Saturday, February 22, 2003

Financial planner Annick Symons suggested that the client should continue renting until the housing market cools.

Maude Greenberg needed five years to pull her life together after her husband died of cancer. Now, at 54, she feels ready to start anew.

"I can finally let go of some of this stuff," she said, gesturing toward the furniture and keepsakes left by her mother and husband, who died a year apart.

After an eight-year absence, Greenberg feels prepared to rejoin the workforce, hoping to land a job somewhere in customer service or credit collection, where her outgoing personality can be put to good use. She used to sell advertising, but that's no longer an option.

"When you've spent a few years fighting disease, you want to do something more meaningful. Frankly, I don't care any more if somebody buys advertising or not."

Greenberg (not her real name) isn't hurting financially.

Her husband left her his registered retirement savings plan, worth more than $1 million. It was merged into her own plan, boosting the overall total to $1.1 million. (It's now $1.2 million).

The nest egg is managed for her by C.F.G. Heward Investment Management, a local company recommended by a grief counselor she met, and it's done reasonably well in a tough market, gaining about one per cent in 2002 after fees of 1.75 per cent and commissions.

Heward has 60 per cent of the portfolio in fixed-income products and about 40 per cent in equities.

Greenberg chose Heward after growing dissatisfied with her previous manager, TD Wealth Management. At TD, she had Nortel Networks in her cash account and owned it throughout its meteoric rise (and fall). She called her adviser a couple of times about selling, only to be talked out of it. By the time it did get sold, the windfall had disappeared.

"At one point, Nortel was 40 per cent of my portfolio," she said. "But they still recommended against selling. I was told I'd pay too much tax."

The cash account, currently consisting of about $75,000 in bonds, dividend-paying stocks and money-market funds, is her main financial resource at this point. She also receives her late husband's Quebec pension of $660 a month.

Since her husband's death, Greenberg has been drawing on the cash account at a rate of about $2,000 a month.

"I live on about $2,600 a month, which is about half what I used to," she said.

I don't want to touch the RRSP for a while. But at the rate I'm going, the cash account will be exhausted in three or four years.

With rent on her spacious 51/2-room apartment eating up $1,285 a month and her 1995-model car just back from $3,000 in repairs, Greenberg feels a bit squeezed.

I've had roommates a couple of times over the past year, paying $500 a month, and that worked out nicely, she said.

She's also been selling a $50 consumer product out of her home for a couple of years, but unit sales have been small and profits slim.

An extra $1,000 a month, after taxes, would go a long way toward improving her lifestyle, Greenberg said. I'd be able to save for a vacation, get some new clothes and furniture. As it is now, my main entertainment is going out to dinner and a movie now and then.

The lease on the apartment expires at the end of July, and she's thinking of trading down to something in the $900 range, which would give her a bit more flexibility, or perhaps buying a condominium.

I might be happier in my own place, but I must admit that as a woman in her mid-50s, I find the prospect of buying a first home a little intimidating.

Chil Heward

Despite the sizable RRSP, Greenberg - who has no dependents - worries about outliving her money.

I'm a widow. I don't want to take an enormous amount of risk. I was in a widows' support group and I can tell you financial security is a big-time concern for us. It can be terrifying. Some in the group didn't know how to write a cheque.

She also worries about getting sick. (She has no private health insurance and last year paid $3,000 for services not covered by basic medicare.)

You need a lot of money when you're older, she said. A lot of things shift as you move into the 70s and 80s. I see the way some people live in seniors' residences and it's clear a lot of people are falling through the cracks.

The Gazette asked a pair of financial planners, Martin Garneau of Investment Planning Counsel in St. Laurent and Annick Symons of Diversifolio Financial Services Ltd. in Brossard, to take a look at Greenberg's situation and make suggestions.

Garneau said returning to the workforce would give Greenberg a lot more financial breathing room, since her non-RRSP investments won't be under as much pressure to provide short-term results.

By having employment income, she could afford more easily added expenses like supplemental health insurance or car repairs, and even augment her living standard.

If she doesn't work, he calculated she'll need an annual rate of return from her nest egg of 5.9 per cent to collect $3,600 a month after taxes (adjusted for inflation) until the age of 95.

Symons said once Greenberg finds work, she should keep close track of her income and expenses for a couple of months, to determine if and how much she needs to draw from the cash account.

Ideally, Greenberg wouldn't tap into her RRSP until the deadline in 2019, but realistically she'll probably need funds before then, Symons said.

Buying a condominium is not a bad idea, but in this market it'll be expensive, Symons noted. She feels Greenberg might be better off renting a cheaper apartment for a few years, until the housing market cools and she knows where she'll be working.

Garneau said Greenberg doesn't really have the liquidities to make a down payment on a condo. But if she lands a job, she probably could afford to remain where she is.

On the whole, he finds her RRSP portfolio well-structured and suited to her risk tolerance and age. The annual management fee of 1.75 per cent is reasonable, he said.

Symons has a few reservations about the RRSP. She found the foreign-content weighting of 13.75 per cent (comprised of eight American stocks and two Asian mutual funds) on the low side, given that the permitted limit is 30 per cent.

This should be maximized to 30 per cent. And why Asian sector funds, she wondered, when there are plenty of international funds available?

In the unregistered account, she thinks Greenberg would derive greater benefit from income-producing, tax-efficient mutual funds such as Clarington's Canadian & Global Income Funds and Mackenzie's Ivy Balanced Fund (T-series), than from individual stocks.

Health or disability insurance might come with a new job, but in the meantime, Symons said Greenberg might want to consider purchasing critical-illness insurance for peace of mind.