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Adding those amounts to the anchor of Jake’s retirement — his $64,698 annual job pension — and the $13,140 he will receive from from the Canada Pension Plan gives a total of $131,982. He will keep little or nothing of his $7,362 annual Old Age Security. It will be almost fully clawed back. He will have $97,627 after the clawback and 26 per cent average tax but no tax on TFSA cash flow. That’s $8,136 per month.
Jake’s after-tax retirement income will exceed his present disposable income. In four and five years, respectively, his two children will graduate from high school. He can start paying for his children’s post-secondary education out of RESP funds that currently total $27,902. That’s relatively modest for two children even if they attend Ontario universities and live at home. Jake is not currently contributing to the RESPs. If he does put in $2,500 per year per child, they would receive the maximum Canada Education Savings Grant of the lesser of $500 per year or 20 per cent of contributions for total contributions of $3,000 per child per year. If we assume very conservative balanced investments of half stocks and half bonds and the fund grows at two per cent per year, it could provide $27,713 for the older child and $31,327 for the younger. Averaging the sums, each would have $29,520, enough for books and tuition at most universities in Ontario if the kids live at home. Summer jobs could fill any gaps.