“Midlife reflection led Michael and Pegeen to feel their lives would be fuller if they adopted two children, so they have set the process in motion. Their plan is to adopt siblings between the ages of 5 and 10 years.
The couple can afford the new additions to their family. Over the years, they have built a consultancy that pays them well even though they have plenty of time off to travel. They spend about a quarter of each working year out of the country.
“We hope this won’t change once we have kids,” Michael writes in an e-mail. When the children join them, they will have to move from their two-bedroom Vancouver condominium to a three-bedroom home. High prices in the city mean they will likely have to rent, Michael writes.
With no company pensions, they have to provide for their own retirement. They are well-fixed to do so now, but they know having children will change things. They have an investment adviser “but don’t really have a plan,” he adds.
Their major assets are a portfolio of stocks and B.C. real estate – their condo, a vacation property and a half interest in a rental property in a smaller city.
Their goals including scaling back to working half-time so they can spend more time with the children, continuing to travel abroad on business, maintaining their current lifestyle while still providing for the new additions to their family, and “retiring early at 60 with few worries and the kids’ education taken care of.” Neither one has life or disability insurance and they wonder whether they should buy some.”
“We asked Eric Davis, a financial planner, investment adviser and vice-president of TD Waterhouse Canada Inc. in Kamloops, B.C., to look at Michael and Pegeen’s situation.
“Life is pulling this family in many directions,” Mr. Davis says. … They need to give some serious thought to setting their priorities. …
If they sold their existing real estate, they would have enough money to buy a three-bedroom house in Vancouver if they chose to, Mr. Davis says. Because of the nature of their business, which takes them out of the country part of the time, “they could consider buying a cheaper property outside the expensive Vancouver market but [that is] still accessible to airports.”
Mind you, Pegeen and Michael have invested heavily in the B.C. real estate market, which poses some risks if prices fall. They also carry substantial debt in the form of a $390,000 line of credit.
“From an asset allocation standpoint, they have about 64 per cent of their wealth in real estate,” Mr. Davis says. “As a benchmark, pension funds tend to target 10 per cent to 15 per cent.” …
Monthly net income: $10,000 (variable)
Assets: Non-registered portfolio $380,000; RRSPs $80,000; TFSAs $40,000; U.S. IRAs (individual retirement accounts) $160,000; condo $600,000; vacation property $500,000; share of rental property $75,000. Total: $1,835,000
Monthly disbursements: Housing expenses $630; transportation $200; groceries $800; clothing $100; line of credit $1,000; charitable $100; vacation and travel $500; personal discretionary (drinks, dining, entertainment, pet expenses, sports, hobbies, subscriptions) $1,410; dentists, drugstore $150; telecom, TV $185; RRSPs $815; TFSAs $410. Total: $6,300 cct
Liabilities: Investment line of credit $390,000
This ‘Financial Facelift’ is noteworthy in that it is the first that I can recall where any advisor has explicitly mentioned the possibility of Vancouver RE dropping in price.
Relatively minor point: We disagree with the math – Their net-worth is actually $1.445M (subtract their liabilities), of which $1.175M (or 81.3%, not 64%) is in RE.
That aside, look at the advice: They are in ‘midlife’ (40s?) and it is suggested that they are being unwise having ’64%’ of their wealth in RE; the wisdom of a far lower figure is implied.
Think about it: what percentage of Vancouver homeowners in their forties have less than 64% of their net-worth in RE? Many (most?) have a far greater percentage in RE simply by virtue of the cost of their homes. We don’t know the exact numbers, of course (we’d love to know them) but we suspect it’s a very substantial portion.
As a group, Vancouverites are woefully overdependent on RE for their future financial health, “which poses some risks if prices fall”.