Introduction

In an increasingly unpredictable economy, Luke and Nora find themselves at a fascinating crossroads. At 58, Luke dreams of retiring from his lucrative tech job, while 52-year-old Nora plans to continue her career in health care for another 13 years. With two university-aged children and a fully paid-off home in picturesque rural British Columbia, they have positioned themselves well for the future.

Current Financial Situation

The couple has successfully accumulated impressive net assets estimated at $4.4 million, buoyed by Luke's $190,000 annual salary and Nora's modest $49,000 healthcare income. Despite their financial prowess, a staggering 64% of their assets are currently held in cash. Luke's concern over making the right investment moves has left them sitting on piles of cash rather than leveraging their savings for growth.

Pension Considerations

One of the unique aspects of their situation is Nora's solid defined benefit pension plan, which will pay her $47,000 annually upon her retirement at age 65. While she has a safety net, Luke does not have a corporate pension, heightening the urgency for them to invest their cash wisely.

Spending Goals

Living with an annual spending goal between $80,000 and $100,000 after taxes, they plan for additional periodic expenses—$40,000 to $50,000 every four years for significant items like travel or home upgrades. The question remains: how can they bridge the gap between their current income and their spending goals, especially as they navigate Luke's desire to retire soon?

Expert Insights on Investing Strategies

Drawing on the expertise of Ian Calvert, a certified financial planner and portfolio manager, we gain insight into Luke and Nora's investment quandary. The good news? Their financial foundation appears strong with no liabilities, making them well-positioned for retirement.

Calvert suggests that if Luke decides to retire now, he will likely see a considerable dip in taxable income due to the absence of a pension plan. Starting in 2025, he should consider drawing $35,000 annually from his RRSP, strategically remaining within the low tax bracket while balancing their investments.

The revelation of their current cash-heavy position, however, comes with its drawbacks. Calvert warns that holding excessive cash can dampen portfolio performance and lead to missed opportunities, particularly as the stock market hovers near record highs. However, rather than trying to time the market for the perfect entry point, they could gradually invest their cash in the stock market over the next 12-18 months. This approach reduces their exposure to the risk of poorly timed lump-sum investments, ensuring they stay disciplined in both timing and investment strategy.

Building a Balanced Portfolio

Currently, Luke and Nora are self-directed investors with a healthy focus on index-tracking ETFs and a few large-cap Canadian stocks. Calvert recommends that they maintain a balanced stock-to-bond ratio—aiming for 60% to 70% in equities and the remainder in fixed income. He also underscores the importance of diversifying geographically, suggesting greater exposure to U.S. dividend-growth stocks due to their reliability and growth potential.

Future Financial Security

Financial security is within reach for Luke and Nora, especially considering that they will experience increased income upon Nora's retirement in 2037 when her pension kicks in alongside her Canada Pension Plan (CPP) and Old Age Security (OAS).

Conclusion

In summary, Luke and Nora's future can be bright if they take action now to strategically invest and diversify their holdings. With a proper financial plan in place, they stand to transform their considerable cash reserves into a robust investment portfolio that not only meets their needs but allows for sustainable growth during retirement.

If you find yourself in a similar position or just want to steer your finances in the right direction, consider consulting a financial advisor today! Embrace the opportunity for a financial facelift and start your journey to a prosperous retirement.