Lifestyle | When a professional seeks advice

Émilie*, 45, is an educator and single mother of two children, aged 11 and 13.

Posted at 7:00 am

Martin Vallieres

Martin Vallieres
The press

The situation

She enjoys a well-paying job and an additional income from child support from the father of her two children.

His annual income of around $101,000 per year, or a little less than $70,000 net income after taxes and deductions, allows him to adequately support the family lifestyle.

Emily finds that her ability to save regardless of her job is relatively low.

On his personal record, wealth is heavily focused on the net worth of the family home (approximately $280,000 after mortgage balance) and his participation in the robust Quebec Public Sector Employee Pension Plan (RREGOP, with defined benefits).

On the other hand, the financial assets Emilie has accumulated regardless of her employment in RRSPs are capped at $26,000. Also, Émilie has yet to contribute to her Tax Exempt Savings Account (TFSA) or set up a Registered Education Savings Scheme (RESP) for her two children.

As for liabilities, in addition to the $119,000 mortgage loan balance that is imminent for renewal, Emilie’s balance sheet shows an $8,000 unpaid balance on high-yield credit cards and an $8,000 balance on a home equity line of credit at a off interest rate of 3.7%.

Counting

Financial assets :

– Registered Retirement Plan (RRSP): $26,000
– On a Tax-Exempt Savings Account (TFSA): $0
– In a Registered Education Savings Plan (RESP): $0
– In current savings account: $1,000
– In the Quebec Public Sector Pension Plan (RREGOP): defined benefits of 70% of salary after 35 years of service or at 60 yearse Emily’s birthday

Non-financial assets:

– Family residence: approx. $400,000

Passive :

– Mortgage balance: $119,000
– Credit card balance: $8000
– Mortgage Line of Credit: $8,000

Annualized Income:

– Employment: $92,000
– Upkeep: $11,880

Key Annualized Payouts:

– Apartment-related: approx. $21,000/year
– Based on family lifestyle: approx. $45,000/year
– Linked to Savings/Investments (RRSP): $1320/year

The questions

In this context, Émilie is looking for advice on financial planning in order to be able to realize her priority projects in the medium and long term.

First of all, Émilie would like to have the means to adequately finance her children’s studies, which she plans to do in a few years’ time.


PHOTO ALAIN ROBERGE, LA PRESS ARCHIVE

McGill University

Second, Émilie wants to build up a savings cushion to replace her aging car over the next two or three years.

She currently estimates the total cost to be around $25,000, which will be financed through an auto loan or lease over a few years.

Third, Émilie anticipates having to do renovation and maintenance work on the family home in a few years. The proposed budget is between $25,000 and $30,000.

Finally, longer term, Émilie is considering optimizing her independent savings for retirement, given that she already participates in a solid defined benefit pension plan in Quebec’s public sector.

Émilie’s questions and concerns were referred to David Paré, who is a financial planner and investment savings advisor at L’Équipe Lacasse, Paré, Bédard, which is affiliated with Desjardins Wealth Management in the Quebec region, for analysis and advice.

advice

From the outset, David Paré sees Émilie’s financial situation as “broadly good”, given her position of parental responsibility and her professional activity with a solid pension plan.

On the other hand, at the budget level, David Paré notes the lack of leeway in the event of costly unforeseen events in family life.


PHOTO SUPPLIED BY DESJARDINS WEALTH MANAGEMENT

David Paré, Financial Planner and Investment Savings Advisor in “Team Lacasse, Paré, Bédard”

“At the moment everything indicates that it is an open balance on the credit card, which is used as a margin. But the interest rates are far too expensive when she already has a mortgage line of credit available,” David Paré points out.

In this context, he strongly recommends that Émilie take advantage of her next mortgage loan renewal to add an amount to pay off her credit card balances and her mortgage line of credit.

Also, David Paré suggests that Émilie add $25,000 to her next mortgage loan balance, which could serve as a reserve fund for her vehicle replacement projects and family home renovations.

“This allows Émilie not only to combine her debts into a single mortgage loan on better terms, but also to combine her various repayments into a single mortgage payment that would be less than the sum of her current payments,” says David Paré.

By their calculations, with a new mortgage balance increased from $119,000 to $160,000, amortization over 15 years, and an interest rate of about 4.5%, Emily would have a one-off monthly payment of about $1,200.

“That’s almost $1,000 less per month than Émilie spends on mortgage payments and partial credit card and loan balance repayments these days,” says David Paré.

“Consequently, with this thousand dollars of available cash, Émilie could begin to achieve her most important mid-term financial goal: providing adequate funding for her two children’s post-secondary studies. »

educational savings

Starting with the accelerated rescue of an education savings account (RESP) for the 13-year-old.

“He is entitled to a tax subsidy of 30% of the contributions to his RESP for 4 more years – until age 17 – up to a maximum of $2,500 per current year plus $2,500 per prior year excluding contributions,” explains David Ready.

“By contributing no more than $5,000 per year [env. 415 $ par mois] Adding in tax subsidies over the years, Emilie’s oldest child, aged 17, would have an RESP balance of at least $26,000.e Anniversary. It promises to be a nice sum to support his post-secondary education projects. »

As for the RESP for the 11-year-old child, David Paré recommends that Émilie start contributing as soon as her cash is available, but limit herself to the taxable maximum of $2,500 per year.

“Because her youngest child has six more years of RESP eligibility before they turn 17e Birthday Emily can wait until the end of the double posts [courantes et de rattrapage] the RESP in his eldest child in four years before contributions to the youngest’s RESP are increased up to the maximum “catch-up amount” of the non-contributory years, explains David Paré.

“At this rate [2500 $ par an pendant quatre ans, ensuite 5000 $ par année pendant deux ans]the capital accumulated in the cadet’s RESP and increased through grants over the years could reach $28,000 by the time he was 17e Anniversary. It would be a good sum for the eldest to start his post-secondary studies. »

Along the same lines, David Paré points out to Émilie that in the event of budget surpluses over the next few years, she would have a financial and tax advantage if she first used them to increase her youngest child’s RESP contributions to the taxable amount of the subsidy , rather than making contributions to their personal TFSA and RRSP accounts.

“Emilie’s retirement plan is already well established with Quebec’s robust public sector pension plan, so there is little need to add more through RRSPs and TFSAs at this time,” says David Paré.

“But after her children’s RESP ends and they realize their plans to replace their car and work around the house without too much extra expense, Émilie could use her then-foreseeable budget surplus to max out her RRSP entitlement.” have the tax credit. »

In this way, explains David Paré, Émilie can also optimize the tax revenue of contributions to her RRSP when she is likely to be in her peak taxable years.

When her RRSP has been replenished to the tax-allowable level, Émilie can use any budget surplus to expedite the final mortgage loan repayment under the allowable terms, or deposit it into her TFSA account as investments for future use and disuse. taxable. .

* Although the case highlighted in this section is real, the first name used is fictitious.

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