Case Study 6: Building a future

David Hart, 36 and his wife Farrah, 34, live in a duplex on a quiet, tree-lined street in Toronto. They bought the house mainly for its location, and its affordable price tag. The house is fairly large and has undeniable charm, as well as the additional benefit of being located in a neighbourhood that is undergoing gentrification. The couple leapt on the chance to put in an offer, immediately recognizing its potential for a young family, realizing at the same time that the house would require extensive renovations to make it truly theirs. Apart from general repairs to the infrastructure, the Harts would love to create a playspace for their pair of rambunctious toddlers (Willem, 4 and Lizzie, 2) and a solarium/studio for themselves.

David and Farrah have dreamt of a time when they could bring their ideal scenario a step closer to reality.

Now it appears that time has come. David, a trained architect, has just recently been invited to become a partner at his firm. This is not only an opportunity of incredible creative value, but also promises a welcome financial break for the Hart family. Farrah, a children's book author, now feels as if she can afford to spend time at home, finishing sketches for her new work. Not to mention the chance to realize their renovation schemes.

Meanwhile, the couple must also wrestle with long-term concerns. In addressing their immediate needs, they will still need to design a plan with enough financial foresight to account for their children's tuition, their mortgage and, of course, a comfortable retirement.

Their financial situation

The Harts purchased their home for $325,000. In light of the renovations and the gradual market appreciation of the neighbourhood, they expect that they will be able to use it as significant collateral against their family's developing needs.

At the moment, Dave and Farrah both have life insurance policies to protect the family against unforeseen circumstances. Dave's architecture firm offers a solid pension plan. Farrah's income is determined by book sales, but her publisher still deposits a fraction of her royalties directly into a pension fund, at Farrah's request.

Their Family

Being so young, the couple are not immediately confronted with supporting their parents, but are aware of eventual concerns, such as long-term care. As it stands, both David and Farrah's parents are healthy, and, in some cases, obtaining income through part-time work or consulting. Additionally, their parents have pensions, RESPs and some investments to sustain them for the time being. Their parents are concerned about how they can balance active retirement with financial means. David's mother Anita, for example, is an avid traveler and wants “exploration” to be a key influence in her retirement.

Their concerns about the future

• Can they afford extensive renovations while raising two small children?
• Will be still be able to contribute regularly to their RESPs?
• What will they face if they have to both renovate and pay down their mortgage?
• What will happen when they have to both support their children and their parents?

What needs to be thought out

The Harts are in an exciting stage, and are full of optimism. They still want to be aware of what they can reasonably expect to come down the pipeline – especially where their and their parents' retirements are concerned.

The following will give you a sense of the types of considerations that would be addressed when The Harts meets with a BMO Investment Representative:

• How much of a down payment have they already put on their home, and what is the rate and amoritization period of their mortgage?
• Have they mapped out the overlap between their parents' aging and their children's education?
• Do they have any investments, and, if so, what kind of investment profile do they fit? Have they earmarked any of this money for the future?
• How much have they already put into their respective RESPs, , and have they calculated how much they may retire with at this current rate of deposit?
• Have they calculated for any unforeseen circumstances with their parents – ie/ sudden health care issues? Have they calculated their parents' assets against their parents' current lifestyles and eventual needs?