The expert Rhonda Sherwood, CFP, FMA, Wealth Advisor, Scotia McLeod
George and Teresa had planned to retire when George, who has a defined-benefit pension, turns 60 in three years. Teresa’s 85-year-old mother, Gwen, lives on her own in Burnaby, B.C., but a series of medical crises threaten her continued independence. Teresa is an only child and sole caregiver to her mother. her 25-year-old son, Joey, returned home after university and lives in the basement.
George and Teresa have paid off the mortgage on the modest house they bought in Vancouver when they married. That house is now worth a small fortune.
Gwen’s health has put George and Teresa’s retirement plan in jeopardy because of the additional costs the couple have been paying for her and their boomerang son.
At the moment, Gwen needs help with household tasks like bathing, dressing and meal preparation. The province covers minimal home support, and Teresa has been paying for additional private services that cost $600 per month. A few months ago, George and Teresa paid for Gwen to stay in a long-termcare facility for two weeks while they went on vacation. Her stay cost more than their vacation.
Gwen’s doctor suggests long-term care, but it costs several thousand dollars per month. Gwen still handles her own finances, but recently forgot to pay her property taxes and utility bills.
Aside from George’s pension, their portfolio is almost entirely in registered products, and is 70% equities because they wanted to achieve respectable growth for their remaining investments. Their advisor told them about TFSAs, but they preferred the familiarity of RRSPs. They keep $5,000 in a savings account for emergency expenses.
Joey moved home after completing his Master’s in sociology. Unable to find work in his field, he currently makes minimum wage at a call centre.
He also got hooked on online gambling, so he’s carrying a $33,000 credit-card debt in addition to his monthly car payments. He pays no rent.
Due to their additional costs, George and Teresa will have to delay retirement. They can lower the wait time if they follow these steps.
Financial vehicles: Sherwood suggests they open a TFSA for their more liquid investments. “They need to redirect some contributions to the TFSA to help with Gwen’s costs, and to fund any shortfall in their early retirement years. Adjusting the balance to 60% equities, 40% bond funds will maintain growth and give more liquidity to the portfolio.”
Teresa has been withdrawing funds from her RRSP to cover the additional costs of her mother’s care. Embarrassed, she didn’t tell her financial advisor, but also didn’t realize withdrawals are taxed at the marginal tax rate, or that her withholding tax would not be enough to cover the hit.
“If Teresa wants to keep withdrawing from her RRSP, she needs to ask her financial institution to withhold more tax. However, it doesn’t make sense to keep contributing $6,000 a year only to pull it out again and be taxed,” says Sherwood.
Joey: “He should be paying rent, even a small amount. He could also pay in-kind by helping with Gwen’s care needs. Either way, his time with his parents must have an end date: if they plan to retire in three years, he needs to be out of the house by then.”