Rafael and Lucia want to upgrade from their condo to a house within the next five years.Galit Rodan/The Globe and Mail
Rafael is 34 years old and his wife, Lucia, is 35. They came to Canada seven years ago “and have been lucky with employment,” Rafael writes in an e-mail. They earn a combined salary of $330,000, including bonuses, working in real estate and management.
They have a condo with a mortgage in Toronto and two children, ages five and one.
As newcomers, Rafael and Lucia are unsure how their financial progress compares with that of long-time Canadian residents or other immigrants who may have arrived with greater initial resources, Rafael writes. They would like to understand whether their current saving and spending habits are consistent with achieving their goals.
In the short term, they hope to maintain their active lifestyle and continue allocating about $21,000 annually for travel. Over the next one to five years, they would like to upgrade from their condo to a detached home that better suits their growing family.
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Over the longer term, they aim to help their children with postsecondary education expenses and retire comfortably at 65, targeting inflation-adjusted after-tax spending of $150,000 per year.
We asked Barbara Knoblach, a certified financial planner at Money Coaches Canada in Edmonton, to look at Rafael and Lucia’s situation.
What the expert says
Rafael earns about $230,000 per year in salary and bonuses, while Lucia earns about $100,000, Ms. Knoblach says. “Their combined income provides a strong foundation for achieving their financial objectives.”
Rafael’s employer contributes 5 per cent of his base salary to a deferred profit-sharing plan (DPSP), and Rafael contributes an additional 5 per cent to a group registered retirement savings plan (RRSP). He also tops up his RRSP with bonus income, although his employer does not match these contributions. Lucia contributes 5 per cent of her income to her group RRSP and receives a matching employer contribution.
The couple also saves through personal investment accounts. Their goal is to maximize tax-free savings account contributions each year. After a brief pause during parental leave, they plan to resume TFSA contributions now that both are back at work, the planner says. They have already set aside $21,400 in a registered education savings plan (RESP) for their children and intend to maximize annual contributions to receive the full $7,200 government grant for each child.
Because Rafael and Lucia arrived in Canada as young adults, they may not qualify for the full Old Age Security (OAS) and Canada Pension Plan (CPP) benefits, Ms. Knoblach says. Maximum OAS requires 40 years of residency in Canada between the ages 18 and 65, while full CPP benefits require 39 years of maximum contributions.
“By remaining in the work force and maximizing their CPP contributions each year, they will come close to maximum benefit levels,” she says. The child-rearing dropout provision, which allows lower-income years due to child care to be excluded from CPP calculations, will further increase their future entitlements to CPP benefits.
“To assess their progress toward long-term goals, two scenarios were analyzed,” Ms. Knoblach says.
In the first scenario, Rafael and Lucia maintain their current lifestyle and continue contributing to their group retirement plans at existing levels. Their incomes are assumed to rise only with inflation, without major promotions or bonuses beyond current expectations.
Beginning next year, they resume making the maximum annual TFSA contributions but do not add to personal RRSPs or open new non-registered investment accounts. They continue paying their current mortgage, which would be fully repaid by 2039 when Rafael is 48.
Under these assumptions, projections show that by 2056 – when they are 65 and 66 – their combined inflation-adjusted after-tax retirement spending power would be about $204,000 a year in today’s dollars, the planner says. “This comfortably exceeds their target of $150,000 a year and would likely allow them to retire somewhat earlier if desired.”
In the second scenario, the couple upgrades to a detached home. Assuming they sell their condo in 2026 for $750,000 and net roughly $200,000 after transaction costs, they would each withdraw $50,000 from their TFSAs to increase their down payment. Purchasing a home valued at $1.25-million would result in a $950,000 mortgage amortized over 30 years. Monthly payments would be about $4,500 at a 4-per-cent interest rate or $5,100 at 5 per cent. Other expenses, including things such as taxes, maintenance, utilities and insurance, would be on top of that.
“While this increase appears significant compared with their current $3,715 mortgage payment and $1,162 in condo fees, the overall change is manageable if their employment remains stable and they plan carefully for associated costs such as property taxes, insurance, utilities, commuting expenses (e.g., having to maintain two vehicles instead of one),” Ms. Knoblach says. They might also have increased child-care expenses because they will spend more time commuting.
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If they proceed with the home purchase in 2026, the mortgage could be fully repaid by retirement. Projected after-tax retirement income under this scenario would be about $183,000 a year, which is again comfortably above their $150,000 target, she notes. Deferring the home upgrade for a few years could further strengthen their financial position, but the move appears feasible even in the near term. “If they decide to wait a little longer, they should make small mortgage prepayments to ensure they will be debt free by the time they retire.”
“Over all, Rafael and Lucia’s spending appear[s] reasonable given their income and goals,” Ms. Knoblach says. Assuming they resume TFSA contributions as of next year, they are on track to meet all their big objectives without major adjustments. Rafael’s periodic bonuses could fund TFSA or travel savings.
To maintain financial discipline, a structured cash flow system would be beneficial, she says. For example, setting aside $1,750 monthly in a dedicated travel account would ensure their $21,000 annual travel budget is met without affecting long-term savings.
A separate daily spending account could be used for groceries, fuel, dining out and entertainment, providing better visibility into recurring expenses and helping avoid overspending on convenience purchases. “Implementing a clear cash flow structure would make it easier to adapt to future changes, such as new activities or costs as the children grow older.”
As the higher earner, Rafael could benefit from making additional RRSP contributions to the extent he has RRSP room available, ideally through a spousal RRSP to help equalize RRSP holdings between himself and Lucia, the planner says.
“This strategy would be particularly advantageous if they plan to retire before age 65, since RRSP and registered retirement income fund (RRIF) income-splitting is only available once the annuitant reaches age 65.” Rafael may wish to confirm whether his employer’s plan allows contributions to a spousal RRSP.
Lucia, who is in the second federal tax bracket and eligible for claiming $10,800 in annual child-care expenses, should limit RRSP contributions to those matched by her employer, Ms. Knoblach says. Additional RRSP contributions would be more beneficial once child-care deductions end or if her income increases.
Financial projections indicate a likely OAS clawback for Rafael and partial clawback for Lucia. These effects could be mitigated through advance tax planning; for example, by retiring earlier or gradually drawing down RRSPs before the mandatory conversion to RRIFs at age 71, the planner says.
“Since arriving in Canada, Rafael and Lucia have built a strong financial foundation,” Ms. Knoblach says. “Their income and disciplined savings habits position them well to achieve their goals of home ownership, education funding, and a comfortable retirement.”
“Like most young families, Rafael and Lucia’s situation will evolve over time. Revisiting their plan every few years will help them adjust to new realities and stay on course toward financial independence.”
Client situation
The people: Rafael, 34, Lucia, 35, and their two children.
The problem: Are their saving and spending in line with others in their income bracket?
The plan: With their current income and expenses, they are doing well and can afford to move to a house. Rafael could contribute to a spousal RRSP to help equalize their income after they retire.
The payoff: A road map that will require revisiting at regular intervals.
Monthly after-tax income: $15,080.
Assets: Bank accounts $65,810; his TFSA $58,134; her TFSA $64,006; his group RRSP $75,870; his deferred profit sharing plan $46,031; her RRSP $15,032; her group RRSP $21,491; registered education savings plan $21,371; condo $750,000. Total: $1,117,745.
Monthly outlays: Mortgage $3,715; property tax $222; home insurance $65; condo fees (includes utilities and maintenance) $1,162; transportation $475; groceries $1,000; child care $900; clothing $250; gifts $100; vacation, travel $1,750; personal care $350; dining, drinks, entertainment $850; golf $100; sports, hobbies $50; subscriptions $20; health care and insurance covered at work; communications $140; RRSPs $980; RESP $400. Total: $12,529.
Liabilities: Mortgage $507,245 at 3.75 per cent.
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