On the surface, Doug and Jeff seem to be on track to meet their goal of retiring in about 15 years, but some tweaking of their investment loan handling could make this reachable even sooner.
One consolation from their restaurant debacle is their business loss. Doug and Jeff should ensure that they have their taxes completed by a reputable accounting firm to ensure the loss is claimed correctly as there are still taxes that they will be expected to pay.
They should continue maxing out their RRSPs, especially since Doug’s contributions are matched by his employer. As Jeff is contributing $2,000 a month in his RRSP and also has a high income, he may want to consider applying for a tax reduction at source. That way, instead of getting his RRSP refund next April, he could have an extra $1,000 per month in his paycheque to use as he feels.
Looking at their debts, this is where their retirement planning can really take off. A TFSA is a good place to shelter investment income from tax, but why have a TFSA earning perhaps 2% and yet continue paying 4% or 5% interest on a loan and mortgage in after-tax dollars? Especially since, if Doug and Jeff keep their mortgage payment as is, they won’t have paid off their home until 2034, when both men will be in their 70s.
I’d suggest closing out the $64,000 TFSA and applying the cash to reduce the mortgage; that would bring down the balance to $385,000. The $1,900 per month that Doug and Jeff have been contributing to TFSAs and non-registered savings should be reallocated: $500 toward the car loan payment, and the extra $1,400 toward the mortgage. That should allow them to pay off their mortgage in about 8.5 years.
Once they are debt-free, Doug and Jeff can take a look at their finances and catch up on unused TFSA and RRSP contribution room first. Then they can begin adding to their non-registered funds. Both Doug and Jeff are risk-averse, so I would suggest they use a combination of mutual funds that have a high concentration of bank stocks. Such stocks pay more in dividends than GICs pay in interest.
Consider, for example, that for the past three years, TD bank stock has paid on average 3.76% yearly in dividends, according to dividend.com, and since 1997, CIBC dividends have risen from $1.05 per year to $3.94 per year. Compare that to the three-year rate on GICs of about 2%. The added bonus: the couple can still benefit from the potential growth from these stocks and the dividend tax credit.
Investments in equities and mutual funds that focus on solid, blue-chip stocks with dividends can sometimes help gun-shy investors leave their nervousness behind and get their money working harder for them.