Northern Same Sex Couple Hope for a Sunny Retirement


Allison Smith and Martha Anderson (not their real names) live as a couple in a small town in Canada's North. Both civil servants, they are fully employed.

At the age of 38, Allison expects to work for as much another 18 years, though Martha, 46, hopes to retire in nine years at age 55. In preparation for their retirement, they have curtailed spending and built up equity in their $300,000 house, making do with one car, one snowmobile, and splurging only for an annual trip to some place warm.

The couple are making plans as a family unit. They want to know if they can afford the retirement they have planned.

"We need to know if we are on the right track," Allison says. "As retirement approaches, we want to know if we are really ready."

What our expert says:

Facelift asked fee-only financial planner Derek Moran in the Kelowna, B.C., office of Vancouver-based consulting firm Macdonald Shymko & Co., to review the file and to speak with the women. He found that their problems are less a matter of investments than of the laws that apply to same-sex couples.

Allison and Martha, long-term government employees, have substantial pensions. Allison can expect $20,400 a year based on work and previous 6-per-cent annual merit increases over her career, Mr. Moran says. Martha can expect a pension of $15,000 a year from previous employment plus another $20,400 for her civil service work for a total family pension of $55,800 in 2003 dollars, Mr. Moran says. All of these pensions are indexed to inflation.

If Allison and Martha retire when each has worked to age 55, each would have total pensions of $67,700 plus adjustments for inflation, assuming that there are no salary increases. In this scenario, Allison would continue to work and contribute $5,100 a year to her registered retirement savings plan for another nine years. Martha would then be 64 and their total RRSPs would be $713,326 in 2003 dollars plus Canada Pension Plan and Old Age Security, assuming that the clawback, which currently begins at $56,900 a year, is also indexed and therefore will not reduce either pension.

Their combined RRSPs have a present value of $160,000. Assuming a 6-per-cent rate of return on investment and $10,200 combined annual contributions, they should be able to build a base of $387,528 in nine years in 2003 dollars, Mr. Moran adds.

A first step toward adding to their retirement assets is to pay down their debts. Allison has a $6,000 student loan outstanding with a 5-per-cent interest rate. She can pay this off easily out of the couple's monthly savings of $3,345. Their $90,000 mortgage at 6.2-per-cent interest can also be paid off with current monthly savings of $3,345 in less than three years, Mr. Moran says.

Outside of their RRSPs, if Allison and Martha can continue to save at their present rate, after eliminating their mortgage and student loans, they will be able to save $40,000 a year. At an after-tax growth rate of 4 per cent for this money, they will have built up another $265,320 in 2003 dollars by the time Martha turns 55, Mr. Moran notes.

Thus the couple can retire any time after Martha reaches 55 in nine years. If Allison continues to work, their combined retirement incomes will only grow, Mr. Moran adds.

The couple have no life insurance problem, for they have group benefits equal to twice their salaries plus $100,000 from previous employment, Mr. Moran says.

Moving to some place warm is a matter of taste and legal jeopardy. To someone in the North, Southern Canada may seen balmy. If they wish to move to the United States, they could become liable for U.S. succession duties on their American and foreign assets. The complexity of a move to the United States requires that they seek specialized immigration, accounting and legal advice before making the move.

The more complicated part of the couple's problems relates to the treatment of same-sex marriages. Mr. Moran notes that survivor's pension benefits depend on details of each pension plan. At death, either partner's RRSP could roll over to the other without tax since the Income Tax Act now acknowledges same-sex couples as common law and, as a result, will allow the tax-free spousal rollover, says Sheila MacPherson, a family law lawyer with the firm of Lawson Lundell in Yellowknife.

Although they have wills, "for either partner to use a will to convey assets to the other in the event of death is more complex," Ms. MacPherson adds. "Each partner can transfer assets in a way that avoids having the assets become part of the estate." In probate their assets may be subject to fees and even to challenges in the absence of a will.

Ms. MacPherson suggests they make sure that they own their home in joint tenancy rather than as tenants in common, so that the survivor is automatically granted the decedent's half. "They should make each other the beneficiary of their RRSPs and life insurance," she says.

Their investment account should be labelled Joint with Right of Survivorship until the account exceeds $250,000, at which time other tax choices will come into play, Mr. Moran says.

"This way, if any will were contested, more than 75 per cent of their net worth would not be part of the estate and would not be subject to probate."

Client situation

Civil servants Allison Smith, 38, and Martha Anderson, 45, (not their real names) live as a couple in a small town in Canada's North.

Combined income

$8,600 a month after tax.


Car, 2002 Honda $25,000; house, $300,000; boat, $7,000; snowmobile, $4,000; RRSPs, $160,000; pensions, $90,000. Total: $586,000.

Monthly expenses

Gas, $100; clothing, $425; food, $750; restaurants, $315; entertainment, $225; household expenses, $650; house and car insurance, $180; pets and vets, $250; phone and utilities, $550; vacation reserve, $500; mortgage payments, $1,400; line of credit, $35; student loan, $200; RRSPs, $850; debt repayment, $1,710; miscellaneous, $460. Total: $8,600.


Mortgage, $90,000; student loan, $6,000; line of credit, $3,000; total: $99,000.

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