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Most of your money will be tied up in your home. Do you plan to leave this money to your children? If not, when would you like to access this money and how? Experiment with different solutions as you plan for when and how to access the money in your home. For example, do you want to sell, rent or borrow? And of course when?
All your available funds are held in your RRSP, which is 100% taxable when you make withdrawals. It’s understandable that you don’t already have a Tax-Exempt Savings Account (TFSA). And if you receive an inheritance, it may be best to get the TFSA room to accept part of the inheritance.
3. Look at your cash flow
It gets more interesting when you look at your cash flow statement. They earn $110,000 annually. In the table below, I’ve listed your annual outflows, including Canada Pension Plan (CPP) and Employment Insurance (EI), and income taxes based on your Ontario residency:
Lifestyle Spending | $26,399 |
Career (CPP and EI Contributions) | $4,664 |
Contributions to your pension scheme | $8,731 |
mortgage payments | $48,000 |
income tax | $22,567 |
In total | $110,000 |
Joan, when you look at the table, what do you see?
Your living expenses, the money you use to run your household, gas the car, buy groceries, etc. and hopefully have some fun is only $26,399 per year. All of the expenses listed in the table below your living expenses (CPP, EI, pension contributions) will disappear when you retire, except for taxes, which will be greatly reduced. You mentioned paying off your mortgage.
If you pay off your mortgage in four years, you’ll have an extra $48,000 a year to spend or save as you please. You could save it, but what’s the point if you keep living on $26,399 a year. I hope you see what’s happening here.
When you’re exposing yourself to your future cash flow, you should stop and think about a balanced approach between living an active lifestyle today and saving for an active lifestyle tomorrow.
Assuming you work until age 65, your earnings before RRSP payments could look like the figures in the table below. Here are the years in today’s values: