for every $2 he contributes,” says Heath. “That’s free money and really makes this appealing.”

¦ Although variable rates usually beat fixed rates, Heath points to 2013, the Cookes’ mortgage renewal date, as a time rates could begin to rise. Early renewal to lock in low rates now might be a clever move.

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