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“What should we be investing in: ETFs or property? How strict should our budget be?” asked Tina. “We’re a young family and want to ensure we are making the right financial decisions for today and tomorrow.”

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What the expert says:

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“Research shows that working with a financial professional to create a financial plan reduces stress and anxiety around money, increases hope and leads to better financial readiness, but most Canadians do not work with a financial professional. This is especially true for young people like Tina and Brian,” said Eliott Einarson, a retirement planner at Ottawa-based Exponent Investment Management.

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Einarson said the rate of savings their online research revealed likely shows they will need about $2 million in investable assets at retirement to meet their current spending needs, which are typically greater than what their retirement spending will be.

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“These types of simple retirement calculators also often fail to consider other sources of retirement income, such as work pensions or savings plans, the Canada Pension Plan (CPP), and Old Age Security (OAS) payments, or the effect of income tax and tax changes for retired seniors.

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That said, if Tina and Brian do need the projected $100,000 in retirement income, Einarson’s preliminary planning suggests if they stay in their current jobs until age 60, they will likely have enough defined pension income, coupled with CPP and eventual OAS payments, to meet all their after-tax retirement needs. Their defined benefit pension plans will provide the bulk of future income needs.

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“If they see this mapped out in a retirement plan, they can make more informed decisions,” said Einarson.

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“Their plan will also integrate the best use of all account types, like RRSPs, locked-in retirement accounts, TFSAs and unregistered accounts. This becomes important in deciding what investments to place in each account type for maximum efficiency based on individual planning goals. For example, an elderly person who is looking for short-term savings would hold different investments in their TFSA than a couple who is looking for estate growth and tax efficiency.”

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When it comes to what they should do when their mortgage matures, Einarson suggested that at this stage in their lives it is better to stay where they are and focus on using low interest rates to pay down their current mortgage. This may change in five years when the children are older and Tina has likely gone back to full-time work hours. They should wait until they have extra cash flow before deciding on upgrading the house, he said.

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A financial plan can also help them assess the tradeoffs between each of Tina’s career options, Einarson said. “If Tina enjoys the private business more and can make much more money, she can use those funds to purchase any health and life insurance benefits she has forfeited and invest for the future by contributing more to her RRSP.”

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Einarson said buying back her current maternity leave is likely a good decision but again there are tradeoffs. In this case, it is the security of future pension income versus the flexibility of having and controlling her own investments.

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Given their young family, Einarson said the couple should prioritize a life insurance analysis as part of a comprehensive financial plan. This will help them determine the appropriate level of coverage to meet their needs.

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“The planning can include budgeting, education planning, investment management, risk analysis and retirement planning. A big advantage of the planning process is that it encourages individuals to clarify their priorities before any recommendations are made.”

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*Names have been changed to protect privacy.

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Are you worried about having enough for retirement? Do you need to adjust your portfolio? Are you starting out or making a change and wondering how to build wealth? Are you trying to make ends meet? Drop us a line at wealth@postmedia.com with your contact info and the gist of your problem and we’ll find some experts to help you out while writing a Family Finance story about it (we’ll keep your name out of it, of course).

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