Lifestyle | The urgent need to enjoy life

After each losing a loved one to a rare and devastating cancer, Audrey*, 34, and Sébastien*, 40, feel an urgency to live and wonder if they can afford more madness in their lives.

The situation

The two public service professionals are at a crossroads, they say. Audrey and Sébastien must make choices to enjoy life before it’s too late.

“Disappeared at the age of 59, my mother did not realize her dreams which she postponed until retirement, which she never lived”, says Sébastien.

Audrey went through quite an ordeal losing her partner when she was pregnant.

The couple now form a blended family with children aged 14, 12 and 4 years old.

At the start of the pandemic, the spouses undertook an ambitious self-construction project. With rising material prices, the property cost more than expected. For it to be finished to their liking, it requires an additional investment of $25,000.

“We have a very nice property which has a very good value on the market. But on the other hand, we feel like we’re not living our lives to the fullest and constantly restricting ourselves on a daily basis,” says Audrey.

“Our financial situation is not precarious given the amounts affected in inheritance and life insurance as well as by our professions,” she continues. Constantly plagued by the fear of not having enough cash to ensure our rhythm of life, we do not splurge. »

The couple is thinking of completely changing their way of life by swapping the house for a condo in order to focus on entertainment: travel, activities for children and restaurants.

“According to our financial planning forecasts, we would have the means to keep the big house and provide us with the entertainment we wanted, but we can hardly believe it,” says Audrey.

In their plan, Sébastien retires at 54 when he will have his full pension and Audrey will follow him at 48, even if she has no pension plan. The couple plans to do contracts for a few years.

“We have come to a crossroads and we no longer know in which direction to go. Is it the urgency to live because of past experiences that gives us this desire to take full advantage of it? Or is it the influence of our parents, who have saved all their lives, that makes us dare not give ourselves the right to spend? »

analysis

Antoine Chaume, financial planner and wealth management advisor at Assante Capital Ltée Équipe Major, looked at the couple’s finances and their questions.

Having a $1 million+ home is a lifestyle choice, raises the financial planner. Such a principal residence comes with higher maintenance costs than a $700,000 property. “This type of house sometimes also comes with social pressure to put flowers in front of the house and luxurious cars. »

Before reorganizing the couple’s finances, Antoine Chaume wants the two to think about their real dreams. “They have to figure out what’s really important to them. If it’s having the big house and the status that comes with it, it’s certain that they won’t be able to retire at an age where almost no Quebecer is able to retire . »

Unless of course they increase their income substantially, he says. But in the public service, if Sébastien is lucky enough to have a good pension plan, he does not have this type of increase.

The status quo scenario

The planner estimates that the family is currently spending $140,000 without the added splurge. However, the net income is around $130,000. Raising the cost of living to $175,000 or even $150,000 in order to afford extravagances would spell financial disaster for the couple, he argues.

“Keeping home and completely stopping work at 54 and 48 with an annual living cost of $100,000 is an impossible scenario to achieve. 1.6 million are missing. At 68 and 74, they will have no more money. »

The scenario with contracts

If Sebastian and Audrey don’t sell the house, retire as planned in 2035, but add annual part-time employment income of $125,000 for 10 years, they’re not achieving their goal either. There is still a million missing, estimates Antoine Chaume. At 78 and 85, the money is exhausted.

However, if the spouses sell the house in 2035 when they retire, we are already getting closer to the goal. A living cost of $100,000 would be possible, the planner estimates. The value of the property will have reached around 2.3 million, because the growth in real estate prices is on average 2.5%, in normal times, recalls the planner. The couple could then buy a condo with cash and would have money for up to 96 years.

The sale of the house scenario

“They are in the same pattern as the majority of Quebecers, that is, their property is worth 50% of their net assets, observes Antoine Chaume. If your financial strategy is similar to that of all Quebecers, you will have the same result as the majority of Quebecers. To stand out and achieve financial independence at 48 and 54, you have to make lifestyle choices that are different from most people. »

If they sell their house immediately to buy a luxury condo for $1 million in cash, Audrey and Sébastien will save $10,000 a year in maintenance costs and taxes. This sum can be used to improve their trip and other follies.

They will be able to retire in 2035 by doing contracts for 10 years which will add $125,000 in income per year.

Also, by saving $30,000 in mortgage annually, Audrey and Sébastien will have two options: invest the $30,000 to ensure a cost of living of $106,000 per year and reach age 96 with a surplus of $1.5 million.

Or, increase their cost of living to $120,000 for the first 10 years and then bring it down to $100,000 and end their lives at age 96 having exhausted all their assets.

Unlike the majority of families, the couple is sufficiently insured for their needs, observes the planner. However, it misses out on the 30% government grants for RESPs that are not maximized, says Antoine Chaume.

* Although the case highlighted in this section is real, the first names used are fictitious.