Patrick*, 57, has enjoyed working from home so much that he doesn’t want to go back to the office. His spouse, Mélanie*, 52, wonders if her husband can afford to say “bye-bye, boss”!
Posted at 6:00 a.m.
The situation
At the start of the pandemic, Patrick was forced to leave his office to work from home. “It didn’t suit me,” he said over the phone. I didn’t see how we were going to run our department remotely. »
“Patrick watched me work at home before the pandemic, and even when there were snowstorms, he absolutely wanted to go to the office, adds his wife Mélanie on the phone. But since he was forced to telecommute, he completely took off his hood, he no longer wants to go there. »
Patrick is happy to avoid unnecessary travel, traffic, and more easily enjoy the cottage he inherited from his mother. However, his employer is categorical: all employees must be present on his premises.
“We have several divisions in the company, including factories, and the workers are obliged to go to work on site, explains Patrick. To make it fair, the employer wants everyone back, even if it’s not necessary for office workers. »
For her part, Mélanie, who is a few years younger, does not at all want to retire. “I like my job, I have fun, I’ve been here for 26 years and I left for glory until the end, until I was 65,” she says without hesitation.
But if Patrick stops working, will they be able to afford a new car in a few years? To do some renovations in the chalet? “We had planned to use part of the inheritance to add a service cellar or an additional bedroom,” explains Patrick. With the pandemic, the cost of materials has increased and contractors are unavailable. We’ll wait a bit. »
“Our daughter starts CEGEP in the fall, in September, and doesn’t yet know what she wants to do. So maybe she won’t take all the RESP [régime enregistré d’épargne-études] suggests Melanie.
The couple does not have a pension plan. Watching the investments go down, Patrick thinks it might be a bad time to cash out his Registered Retirement Savings Plan (RRSP). However, the stress level at work has increased so much that he wants to know once and for all if he can retire without jeopardizing the financial health of the family.
Numbers
Patrick, 57 years old
- Salary: $100,000
- RRSP: $525,400
- TFSA: $80,400
- Non-registered investments: $5,700
- QPP at age 65: $1,137
- Bank account: $20,000
- RESP: $23,500
- House: value of $600,000
- Mortgage: $30,600
- Cabin: value of $200,000
- Legacy: $129,000
Melanie, 52 years old
- Salary: $90,000
- RRSP: $330,000
- TFSA: $34,000
- QPP at age 65: $1,354
- Bank account: $20,500
Analysis
Chantal Matos, financial planner and advisory director at the Private Management Company of FMOQ Funds, looked into the matter. In the end, she has good news for Patrick and Melanie. But let’s see what led him to this encouraging conclusion.
First of all, even if the child is only one year in a recognized program, he can withdraw the entire RESP. “I never put RESPs in a retirement plan because I consider it for education. I haven’t included it here either,” emphasizes Chantal Matos.
PHOTO HUGO-SÉBASTIEN AUBERT, LA PRESSE ARCHIVES
Chantal Matos, financial planner and advisory director at the Private Management Company of FMOQ Funds
Then, Mélanie plans to work for at least another 10 years. The planner therefore developed a scenario in which Mélanie retires in January 2033. Until that date, she must take advantage of her unused RRSP spaces, which amount to $19,614, and maximize them.
“I suggest that she contribute as much as possible to her RRSPs since she has no pension plan,” says Chantal Matos. She can contribute 18% of her income each year. Currently, she is contributing $10,000, which is not the maximum, which is why she has accumulated unused RRSPs. »
Patrick should also take the maximum from RRSPs this year in addition to his unused rights, which reach $9,109. He could get an RRSP from the Fonds de solidarité FTQ or the Fondaction de la CSN if the purchase of shares is still offered for this year 2022. He could benefit from the 30% tax credit.
Patrick’s Tax-Free Savings Account (TFSA) should be maximized with the money from the inheritance. “When he needs the money, he can get it without being taxed. »
The plan
In order to increase the amount of his pension from the Québec Pension Plan, the planner advises Patrick to wait until age 65 to claim it. Same thing for Melanie.
In the plan, Chantal Matos also postpones the Old Age Security (PSV) pension to age 70 for both spouses. “They could also do it with the Quebec pension as long as they don’t need the money,” says the planner.
The best strategy would be for Patrick to start receiving his Quebec pension at age 68, when Melanie retires in 2033…unless she decides to continue until 2035.
The planner strongly advises Patrick not to withdraw from an RRSP right away.
“If he has no income during the next few years, his spouse may claim the tax credit for spouse or de facto spouse available for an individual who provides for the needs of his spouse. »
The maximum value of the credit for the 2021 tax year was $1,729.
The cost of living
Chantal Matos congratulates Mélanie for the very detailed budget she provided.
“Analyzing it, I can’t cut anywhere. Maybe there will be a drop in gas, but maybe not if Patrick starts to ride around more in retirement. »
The couple’s estimated $72,993 cost of living has been rounded up to $75,000. This amount includes the mortgage of $1000 per month which will end in 2024.
The planner has drawn up a retirement plan until Melanie’s 95th birthday. With the cost of living of $75,000, annual returns of 3.5% and the increase in expenses and Mélanie’s salary of 2% per year, the couple will be able to live on their savings, without selling or selling the house. nor the cottage.
To support the cost of living, Patrick will need to use $15,000 to $20,000 a year for three years of his inheritance, or more if he feels comfortable, before starting to cash out his RRSPs.
renovations
“If I remove the payment of $1,000 per month from 2024, their cost of living drops to $63,000 per year, notes Chantal Matos. This sum could be used to finance the purchase of a car or make renovations. »
When it’s time to renovate, Patrick and Mélanie will have to check the financing rate offered by their institution and calculate which is the most advantageous: paying cash with TFSAs, inheritance or with a mortgage margin. Everything will depend on the rates at the relevant time and the interest earned by the TFSAs.
According to the specialist, Patrick can say “bye-bye, boss! tomorrow without fear, while Mélanie will be able to stop working in 10 years.
“If she decides to continue until age 65, it will be for her personally, because she will no longer need to work,” concludes the planner.
* Although the case highlighted in this section is real, the first names used are fictitious.
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