SITUATION Affluent couple wants cash for big spending plans
STRATEGY Structure investments for less future risk
SOLUTION Reduced income volatility, smoother cash flow
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In Toronto, a couple we’ll call Jonas, 44, and Anna, 41, have achieved material success. Jonas, a real estate broker, and Anna, a corporate manager, have combined take home pay of $18,483 a month including savings that vary with Jonas’ commission income and Anna’s bonuses. They have an $800,000 house, a $1.4-million investment property and send their two daughters, ages 3 and 7, to private schools at a cost of $20,000 per child per year. They have a comfortable way of life, but can they maintain it if, as they wish, they retire in 11 years when Jonas reaches 55 years old?
What they have in mind is not a passive retirement based on inactivity and retreat. “We’d like to renovate our house for $150,000, perhaps buy a float plane for $175,000 to $200,000, and buy a place in the sun, perhaps in Costa Rica or Hawaii, for $350,000. Can we have an after-tax retirement income of $120,000 to $150,000 in to-day’s dollars to support these plans?”
Family Finance asked Dan Stronach, head of Toronto’s Stronach Financial Group, to work with Jonas and Anna to test their retirement expenses against their projected retirement incomes. His view is that they can have most of what they want, provided they can match their retirement cash flow with their anticipated spending plans.
TIMING RETURNS AND SPENDING
Jonas and Anna have paid the mortgage on their rental property down to $547,000, reducing leverage and risk. They could borrow more against the building to buy the vacation property or the plane, though new debt would increase their exposure to higher interest rates and ultimately reduce their total returns.
They can have both the float plane and the vacation house, too. The plane might come first, then be sold by the time Jonas is no longer able to pass pilot medical exams. Their retirement incomes should rise over time, enabling them to buy their place in the sun when the end of plane ownership is in sight, Mr. Stronach suggests.
They might keep the vacation property for 20 or more years, but Jonas might fly the plane for 10, since it might be difficult to pass pilot …
Read the original article at Financialpost
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