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We would like to begin by commending Joan and Jack (not their real names) for their disciplined approach to saving. The following suggestions are offered to help them plan for their retirement (within two years).
Their current income ($4,950 per month) covers the couple's basic expenses (estimated at $1,333 per month). And even after they retire, their pensions ($2,100 per month) should continue to take care of these costs. However, in addition to their basic expenses, Joan and Jack also have to concern themselves with the following:
* their son's education expenses ($7,000 per year for the next two years)
* unpredictable emergencies
* vacations, entertainment, etc.
* RRSP contributions
ASSET ALLOCATION
After paying the bills, Joan and Jack are left with about $3,600 in discretionary money each month for extra expenses and investments.
Since Joan and Jack are conservative investors, we recommend they divide their discretionary income in the following way: 3S% cash, 40% fixed income, and 25% equities.
Cash
Sticking to these guidelines, the cash portion of their discretionary income would amount to $15,000 within a year. This should be used to ensure they are covered for the following items:
* Their son's education expenses. Jack and Joan...