First, Reza and Shadan are from Iran so I would ask if they have any religious restrictions around earning or paying interest. They have a mortgage, so it may not be an issue, but it’s important to find out for sure.

They’ve been very frugal, putting two children through school while getting Reza’s medical certification and paying down their mortgage on mid-to-low incomes. But, how much have they been spending? And, now that the mortgage is almost paid off and the school bills are paid, are they living a more extravagant lifestyle? They’re in their super-saver years, when expenses are low and incomes are high.

They could consider retiring earlier if they stick to a modest spending budget. Based on their incomes, RRSP savings, home equity and life expectancy (assuming they don’t smoke), they could accumulate an estate value of about $7 million if they restrict their spending to $80,000 a year. Even if they retire when Reza is 57, instead of 67, they would not outlive their money. But if they’re spending most of their after-tax income, they will have to work much longer.

Where should they invest? Reza can max out his RRSP, but Shadan should max out her TFSA. Earning $60,000 a year in Ontario, her average tax rate is about 20%. If she builds up a large RRSP and withdraws money in big chunks in retirement, her average tax rate may be higher than 20%. If she dies with a lot left in her RRSP, it will be subject to a much higher marginal tax rate. I look at the lifetime tax bill, not the individual year’s tax bill.

When it comes to retirement income strategies, right now and for the next 10 years, the focus should be on corporate dividends, rather than bonds or annuities. It’s difficult to say what the situation will be in 20 years—that’s a generation away.

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