Ginger Beef, age 41, is a single actor and writer with no dependents.
Variable, averaging $30,000 a year.
RRSPs, $41,000; non-registered investments, $39,000 in equity funds, $16,000 cash; art, $3,000.
Rent, $600; food,clothing, $350; Phone and Internet, $70; public transportation, $80; entertainment, $250; charity, $10; gifts, $100; miscellaneous, $100. Total: $1,560.
At the age of 41, a Toronto-based comic performer and writer who calls herself Ginger Beef is finding that there aren’t too many gags in her ongoing struggle to make ends meet. With an annual income that varies from $15,000 to $50,000 a year, averaging $30,000, she lives modestly in downtown Toronto in a $600-a- month apartment. Single and without dependents, she has been able to build up $96,000 in financial assets, but worries that she will be unable to support herself in retirement. Moreover, in her business, careers tend to be brief. Ginger’s choice of career remains firm, in spite of what amounts to a financial cost that she bears, for were she to be employed in steadier work on a salary, she might well make more money. There are some saving graces in her line of work and form of self-employment, she insists. “I get to write off a lot of expenses and I’m lucky in one way — I love what I do,” she explains.
What our expert says
Facelift asked Mike Cherney, a financial planner and lawyer with Michael Cherney Associates in Toronto, to speak with Ginger to determine what she can do to add security to her retirement plans.
“What is impressive about this lady is that on an income of $30,000 a year, she is able to save $8,000 a year,” Mr. Cherney said. “There are many people making four times that amount who are not able to save that much.
“Planning a comfortable retirement is nevertheless possible,” Mr. Cherney said. Assuming that Ginger works to age 67, she should be able to maintain a retirement income of $30,000 in 2003 dollars, he said. Assuming further than Ginger lives to age 95, that inflation averages 3 per cent a year for the next five decades, that she receives her Canada Pension Plan retirement benefit at age 67 at 112 per cent of the age 65 value and that there will be no clawback of the Old Age Security benefit, currently $453.36 a month indexed to inflation, she can meet her target with a small surplus.
At age 67, as she begins her retirement, Ginger’s target, an inflation-adjusted income of $30,000, will have risen to $64,698, the planner said. She will then have estimated annual payments of $11,613 from CPP, $11,732 from OAS, $19,794 from her registered retirement income fund and $26,266 of non-registered income, for a total of $69,405, leaving $4,707 available for further savings.
Ginger currently has $41,000 in her registered retirement savings plan and she can add to this by $3,500 a year. As well, she can add $4,500 a year to her non-registered assets with the amount of the contribution indexed to inflation, Mr. Cherney said.
Ginger’s non-registered portfolio should have an annual rate of growth of 5 per cent while her registered portfolio can grow at 6 per cent a year, the difference a reflection of tax erosion. After taking into account the effects of inflation, the two portfolios should produce real growth averaging 3 per cent a year, the planner said.
At age 67, Ginger can convert her RRSP to an RRIF and withdraw the minimum permissible amounts, currently 4.2 per cent a year and growing each year thereafter.
She can redeem minimal amounts of her non-registered investments beginning at 5 per cent each year as well to boost her retirement income. By the time she reaches age 90, she will be able to increase her draw from remaining non-registered assets. It is important to note that as long as Ginger’s draw from her non-registered assets is less their rate of growth, she will not be eroding her nominal asset base.
There is a problem, however, with her investment mix as between RRSPs and unregistered assets. Mr. Cherney noted that at her average annual income of $30,000, Ginger gets a tax deduction of only 22 per cent, which is much less than the deduction available at the top marginal tax bracket in Ontario, 46 per cent.
Saving with an RRSP does provide an annual incentive or target, but when the money is taken out, it will all be taxed as income and will cause forfeiture of any tax advantages that would come from capital gains or dividends held as non-registered investments. Nevertheless, given Ginger’s age and her projected life span, there is much to be said for the postponement of taxation within an RRSP if Ginger does live 54 more years to her projected age of 95, Mr. Cherney said.
The registered or non-registered issue is vital, for Ginger’s cautious investment strategy has resulted in her holding $16,000 in cash out of $96,000 in financial assets. That’s a portfolio with 17-per-cent cash, too much for any long-term strategy, the planner insists.
She should shift a good deal of her money market fund of $13,000 to bonds or bond funds. Mr. Cherney prefers actual bonds because they involve no annual management fees, they turn into cash when mature, and with interest rates expected to rise in the not too distant future, she need only buy short-term bonds with maturities of no more than three to five years. The bonds should be held in her RRSP to defer taxes on their interest, which is treated as income, he adds.
There remains an issue that Ginger should examine, Mr. Cherney said, and that is disability insurance. If Ginger can buy such coverage, she should ensure that it is non-cancelable and guaranteed renewable, has inflation protection, defines disability in a way that is relevant to Ginger’s career, offers partial disability protection, and has few exclusions.
“Ginger’s prospects for attaining her goals without undue hardship along the way are very good,” Mr. Cherney said. “She has limited means, but lives far below them. And she has the saving grace that, even if she were unable to continue her stage performances, she could remain a writer a very long time. This is one comedian who is playing her life very seriously.”
“It’s reassuring that I have enough money as a freelance comedy writer that I don’t have to get a real job,” Ginger said.
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