Navigating Finances: The Journey of Michael and Jennifer
Meet Mike and Jenn, a married couple residing in London, Ontario. At 41 years of age, they’ve been married for 12 years, sharing the ups and downs of life as a loving family. With two children, 10-year-old Liam and 8-year-old Emma, their journey through life is full of financial challenges and successes that mirror the experiences of many Canadian families.
Household Income
Mike and Jenn’s combined household income is a critical factor in their financial story. Both are gainfully employed. Together, they earn an annual income of approximately $140,000, which is slightly higher than the median household income in London. This income provides them with a comfortable foundation upon which they have built their lives.
Expenses
However, as with many families, Mike and Jenn face a slew of expenses. Their mortgage (including property tax) for a modest three-bedroom home in a family-friendly neighborhood amounts to $1,400 per month. Additionally, they allocate around $1,200 per month for groceries, utilities, transportation, and other essential expenses. Their children’s extracurricular activities and after-school care cost an extra $1,300 per month. These expenses are well-managed due to their diligent budgeting.
Cash Flow
Assets
One of Mike and Jenn’s notable successes lies in their financial planning. Over the years, they’ve accumulated a few key assets. They own their home, which has appreciated dramatically in value since they purchased it in 2013. Additionally, their employers provide them both with Defined Contribution Pension Plans. They have also invested wisely in their own retirement accounts, contributing consistently to their Registered Retirement Savings Plans (RRSPs). They also contribute to their Tax-Free Savings Accounts (TFSAs) when they can.
Liabilities
However, Mike and Jenn aren’t without liabilities. Apart from their mortgage, which has a balance of just over $130,000, they also carry a car loan. Between their own work lives and their children’s activities, a second car feels like a necessity. One car is five years old. The other was purchased just this year and will be paid off over five years. Monthly payments are $760. Their pattern is to own each car for 10 years, which means that every five years they buy a new car and enter into a new loan agreement. At one point they struggled with clearing their credit card balance each month, but when they realized the high interest rate they were paying, they made the firm decision to pay it off in full each month, even though it meant adjusting their spending habits.
Net Worth
Financial Challenges: Children’s Education
The most pressing financial challenge that Mike and Jenn face is the cost of their children’s education. While they have saved for their kids’ future through RESPs (Registered Education Savings Plans), the increasing cost of education poses a concern. Balancing their aspirations for their children’s education with other financial goals is a continuous challenge. Even so, they have managed to amass an RESP worth nearly $90,000 and they are on track to reach $123,000 by the time Liam begins his post-secondary studies. Projections indicate that each child will be able to withdraw about $13,000 in today’s dollars over each of their expected four years of education.
Despite their best efforts, Mike and Jenn suspect this will not be enough to fully fund their children’s education costs, which is okay in their minds. Some “skin in the game” by way of summer jobs, seeking scholarships and bursaries, and student loans, is appropriate.
Retirement Planning
Mike and Jenn’s retirement planning is a significant concern as they approach their mid-40s. While they have made commendable efforts to save for retirement, they are well aware of the challenges that come with ensuring a financially secure post-working life. They are grateful that their employer has provided them both with Defined Contribution Pension Plans. Currently, Mike’s is worth $161,500 and Jenn’s is valued at $144,900. Mike’s RRSP is worth $99,100, and Jenn’s stands at $89,700. Furthermore, they have managed to save in TFSA accounts, with Mike’s worth $28,100 and Jenn’s at $32,400. This provides them with additional flexibility in retirement income. Their diligence in consistently contributing to these accounts reflects a commitment to building a strong retirement nest egg.
One of the key components of any retirement plan relates to government benefits. Expecting to have lived in Canada for over 40 years by the time they reach 65, they anticipate qualifying for full Old Age Security (OAS) benefits ($698.60 per month as of the 3rd quarter of 2023). This government pension will provide them with essential support during retirement. Additionally, their history of matching or exceeding the Year’s Maximum Pensionable Earnings (YMPE) since 2010 means they can expect to receive close to the maximum Canada Pension Plan (CPP) benefits available at age 65 ($1,306.57 per month as of 2023). This steady income stream will contribute significantly to their retirement income, though they understand the importance of maintaining their other investments to complement these government benefits.
In preparing for retirement, Mike and Jenn must continue to monitor their investments, adapt their savings strategies, and consider how they want to balance their income sources in retirement.
Successes and Future Plans
Despite these concerns, Mike and Jenn have made substantial strides in securing their financial future. They have a well-diversified investment portfolio, ensuring that they are adequately prepared for retirement. Their mortgage payments, although substantial, have allowed them to build equity in their home. Furthermore, Mike and Jenn have developed a strong financial partnership, regularly reviewing their income and expenses, setting savings targets, and discussing their financial priorities.
Note: This is a fictitious family, with information gleaned from Statistics Canada, the Canadian Real Estate Association, mortgage providers, the Government of Canada, and other sources to create this profile. Each family’s financial situation is unique. To achieve your own financial goals, consult with a financial planner who can tailor a plan specifically for you.
This is the 213th blog post for Russ Writes, first published on 2023-09-04
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Disclaimer: This blog post is intended for general information and discussion purposes only. It should not be relied upon for investment, insurance, tax, or legal decisions.
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