$20,000 drug bill plus modest savings put damper on couple’s plan

Family Finance In Alberta, a couple we’ll call Harry, 49, and Sue, 46, make their home with their child, Kim, age 10. They have a tidy home with a $420,000 value, according to their latest tax assessment, and monthly take home income of $5,526 each month. There’s $305,169 in various investment accounts and $19,278 in Kim’s RESP. It’s a tidy picture, but there are problems.

Harry has respiratory problems that may limit his career as a manager in a large business. If he quits, his medications, which have a massive cost currently covered by his employer, would be his to pay.

“If we retire in 2030 when Harry is 63, could we have sufficient savings to generate a $5,500 month income,” he asks. “Should we make extra mortgage payments to get our $106,000 balance down or keep putting our savings into retirement assets?”

Family Finance asked Derek Moran, head of Smarter Financial Planning Ltd. in Kelowna, B.C., to work with Harry and Sue. “Sue has been a stay-at-home mom for ten years,” Moran explains. “She would like a $40,000 salary, but her decade absence from the labour force may impact her prospects for adding to family income. Harry worries that his $20,000 annual drug bills will have their own impact on retirement plans.”

Kim has a Registered Education Savings Plan with $19,278. The couple makes no regular contributions. The Canada Education Savings Plan provides a bonus of the lesser of 20 per cent of contributions or $500 each year. If Harry and Sue can pony up $208 a month for the next seven years and get a 3 per cent return after inflation on the investment of $3,000 a year, then at age 17, when the CESG stops, Kim’s RESP would have a balance of $47,400. That would be enough for four years of tuition and books at any university in Alberta.