Montrealers Guy Gagnon and Claude Chartrand (not their real names) are doing well in their occupations. Guy, a management consultant, and Claude, a government scientist, have pretax incomes totalling $214,000 a year. With a big house in tony Outremont and a fat mortgage to match, they have managed their investments well. Their $400,000 house cost $300,000 four years ago. They have $275,000 in financial assets and little debt save for a $228,500 mortgage at 4.05 per cent due in May and a $5,000 student loan balance outstanding for Guy.Guy, 35, and Claude, 36, fear that they are living too much for the present and not enough for the future. They would like to retire in 20 years. As a same-sex couple, they are concerned about estate-planning and their ability to transfer property to each other when the first person in their household dies.“When we reach 55, Claude and I would like to be able to have second careers,” Guy explains. “We might open a bed and breakfast in Canada or in France. By the time we are 55, we want to have laid our plans for the remainder of our lives.”

What our expert says

Facelift asked Michael Cherney, a certified financial planner in Toronto, to work with Guy and Claude on their retirement and estate planning issues. His conclusion: Their problems are much the same as they would be for a conventional couple without children. “What distinguishes this couple is not the fact that they are of the same sex, but that they have no children,” Mr. Cherney says. “Canadian tax law recognizes same-sex marriages as having the privileges and obligations of traditional marriages.” With a substantial family income over $200,000 a year, Guy and Claude live quite modestly, Mr. Cherney notes. They have no car, their monthly expenses are just $5,685 before allocations to savings and investments, and they should be able to finance a comfortable retirement that begins in 20 years, he explains. The planner assumes that inflation will run at a long-term rate of 3 per cent a year. He projects the long-term average return of their registered investments at 6 per cent annually. He also allows 5 per cent as the annual return on non-registered investments after taxes are paid. Therefore, Guy and Claude should be able to generate net real annual returns of 3 per cent and 2 per cent, on registered retirement savings plan and non-RRSP assets, respectively. These are very cautious projections, the planner adds, but in view of recent market declines, that is just being careful, he explains. Assuming that Guy and Claude begin retirement in 20 years, they should each have pension income of about $60,000 plus another $60,000 for the couple from their non-registered investments, Mr. Cherney estimates. Two decades from now, Guy will have accumulated $859,000 in his RRSP while Claude will have built up a balance of $854,000. Guy and Claude will also have non-registered balances of $214,000 and $807,000, respectively. These sums, Mr. Cherney notes, are in 2023 dollars. The planner assumes that both Guy and Claude have annual salary increases prior to retirement at the 3-per-cent assumed rate of inflation. As well, he expects that each man will take Quebec Pension Plan benefits at age 60. Like the Canada Pension Plan, the QPP reduces benefits by 6 per cent a year for each year prior to age 65 that the plan’s payout is triggered. Thus Guy and Claude should each receive 70 per cent of the present maximum benefit of $801.25 a month indexed to inflation, Mr. Cherney says. In order to get the income from their registered and non-registered investments, Guy, who saves about $1,200 a month, and Claude, who saves $2,200 a month, should average out their savings to $1,700 a month each, Mr. Cherney says. He allows for an escalating 3 per cent a year increase in their rate of contribution to their RRSP plans. This can be done by having Claude pay for a relatively larger share of household expenses. At retirement, Guy and Claude should begin withdrawing 7 per cent a year of the RRSP balances through a registered retirement income fund until each reaches age 71, when they can take out the minimum required amount of 7.48 per cent of the RRIF, increasing each year, Mr. Cherney says. When one man dies, the other, considered equivalent to a spouse under Canadian tax law, will receive a tax-free transfer of the decedent’s RRIF, he explains. As each man reaches age 65, he can claim Old Age Security. Currently, OAS clawbacks begin at $57,879. Mr. Cherney assumes that the clawback threshold will increase at 3 per cent a year parallel to the rate of inflation, so that each man will not be affected by the clawback, which will begin at $136,396 in 30 years when Guy reaches 65. By 2033, the couple should have a total income of $232,000 a year in future dollars. “Considering that these two men live modestly and, to date, have invested fairly wisely, it appears that they will be able to have a very comfortable retirement,” Mr. Cherney says. “I feel that Mr. Cherney has confirmed the validity of what Claude and I have been doing,” Guy says. “It is good to have an affirmation that we are on the right track. Now our problem is to achieve at least the minimum returns that Mr. Cherney has said that we require.”