Wealthy on paper, couple needs more real dollars
In Toronto, a couple we`ll call Rose, 55, and Edward, 59, are powering down their careers, hers in the airline industry, his in real estate sales. They are reducing their incomes in the expectation that they will be able to draw on their assets for many years to come. Trouble is, they are burning up those assets covering current losses.
Their assets are substantial: $650,000 invested in three rental housing properties plus their $500,000 home; $211,000 of non-registered stocks and $280,000 in RRSPs. Their liabilities are mortgage debts of $170,000, leaving net worth of $1,471,000.
In her retirement, which began this fall, Rose`s defined-benefit pension pays her $1,900 a month. That income will continue until a $573-a-month bridge ends at age 65 and her benefits drop to $1,327 a month. Edward generates variable income from real estate sales and consulting to bring total family income up to $7,300 a month, including money taken from cash flows at three rental properties.
However, the properties run at a loss. Rose and Edward wind up spending non-registered capital to pay the bills. Their non-registered money will be gone in a dozen years. The situation is unsustainable. "How can we be millionaires on paper and feel obliged to live so frugally?" Rose asks. "We have the assets, but we don`t have the cash flow. What should we do?"
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