Self-employed Worries About Her Retirement

I work with family-oriented people who wants to ensure that their family and their future are taken care of should one of them die prematurely and dreaming of financial freedom. One such individual is a successful Real Estate Agent for 18 years now that earns commissions based on the every sales of the property she managed. She is 34, a single mom with 2 young kids ages 7 and 5. 

She has been divorce for 3 years now. Currently living in a decent home in Saskatoon that she bought on her second year being a Real estate agent that is now worth almost $550,000. She is confident that if she would die prematurely, her kids would have sufficient funds to sustain their needs and that would not worry about losing their home as it would be fully paid in a couple of years. Her most concern was that if she would be able to retire at age 55 at where she is dreaming of. 

The world looks different at night

Her goal is to maintain the current lifestyle she currently has. Her goal is to have an after-tax annual income of $35,000 in today's value for at least up to age 80. She has been saving on her RRSP with her bank with $300 per month and currently has $33,000 invested in Fixed Income. She also has $42,000 at TFSA that she has been saving whenever she has extra money from income she earns, that she has been savings for her kid's future education.

She is not sure if she can continue her contribution due to her income is not guaranteed and that due to market fluctuation of the real estate business and that she wants to save as much as she could.

Working together, we started with her retirement goal and tackled on her investments. After collecting all of the necessary documents and identifying her risk tolerance, we have determined that she would not achieve her retirement goal if she would continue with her current contributions and invested in Fixed Income that earns an average of 2.9% (based on the Projection Assumption Guidelines for 2020 from FPCanada). She would only have make $164,562 at age 55 (not yet factored the inflation rate and taxes). Based on her risk tolerance, she has the capability of taking more risk on her investment with being in a growth profile.

Based on the assumption guidelines, She could earn 5.9% on a growth portfolio that she could choose to have attained $262,561 at age 55. It would still be not enough to sustain her retirement needs though would make a huge difference from what she currently have. After a thorough analyzation, I have analyzed that in order to achieve her retirement goal, she would need to earn $43,750 of projected gross income (her assumed marginal tax rate of 20% at retirement), delay retirement age to 60 and increase contribution to $616/month invested in growth portfolio with projected earnings of 5.9% to achieve $605,891 value on her RRSP at age 60. I have made this recommendation to her and with her surprised, she was glad to learn the strategy and decided to take my recommendation and invest with me. 

During my analyzation, I have also found a better strategy for her goal of providing education for her kids and for her life insurance coverage that may not be enough if she dies prematurely. She have agreed to discuss this matter with me on our next meeting.