Case study: Dr. Andrew – Planning for a secure retirement after divorce

 

Background

Dr. Andrew, a 45-year-old dentist in Vancouver, experienced significant financial upheaval following his recent divorce. He had married an American citizen, but after only a year of living together in Canada, the marriage ended. The divorce incurred costs of $250,000, wiping out 25% of his investments and all of his non-registered assets. To stabilize his finances, Dr. Andrew decided to sell a pre-build condo he had purchased, which had been completed two months before the divorce. The sale provided much-needed liquidity, enabling him to restore some cash reserves. Despite the setback, Dr. Andrew remains focused on retiring within 10 years, a goal he is determined to achieve.

Financial profile post-divorce

  • Age: 45
  • Profession: Dentist in Vancouver (annual income: $250,000)
  • Financial Goal: Retire by age 55
  • Assets:
    • Registered investments (RRSPs): $750,000
    • TFSA balance: $100,000
    • Savings from condo sale: $300,000
  • Liabilities: None (no mortgage or debt post-condo sale)
  • Challenges:
    • Significant loss of assets due to divorce
    • Short investment timeline (10 years)

Key financial objectives

✓ Rebuild wealth: Dr. Andrew needs to maximize his remaining earning years to rebuild his retirement portfolio.

✓ Retirement income planning: Estimate the income required for a comfortable lifestyle in retirement.

✓ Risk management: Safeguard his assets from future legal or financial vulnerabilities.

✓ Tax efficiency: Leverage tax-advantaged investment vehicles to enhance returns.

Financial strategy

  1. Asset allocation and growth:
  • Reallocate his investment portfolio to balance growth and preservation:
    • 60% equities (domestic and international markets for growth)
    • 40% fixed income (bonds, GICs, and dividend-paying stocks for stability)
  • Maximize annual contributions to RRSP and TFSA to grow tax-advantaged wealth.
  • Use the $300,000 condo sale proceeds to establish a non-registered investment account focused on tax-efficient growth.

2. Accelerated retirement savings:

  • Increase annual savings rate to $75,000–$100,000.
  • Contribute $27,000 annually to his RRSP (maximizing allowable room).
  • Invest $7,000 annually into his TFSA. 

3. Retirement income projections:

  • Assuming an annual retirement spending goal of $120,000 (inflation-adjusted), Dr. Andrew would need a portfolio of approximately $2.4M by age 55 (assuming a 4% withdrawal rate). 

4. Diversified investment approach:

  • Implement a global diversification strategy to hedge against market volatility.
  • Diversify into Real Property Fund to improve correlation of investments. 

5. Legal and risk mitigation:

  • Establish a postnuptial agreement or other financial safeguards to protect assets in case of future relationships.
  • Obtain adequate disability and critical illness insurance to protect his income. 

6. Debt-free retirement planning:

  • Avoid incurring any new debt over the next decade to keep his financial plan on track.

Financial milestones

  • Year 1-3:
    • Fully fund his RRSP and TFSA annually.
    • Invest $150,000 from condo sale proceeds.
    • Ensure adequate insurance coverage.
  • Year 4-6: 
    • Reassess portfolio performance and adjust allocations as necessary. 
    • Increase savings if income allows.
  • Year 7-10: 
    • Transition portfolio to a more conservative allocation as retirement nears. 
    • Finalize retirement income strategies, including withdrawal planning from registered and non-registered accounts.

This is a general source of information only. It is not intended to provide personalized tax, legal or investment advice, and is not intended as a solicitation to purchase securities. Brad McPhee is solely responsible for its content. For more information on this topic or any other financial matter, please contact an IG Wealth Management Consultant.