Can the Williams family make their money work for them more effectively? Both well-established in their careers, John & Sarah are thinking about retirement and wondering if they can make their money work for them more effectively.
John, 42, and Sarah, 39, are both successful professionals. John is a lawyer at a large firm and Sarah works in PR. They have one child and own their home in North Vancouver.
They love living in Vancouver and fill their leisure time with skiing, hiking, and entertaining friends. Their son, Jason, plays in a local junior hockey league, and they try to take a family vacation at least twice a year.
With their busy lifestyle, they haven’t had the time to develop a comprehensive written financial plan yet. Now that Jason is older and they are both well-established in their careers, they’re starting to think about retirement planning, and wondering if they can make their money work for them more effectively.
The first step in the Strategic Planning Approach™ is the Financial Snapshot, where we examine their current situation and explore their goals and options. John draws a salary of $230,000 and Sarah’s salary is $150,000, resulting in a combined after-tax income of approximately $304,000. They have living expenses of about $10,000 per month, not including mortgage payments.
They have a $500,000 mortgage at 3.5% over 25 years. Each month, they also save $2000 in a non-registered bond portfolio, $1000 each in an RRSP, and $458 each in a TFSA. After a detailed budget analysis, we discover that they have a surplus cash flow of approximately $95,000 per year.
The Williams have an annual cash surplus of approximately $95,000 after living expenses, mortgage payments and savings.
Combined Income (surplus = $95,000)
Expenses (total =$150,000)
Savings for John & Sarah (total = $59,000)
The Williams’ goal is to maximize the use of their excess cash and ensure they are in the best possible situation at retirement. Their family suggested paying down their mortgage, but they decided to seek the advice of a professional financial planner before taking any action. At DLD Financial Group, we use we use our Strategic Planning Approach™ to identify the best strategies for each unique situation. One of the tools in our process is net worth forecasting, which we use to illustrate the optimal strategies for your situation.
Here we have identified 3 possible outcomes for the Williams – we’ll leave it to you to decide which you prefer!
1. No Planning
The Williams continue with their current savings plan: $2000/mth bond portfolio, $2000/mth in two RRSPs and $916/mth in two TFSAs.
2. Basic Budgeting
The Williams allocate all their excess cash to their mortgage. After 3 years, they are mortgage free. They continue with their existing savings plan, putting the excess cash flow into their non-registered bond portfolio.
3. Strategic Planning Approach™
John incorporates his practice, drawing a salary of $50,000 and leaving $150,000 in the corporation, after tax and expenses. The corporation contributes $10,000 / month towards corporately-held investments.
*All networth values are based on Sarah’s age. All values are approximate and for illustrative purposes only. Inflation is assumed at 3%.
Tax rates are for British Columbia, Canada.
Due to our commitment to client confidentiality, we couldn’t provide a real-life example. Each client is unique. This illustrative case study is based on typical financial situations we manage. Contact us to learn more about what your financial recommendations might be, or to hear what real DLD clients have to say, read our testimonials.