‘Am I doomed?’: A Q&A with a financial expert

Bruce Sellery is a personal finance expert and author of the bestselling book The Moolala Guide to Rockin’ Your RRSP. He’s a columnist for MoneySense magazine and a regular guest on Cityline and The Exchange with Amanda Lang.

Dear Bruce,

My dad retired at age 58—thanks to a gold-plated pension from his job as a senior manager at a pharmaceutical company. I’m 32, and I want to retire early too, but my consulting job doesn’t offer a pension at all. Am I doomed to work until I’m 72, or is there hope that I can enjoy a cushy retirement like my dad?

– Jude Kolbuc, Edmonton

There are six kids in my family. In an attempt to diffuse our endless squabbles, my parents would tell us, “Life is not fair.” It’s true that full-time jobs with juicy pensions were more plentiful a generation ago —43 per cent of workers had a defined benefit plan in 1977 compared to 27 per cent in 2012, according to Statistics Canada. Your generation is often stuck with contract jobs, and are on their own to fund retirement. To boot, your dad bought his house for what you now pay for a car. Yep. Life is not fair. Well, chin up. You will likely have to make sacrifices now to achieve a “cushy” retirement just 26 years in the future, but it’s possible. You’ll have to amass a sufficiently large portfolio and structure the assets within it to guarantee you’ll have enough income to last for the rest of your life. Figure out what “sufficient” means to you, and then focus on increasing your income, cutting spending and maximizing your investment performance to achieve your goal. That said, here’s another option: Find a job that makes you happy, that keeps your brain engaged and gives you the flexibility to have a great life on the side. Then perhaps the prospect of a longer working life won’t feel like such a curse.

Dear Bruce,

Canada’s hot housing market has made me a millionaire—my home’s value has doubled in 15 years. Now there’s talk of rates going up, and house prices going down. What should I do? I don’t have a lot of savings outside of my home, is there some way I can lock in my home’s value to protect myself from a possible downturn?

– Armando Mendez, Toronto

Your home is what is called an “illiquid” asset—you can’t easily sell off your en suite to get money for groceries. The only way to lock in its value is to, gasp, sell it. But before you do that, consider a few things. First, how long until you need to access that home equity to pay for groceries? The longer it is, the more time you have to bounce back from a market decline. Second, what would you downsize to? You can save a lot if you leave the big city or reduce your square footage, but that comes with tradeoffs. Finally, think about other ways to improve your diversification without selling your home. Could you rent out your basement for extra cash for your RSP? Remember, when it comes to your net worth, if most of it is in your house, you’re not as rich as you think.

Dear Bruce,

I make more than $150,000 a year as a patent lawyer, and my husband stays home to look after the house (and the dog). Harper’s plan to allow income splitting for parents will cut our taxes by $2,000 a year. We don’t have kids, but we’re thinking of adopting a girl. If we did, would we come out ahead?

– Lynn Rosato, Vancouver

Becoming a parent was the best thing we ever did. Our daughter is almost five and is feisty and funny. But unless she invents the next Facebook, we’re not likely to come out ahead financially. Sure, if you become parents you’ll qualify for income splitting. Dean Paley is a CPA and he points out you’ll get the adoption tax credit too. “Assuming they spend $15,000 on eligible expenses, the maximum federal credit would be $2,250.” You’ll also get the arts and exercise tax credits, but all that is a drop in the bucket compared to the cost of raising a child, which MoneySense pegs at $240,000. Still, I would sell my kidney to fund a family, illustrating my belief that financial decisions simply aren’t rational.

Dear Bruce,

Justin Trudeau keeps saying that if we elect him prime minister, he’ll make life better for the middle class. But what is middle class these days anyway? Are we talking blue-collar families? Or urban professionals making six-figure incomes? I’ve never seen a clear definition.

– Adam McKinney, Halifax

Just like sellers of laundry detergent, politicians like to segment the market. Election promises and government policies often target groups like “soccer moms” and “NASCAR dads” and even the more blandly named “middle-class” demographic. From that perspective, middle class is defined less by numbers and more by the resonance of the message. You can be rich or poor but when a politician uses that phrase he wants you think, “Hey, he’s going to help me!” As for actual data, StatsCan says middle-class family income is in the range of $41,700 to $61,800 after tax. But when do politicians ever let data-driven definitions get in their way?

This edition of Ask An Expert is brought to you by Manulife.