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Case study: Millennial couple Dustin and Anna are planning now for their future

This is the first post of a five-part series on retirement planning and financial wellness for different life stages and family circumstances.

Dustin and Anna* represent a pretty typical millennial family. They are both living and working in Toronto, juggling two full-time jobs and raising one young child, Spencer, aged 3. Dustin is 36 and Anna is 34, and the couple married five years ago after dating in university.

This young family has many competing financial priorities, which has made planning for the future a challenge. They have recently paid off all of their student loans, but living in one of the world’s most expensive cities and paying for child care, which in Toronto averages more than $20,000 a year, stretch their income. Almost half of Anna’s income goes to their $1,700-a-month child-care expenses. Still, she wanted to go back to work after her maternity leave to continue to grow her career as a human resources specialist.

They have decided that now is a good time to sit down and really think about their financial priorities going forward and assess their retirement goals. They know that the earlier they build their nest egg, the greater the return and the less they’d have to save than if they started closer to retirement age because of the magic of compound interest.

Like many millennials, Dustin and Anna thought long and hard about entering the housing market in Toronto, where housing affordability has deteriorated from being 3.9 times the average annual household income to 8.6 times in the past 15 years. But they felt it was important to get into the housing market as soon as possible, as housing prices in Toronto were continuing to go up. They hope to build equity in their two-bedroom condo, which is part of their overall financial wellness plan.

They considered themselves lucky to be able to enter the tight home market in the city by cashing in their Registered Retirement Savings Plans (RRSPs) under the federal government’s Home Buyers Plan for first-time home buyers to purchase their downtown condo two years ago. Under this program, home buyers can withdraw up to $35,000 from their RRSPs to buy a home. They have 15 years to pay back the amount, with repayments beginning in the second year after first withdrawing the funds.

Withdrawing from their RRSPs is what first got the couple seriously thinking about their finances and retirement planning. Since they withdrew from their RRSPs to buy the condo, it depleted the nest egg they were trying to build. So, their goals are to further build up their retirement savings, while also preparing for their child’s education while still being able to pay for the here and now.

On a recent rainy weekend, with Spencer off at his grandparent’s, Dustin and Anna decided to come up with a strategy.

First, they decided their main goal was to budget carefully and take any increases or windfalls such as tax refunds and put them directly into a combination of retirement savings and a Registered Education Savings Plan (RESP) for Spencer’s education. They recently learned that by contributing to an RESP, they are eligible for a government top-up through the Canada Education Savings Grant (CESG), which gives families 20% of their RESP contributions up to $2,500 each year, to a lifetime maximum of $7,200.

They also determined that, while Spencer’s child-care expenses right now were a big part of their budget, he’d be going to school in two years, freeing up that $1,700 a month they’re paying now, as Anna will be able to adjust her work hours to pick Spencer up from school. They have decided to put that amount into both RRSPs, the RESP as well as a high-interest savings account (HISA) to give them an emergency fund that they can access any time without a locked-in period and without incurring debt. They are planning to talk to a financial advisor to help them with a diversified portfolio that’s best suited to them.

During their financial planning weekend, Anna and Dustin told each other how difficult they felt it was to really try to imagine retirement. But, as they laughed to one another, they decided they still have some time to figure that out. The main thing was that they felt they had a financial road map for whatever their older selves might want out of life. And, Spencer’s grandparents were always happy to have a weekend with their grandson when they have that next discussion.

Next in our series: Jaspreet and Matt are a mid-life working couple who are just settling in Vancouver and starting to build their retirement plan after years of travel.

*Dustin and Anna are not actual people, but their story is indicative of what many millennials are really discussing when it comes to retirement. It should not be construed as financial advice. Reach out to a financial advisor to discuss your situation and try out the Canadian Retirement Income Calculator to help determine what you need to achieve your retirement goals.

This post is one of a five-part series on retirement. Visit the rest of the posts in the series: Jaspreet and Matt; Trish; George; Francesca and Angelo

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