69-year-old gets serious about retiring and moving to Nova Scotia

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At 69, Janice* is getting serious about thinking about retirement.

A university professor in northern Ontario, she is single with a young adult son who plans to go to law school next year. Her own plan is to return to Nova Scotia, a place she loves and visits each summer, and where she has many friends. She just hasn’t pinned down a date.

“I still enjoy my job,” she said.

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However, the maritime pull is getting stronger. She is checking out Nova Scotia real estate and wonders if she can afford to buy now while she’s still working and stay in her current home, which is valued at upwards of $600,000, until she is ready to retire and move.

“I don’t want to live in Halifax and home prices in the areas I’m interested in are comparable to where I am in northern Ontario,” she said. “Or would I be better off renting?”

Janice said she’ll likely retire in two to five years, but wants to make sure she can maintain her current lifestyle and not have any money worries. She also wants to continue to travel, which annually costs her about $6,000.

She earns $150,000 a year (it will increase to $155,000 in July) and contributes to a defined-benefit pension plan that should pay $3,845 a month when she retires. She expects to receive $1,288 in monthly Canada Pension Plan (CPP) payments and $699 in Old Age Security payments for a total monthly income in retirement of $5,832. Her current monthly expenses are about $5,405 and include a payment of $1,486 on a $120,000 mortgage.

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“I haven’t tried to top up or pay extra. I haven’t been too concerned about paying it off quickly,” she said, adding that her variable-rate mortgage is up for renewal in December.

Janice has a portfolio worth about $345,718 in cash held in savings accounts ($124,602), a tax-free savings account ($89,046), a registered retirement savings plan ($101,249) and a locked-in retirement account ($2,195), and $28,627 in stocks. She was an active investor between 2004 and 2010 before shifting most of her money to cash.

“I got busy and didn’t have the time to pay the attention to it that I needed to,” she said. “I kept thinking I’ll get somebody else to invest for me, but I hate getting other people to do things for me. At this point, I don’t want to do anything too risky. I want investments that will beat inflation and minimize risk.”

She’s considering investing in exchange-traded funds (ETFs) that track stock indexes, bond ETFs, balanced short-term funds and guaranteed investment certificates.

Janice would also like to know when she can safely retire and whether or not she should shift her pension into a lump sum.

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“My employer matches my monthly $500 contribution. If I were to take a lump sum, would it be my contribution plus interest? Total contributions? I don’t understand it,” she said. “What are the benefits of taking a lump sum over a pension and where should I direct that money? Is this something I should consider?”

What the expert says

Eliott Einarson, a retirement planner at Ottawa-based Exponent Investment Management, said Janice needs a comprehensive, personalized retirement plan to clearly outline her best options for funding the life she wants when she decides to leave work behind.

“This will provide a longer-term, consolidated view of the future to base decisions on and will help her establish detailed expectations for income needs, including discretionary needs at different stages of retirement,” he said.

Based on the information provided, Janice’s pension and government benefits should cover her expenses, which means she’s “safe” to retire whenever she chooses. However, Einarson said her other investments will be important to top up her income in retirement.

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“Janice can’t afford to stay in debt heading into retirement or ignore the long-term trade-offs of low returns of an all-cash portfolio,” he said. “As a very conservative investor, Janice should be concerned about her mortgage. Paying off her debt will give her a better return on her disposable income than her savings accounts’ interest and will help her have more disposable income in retirement.”

For this reason, he also recommends she hold off buying a home in Nova Scotia until she’s ready to move there. She cannot afford a second mortgage and using her saved capital for a down payment and renting out the home until she retires is risky.

Einarson said she’s likely better off being a homeowner, especially given the current rental environment, when she does make the move if she plans to stay in one spot long term and doesn’t need her home equity for retirement income.

Another key concern is that Janice is losing purchasing power each year, after inflation, with her savings accounts. She has missed out on 14 years to compound her money.

“Now that she is older, she says that she doesn’t want to do anything too risky, but in the same breath, she would like investment returns that beat inflation,” Einarson said. “A financial planner can work in conjunction with a portfolio manager to construct a portfolio that meets the cash-flow needs laid out in the retirement plan without taking on any more risk than is required to meet those needs.”

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A retirement plan will also help Janice compare the pros and cons of keeping her current pension versus taking a lump-sum payment.

Einarson said the advantage of keeping the pension is the income security it provides.

“Investing the lump-sum value or commuted value will give her more control over the capital and, therefore, more flexibility with income, but she will be responsible for the decisions and risks,” he said.

His recommendation is to keep the pension as it is, especially since it has a strong indexing feature.

“Janice would benefit from working with a professional to work through her retirement possibilities,” he said. “At 69 and with some large decisions to make, now is the time to invest in herself. Her retirement plan will bring simplicity and clarity.”

* Name changed to protect privacy.

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