“The 47-year-old public-sector employee says her biggest financial concern is not owning her own home. Yet living in Vancouver, with its absurd housing prices, she doesn’t necessarily want to.”

As the primary breadwinner in her family, Monica is facing a paradox. The 47-year-old public-sector employee says her biggest financial concern is not owning her own home. Yet living in Vancouver, with its absurd housing prices, she doesn’t necessarily want to.

“We’ve stayed away from real estate because to stay in Vancouver it would be out of our reach,” says Monica, who has a husband and an eight-year-old son. “I’m not crazy about a condo, and that’s about all we could likely afford, even in the suburbs. I don’t want to be house-poor.”

Given that she and her writer husband, Blake, 50, have deliberately chosen not to pursue property ownership, she feels they should be concentrating on setting money aside for their golden years. At that point, she’ll collect a pension of about $4,300 a month.

On top of the $1,850 they pay monthly to rent a house and $270 a month to lease a car, they put some money away regularly into their son’s registered education savings plan (RESP), which will total about $7,000 by the time he graduates from high school. To date, Monica has turned to her bank for financial advice, and her registered retirement savings plan (RRSP) consists of that institution’s balanced funds.

While Monica admits feeling somewhat discouraged about her financial future, she isn’t ready to give up on getting her house in order just yet.

“Since we don’t own our own place, I think we should be saving more money, but I feel like we’re always behind,” Monica says. “I’m reading a book by Gail Vaz-Oxlade called Never Too Late[Take Control of Your Retirement and Your Future] that talks about saving for retirement even if you’re starting in your 40s. I’m watching [Ms. Vaz-Oxlade’s TV series] Til Debt Do Us Part.

“I hate owing money,” she adds. “2013 will be the year of financial organization.”

Summary of finances:
Combined income of about $121,000.
$42,000 in Monica’s RRSP.
$10,000 in savings.
$5,000 in credit-line debt.
$7,000 in RESP, the value in 10 years, invested at a monthly rate of $40.

– from ‘Renters want a house. Is it a good investment?’, Gail Johnson, G&M, 28 Jan 2013

If all things remain equal, this couple are likely heading for hardships in retirement, where their income will be substantially lower than it is currently, and their savings are too low to materially impact retirement income.
It is interesting to surmise that, if they had purchased a home in Vancouver ten years ago, their bottom-line would probably look healthier, but for all the wrong reasons. Many couples with similar incomes but who own their homes have had their household balance sheets ‘bailed out’ by unnatural gains in RE prices. As a group we have become over-dependent on home values for our future financial health.
– vreaa

50 responses to ““The 47-year-old public-sector employee says her biggest financial concern is not owning her own home. Yet living in Vancouver, with its absurd housing prices, she doesn’t necessarily want to.”

  1. If they continue to save, they’ll be fine. I see no reason why they can’t sock away another $200K + in the next 20 years. Best thing they could do is DO NOT BUY real estate……and, get out of their $42K out of the stock market………those bank funds they are invested in are probably sucking them dry in fees and poor overall performance.

    They just won’t probably be living in Vancouver, that’s all.

    • It’s more positive, but not nearly enough.

    • They’re not saving now. They don’t seem to understand thing one about income splitting using an RRSP, putting $200/mo. into the kid’s RESP to get $500/yr government contribution, or the basic concept of saving money. They are the tax farm slaves that subsidize my family’s relatively low tax life.

      I hate to say it, but these are exactly the type of people who should have bought a house as the proverbial forced savings plan, as they seem not to be able to save anything without one.

      • The article doesn’t clearly state if her pension total includes CPP and her public sector pension or just the latter. Her pension is some of her forced savings which is good but I think you are right that they could do more.
        The key is her statement that they couldn’t afford a condo in the suburbs. Many public sectors employees, in municipal government, made off great because of the 5 year agreement that many signed in 2007. On average they saw a combined 15% increase in salary between 2007 and 2012. Condos have stayed relatively stagnant in pricing over the past five years so she could have saved up.

        Based on her pension amount of $4300 I would conclude that she makes the money in the family.

        Perhaps they are spending too much money on fine bottles of wine that they pour for their friends and explain how her husband is just waiting to hear back from the publisher on the status of the great novel he just can’t seem to get published.

  2. UBCghettodweller

    $5,000 in credit-line debt?

    Maybe because I don’t have a wife and kids, but $5k of outstanding debt when the family income is over $121k/year and very little savings? I know kids are expensive, but where else is the money going?

    • +1 on that. Reading this I was struck with the thought that they are actually a form of working poor, but don’t even know it. Just enough to survive while they are working but come retirement going to need to downsize. The pension will help a bit, but expectations will need to be substantially lowered. Scary thing is, these guys are probably in better shape than a lot of people who wake up later in life realizing that options are limited and precious time to leverage is gone.

  3. Tragic illustration of how it’s nearly impossible to get ahead here without RE appreciation.
    Doesn’t portend very much happiness for when the RE bailout eventually gets taken away. Frightening actually.

    • I disagree Cyril.

      It takaes just as much discipline to make that whopper of a mortgage payment to the bank, as it does to make that deposit into your saving accont every month. My wife and I have saved as much (or perhaps more) as the average Vancouverite who bought RE 10 years ago and simply got lucky.

      • Cyril Tourneur

        Carioca…good work if you’ve really been able to do that. Personally, I have not managed to save up hundreds of thousands simply by pocketing the rent/own difference. I’ve done reasonably well but most of my friends have boosted their net worth far more than I have through the easy money dumb luck of buying ahead of the bubble. My point is that that net worth is going to get wiped out shortly, and the long tough slog to rebuild the old fashioned way is going to be miserably slow for most.

  4. orgone machine operator

    boyfriend can always get a job as a hack G$M scenario writer.

  5. It’s interesting that you mentioned that by buying a house this couple’s bottom line will appear healthier.

    I recently visited a friend in Toronto, and we were comparing our financial situations. I’m single, a renter and I invest most of my saving. My friend on the other hand is married, bought a house in the east side of downtown TO in 2010. It was pretty easy to calculate my net worth, savings and investments minus debt. I’m not in a great shape, but at least my bottom line is positive.

    My friend on the other hand, thinks his net worth is also positive. Here is his situation when he bought the house:

    School debt: 150K
    Savings: 100K
    Bought a house in 2010: 750K

    When he bought the house, he used his savings, and took out 100K from his bank’s LOC, as the 25% down payment. He’s not working now since he is going to school to finish his program. His financial situation is now this:

    School debt: 150K
    LOC: 100K
    Savings: 0K
    Current assessed value: 950K

    In his mind, he’s 200K ahead because his house has appreciated relative to his cost in 2010. But I pointed out to him that his bottom line is still in the red, because even if he’s sold his place, he still owes the bank 250K. By paying off all his debt, he’d still be 50K in the hole.

    All this calculation was done in my head, I didn’t even take tax and interest into considerations, which I think would drive my friend’s debt level even higher. But I do think that viewing your house as an investment muddle people’s mind.

    • Dave -> Completely agree that many who own overestimate the healthy of their finances, and have massive amounts of mortgage and other debt. And, as Froogle Scott will demonstrate in a coming article, many underestimate the cost of owning.
      Note that I didn’t say the headlined couple would have a healthier bottom line “by buying a house” but rather by having bought a home ten years ago.

      • Wonder what others think. I’ve often thought that a baseline to maintain a detached home is roughly the about the same as the monthly cost of a regular mortgage payment on the home with 20% down. If a person can’t afford to allocate this extra monthly cost to home improvement and upkeep, then this generally means that certain things are degrading and not being kept up to par with quality when purchased. How many in Van can afford x2 of their payment? Few indeed, though the baseline might be a bit different given the stratospheric prices there.

      • +1 on the cost of owning. I think we all know the owner down the street with a moss garden on the roof

        Underestimating ownership costs results in delayed distress that can be hidden with rising prices but hits hard when people need to generate income for the long run.

      • I am wondering how come there is still no reliable online “cost of property owning” calculator for Canada with the specific mods for municipalities…

  6. If she had bought a house and sold it now it would have been like winning lottery.

  7. Monica and co should buy a place, borrow a mill or so, put 5% down. Their current financial situation looks fine.
    They would then be able to qualify for a HELOC and then they’re set.

    Next!

  8. why is Vancouver the worst place to make a living and the worst place on earth to build a decent life

  9. Real Estate Tsunami

    Wow, she’s socking away 40 big ones every month into the kid’s RESP.
    In 10 years, 7 k will probably buy him 2 months worth of University tuition or a 6 year old Honda Civic.
    Whatever happened to the kids looking after the parents in their old age, anyway?

    • “Whatever happened to the kids looking after the parents in their old age, anyway?”
      Evil plot courtesy of the mutual fund industry!

  10. pricedoutfornow

    Since you guys think this woman isn’t doing so great financially, what would you all suggest she have in savings at this stage of her life? I see a lot of people’s financial situations and honestly, I wouldn’t say that this woman is too badly off. I have seen far, far worse. Sure, it’s not great, but at least she isn’t drowning in debt like many I know. Plus, she has a public sector pension which will provide a far greater standard of living than the usual CPP/OAS. I can’t say this couple will lead a live if luxury in retirement, but I don’t think they will be eating cat food either.
    Comments?

    • A tin of cat food will cost you more than a burger at McD.

    • Agree. the public sector pension is a very valuable asset. It’s Vancouver that’s holding this couple back financially compared to folks in a similar situation elsewhere. I wonder how much rent they will pay until she’s able to retire with full benefits? About $700K in after tax income? That’s getting close to the value of the pension!

  11. Her pension, 4300 per month
    OAS at age sixty seven, 500 per month
    Blake’s CPP (assumed) 700 per month
    Blakes OAS, 500 per month.
    I make it 6000 per month at age 67, indexed to inflation a total of 72,000 per year. At the recommended retirement withdrawal rate of four percent of assets you would need retirement savings of 1,800,000 dollars to generate that level of income in retirement. Very very few Canadians will reach that level and returns are not secure and linked to the cost of living. Public sector pensions are gold plated, and they will be just fine.

    • The worry is being in a situation where rentals are hard to find as they reach retirement. I think it was Moshe Milevsky who opined owning never made sense except in retirement. Having stability of tenure in many cases with the elderly becomes a health issue.

      • In 20 years she might see that a condo for her and her husband, assuming the kid is out on their own, isn’t such a bad idea for a retired couple. Whether they rent or own, when you compare vs. the cost of a house they may see they have more $$$ to spend on other things.
        Of course, if they rent the landlord will be getting much of the kid’s inheritance!

      • Actually a couple of seniors with the guaranteed pension income like this – 6000 per month – are a very desirable renters and are going to have no problems whatsoever to find and retain an apartment. I do not think they are doing worse than a general population at all (if we put this uneasy feeling re. being unable to own a property here aside – they are not alone but at least they know what is holding them here with her government job that is going get them the money for the retirement). At least it is better – not to buy a home and live knowing that you can not afford it versus to buy a home knowing that you can not afford it.

    • Amen. I seriously wish I had her “problems”.

    • The number might be higher – unclear if her $4300 is blended and includes CPP or not. CPP might be on top of that.

  12. Cyril……..

    My wife is from a third world country that has had more currencies than you and I have had wives. And, I was BK 15 years ago……..so we both know how to manage money and live below our means with just cash, and that, I think, was the big difference between us (no kids and no debt) versus the majority of those buying RE here in the last 10 years.

    When you get the first $50K in the bank something happens inside your head……..something clicks, you can’t find the courage to withdraw the money to spend it, you find ways to cut expenses and save even more. Consistently saving $3K+ a month does that too you…………..it would make a fascinating psychological study.

    • How do you know how many wives I have had?!!! 😉
      I know what it is to save money and I know how to live without credit, but there just is absolutely no way I can put $3k/month in my savings account and live here in Vancouver. Maybe if we lived in a car and the kids were willing to wear value village?

    • @Carioca – I agree with you regarding the rush I get from saving and putting some away each month. I think the feeling is very similar to the rush that many people in Vancouver get from spending and having new Lulu, Gucci, etc… each month.
      As long as we stay happy and healthy, I think the savings approach works out better in the long run.

  13. I can’t believe that a 47 year old person with that income has such tiny savings. What has she been doing until now?
    OTOH, her parasitic pension of $4,300 a month will make things easier for her. Canadian tax cows will gladly pay for it. (If you are offended, you are missing the point)

    • She still pays pension (and union) contributions out of her salary. I don’t know why she would bother to “save”. Sounds like this couple doesn’t need much financial advice at all, they planned quite nicely, even if it was serendipity.

      I’m not offended, I’m envious.

      • Yeah she is most likely paying ~ 12% of her gross into the pension, plus another 2% or so in union dues. Agreed that she should probably have a BIT more savings to show for it, but the pension is a sort of forced savings plan anyway (although it doesn’t help for emergency fund and shorter term savings needs).

      • Some peple are offended by the words “tax cows”.
        Anyway, I doubt that her union contributions cover the pension.

  14. That is just sad. Combine income of $121K and $10K in savings!
    My spouse and I have similar combined income. Somehow we’ve managed to sock away over $100K

    • Keep in mind that the pension is probably about ~ 12% of her gross – essentially a forced (long term) savings plan. Agreed that she should have a bit more to show for it for short term savings needs, however.

  15. Seeking knowledge...

    I must admit that I’m envious…ok, jealous, of those in the public sector or unions who have defined pension plans. I work in the private sector and get zilch, nada, nil, none, bupkis. This couple will do fine, even if they are dumb enough to buy an average condo at the peak of the bubble. Their safety net will prevent any injuries.

    I’ve got to learn to not turn so green…

    • “Canadians have known for a long time that the public sector pension scheme is unfair to taxpayers and small business owners, but it is also becoming clear that many public plans are structurally unbalanced and in need of immediate reform. Based on evidence that is available from Statistics Canada, Public Accounts and other sources, the unfunded shortfall for public pension plans across the country likely exceeds $300 billion. That works out to $9,000 from every man, woman and child in Canada.”
      http://www.cfib-fcei.ca/english/article/4034-canada-s-hidden-unfunded-public-sector-pension-liabilities.html

    • pricedoutfornow

      I worked in the public service for a few years, I knew quite a few people who didn’t save any money for retirement. Why bother, they said, when the pension is so good, there’s no point in putting money in RRSPs. I think this woman may have this mentality. Do I regret I left? Sometimes, but my job was terrible, I was an unhappy person. Now I’m self-employed, and a much happier person and can do what I want without worrying about the big boss. My friend’s dad retired at 60 with a good government pension-he’d spent his life working in the public service. He got run over by a truck not 2 years after retirement. Life is for living, because you just never know.

  16. This post makes me all warm and fuzzy. As a single parent with 2 kids, 7 years further from retirement I’ve got more liquid assets than this couple…. Not by much mind you but it sure motivates me to keep working with my strategy 😀

  17. Real Estate Tsunami

    In 20 years, the CPP and and all forms of pension plans will have ceased to exist.
    All washed away by the boomer tsunami.
    Start hoarding cans of dog and cat food.

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