Couple approaching 65 with a mortgage worry tariff war will torpedo retirement

Patricia and Craig* both turn 65 in 2026. Until U.S. President

Donald Trump’s

trade war and all the uncertainty that has caused both in the markets and the economy they had both planned to retire next year. Now they aren’t so sure that’s a realistic goal.

The Ontario-based couple bought their dream home in 2020 and are aggressively paying down a $250,000 mortgage at four per cent. The home is currently valued at about $400,000 and the mortgage, which is up for renewal at the end of this year, is about $1,900 a month (this includes $400 to help pay down the principal).

Their total annual expenses are $90,000. This includes about $10,000 for travel, which they plan to continue to do at least for the next 10 years. They want to maintain their current lifestyle in retirement.

Patricia earns about $70,000 a year before tax and Craig earns about $110,000 annually before tax. Both Patricia and Craig have employer pension plans that are indexed to inflation. If they retire as planned at 65, Patricia will receive $20,000 a year and Craig will receive $10,000 annually. Their anticipated

Old Age Security benefits

at 65 will bring in another combined $10,000 ($5,000 each) annually. At this point, they think it’s best to start

Canada Pension Plan

(CPP) benefits at age 70, which should increase their annual income by $15,600 for Patricia and $16,800 for Craig. Is this a good strategy?

Their investment portfolio is worth $711,000 and includes $495,000 in

registered retirement savings plans (RRSPs)

, and $216,000 in

tax-free savings accounts (TFSAs)

, all invested in exchange-traded mutual funds.

Patricia and Craig continue to maximize their TFSA contributions and when Patricia retires she will receive a lump sum of $14,000, which she plans to contribute to her RRSP. Her RRSP is currently worth $45,000. Is this a good idea?

“We’re in good health and when I retire I will be able to continue my employer healthcare coverage,” said Patricia. “Still, we’re worried and want to make sure we’ll be comfortable in retirement. Right now, we’re thinking Craig should continue working another couple of years beyond age 65. Is this necessary?

What the expert says

Retirement income planning is essentially an overview of what is possible financially given what is available, matching future income needs with cash flow as tax efficiently as possible. A plan will give Patricia and Craig confidence whatever the political or economic situation is, said Eliott Einarson, a retirement planner at Ottawa-based Exponent Investment Management.

“The key is to ensure they can sustain enough income throughout retirement or the next 30 years, planning for both the earlier years when they are the healthiest and most active but without neglecting the later years when healthcare-related costs can play a larger role.”

Patricia and Craig have determined they will need to generate $90,000 after tax annually in retirement, including $1,900 a month for mortgage payments and $10,000 for travel.

While it would be ideal to be mortgage-free entering retirement, Einarson said if they can sustain the income needed to meet their cash-flow needs, the house will be paid off by age 80 at current rates and travel will likely subside at the same time. Their planning can account for an adjustment to income needs past 80.

The key is to be confident in total cash-flow needs in retirement. “Tracking all expenses in the years leading to retirement and evaluating what will change and when is important. Once they have that clarity, the cash flow from all sources can be calculated and evaluated. The two big factors to include in the income needs projections are inflation and anticipated changes as they age.”

Given their pensions, government benefits, and only including registered savings plans for income, Einarson said retirement at 65 is possible. “Deferring CPP to 70 will give Patricia and Craig more future security. A planner can run different scenarios to help them make their decision.”

The TFSA accounts will provide additional financial flexibility. “They are not projected to need those accounts for income but will want to continue to use them to invest and take advantage of the tax-free growth,” said Einarson.

“From a planning perspective the RRSP accounts are only supplementing their future needs, mostly until age 80, and if they get a five per cent average return, they will not need to touch the TFSA accounts.”

To further build confidence and address their concerns about the current political and economic environment, Einarson suggested they could review their current investment strategy with an eye to reducing risk. “For example, they may want to reduce risk in registered accounts intended for income withdrawals, first by holding diverse investments across asset classes to meet various needs, with an emphasis on stable passive income from dividends and interest. Alternatively, they could consider working with a professional portfolio manager.”

Einarson agrees with Patricia’s plan to direct the $14,000 lump sum payment she will receive when she retires to her RRSP — “it will help offset tax” — and to continue her employer health coverage in retirement.

While having Craig work past age 65 may help with the psychological transition to retirement, without clarity on what is possible, they will continue to worry,” said Einarson.

“A better idea would be to get a comprehensive retirement plan completed. This will demonstrate what their assets and pensions can create for income. Individuals with only fixed pensions or guaranteed income sources frequently feel secure enough to retire and spend freely. However, those with invested assets often gain the greatest benefit from planning, as it helps build confidence for entering retirement. At least then if Craig continues to work, he will know it’s because he wants to, not because he has to.”

Are you worried about having enough for retirement? Do you need to adjust your portfolio? Are you starting out or making a change and wondering how to build wealth? Are you trying to make ends meet? Drop us a line at wealth@postmedia.com with your contact info and the gist of your problem and we’ll find some experts to help you out while writing a Family Finance story about it (we’ll keep your name out of it, of course).

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*Names have been changed to protect privacy.

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