From the Financial Post 9 Feb 2011 -
“A couple we’ll call Alex, 45, and Susan, 43, make their home in British Columbia with their son, age 16, who is in Grade 11. They want to plan retirement, but with a debt load equal to four years of income and few financial assets, their choice of when to quit work is limited. They have chosen educating our child in private school over other options and we have lived fairly simply as a result. Now, however, they need to know if they should sell their one big investment, a rental condo, or keep it? And are we headed to disaster or are we on a good track for the future?
They have good jobs — Alex in a building trade, Susan in the provincial government — and have gross incomes that total $163,000 a year. Through decades of hard work, they have built up $668,900 of assets, including their $350,000 home, a $300,000 rental condo and financial assets that total $8,000, as well as their son’s RESP with a $8,900 balance. They also have two dilapidated cars worth, they say, a total of $2,000. Their liabilities are two mortgages that add up to $570,000 and a $33,000 line of credit. That leaves them with net worth of $65,900, which is not a lot for folks in middle age contemplating retirement.”
“Through decades of hard work” they have a net-worth of $66K, a debt load of $603K, and are carrying RE with a current market value of $650K. These guys are gambling heavily on future RE prices, and they barely act as if they know it. A ten percent RE pullback will put their net-worth at zero. Thirty percent off will put them $130K underwater, and their retirement prospects will be profoundly altered. – vreaa