Couple needs to step up savings

95, the accounts would provide $10,400 per year.

Ralph and Ellen have combined retirement savings accounts which total $486,800. All but $62,800 of that sum is Ralph’s. His job provides a basic 5 per cent contribution by his employer to his plan plus a variable match of contributions up to 4 per cent of gross income with a 50 per cent (2 per cent in this case) match. It adds up to a 7 per cent annual payroll contribution rate based on gross income deducted at source.

If Ralph works 11 more years to age 60, then his contributions with company top-ups based on his basic $160,000 salary would create $11,200 annual contribution to his RRSPs.

It is not tax-efficient for Ellen to make RRSP contributions, but if Ralph does continue to make RRSP contributions of seven per cent of present salary, then present RRSP and LIRA balances of $486,800 would, with a 3 per cent average annual return after 3 per cent inflation, increase to $821,600. If that sum is annuitized so that all capital and income are paid out by Ellen’s age 95, it would provide a flow of $37,000 per year or $3,083 per month before tax, Einarson estimates.

The couple’s non-registered savings with a present value of $90,000 with no further contributions would have a value of $124,600 when Ralph is 60. That sum, annuitized for the next 37 years to Ellen’s age 95 would generate $5,600 per year before tax in 2017 dollars.

Retirement at 60 would end Ralph’s CPP contributions. On that basis, he could expect about 90 per cent of the present $13,370 maximum CPP payout or $12,033 per year. Ellen, with much reduced contributions due to her lower income and uncertain income path, could expect no more than half of the maximum or $6,685 per year. Each partner could receive Old Age Security benefits, currently $7,026 per year, at age 65. The sum, $85,770, with splits of eligible pension income and no tax on TFSA income, would be taxed at 13 per cent. The couple would have $6,360 per month to spend, more than enough when the kids are gone and debts paid. Act, the Apprentice Loans Act, or a similar provincial/territorial act.

A quick word of caution, however, for students looking to refinance those government-authorized student loans — the interest on a renegotiated loan from a financial institution does not qualify for the tax credit.

So, before refinancing, be sure that the lower interest rate you’re hopefully getting on your new loan more than compensates you for the loss of that tax credit.