You smile as you fondly remember your father talking about Freedom 55, his plans for an early retirement. While your career's going all right and your spouse is doing about the same, you're thinking more like Freedom 75.

While you're better off than you were 10 years ago, you're nowhere near trying to decide which warm-weather country would be the place to build your retirement villa.

Teenagers are expensive. How can one family spend so much money on groceries? Still, you can almost see the light. They won't be around forever, right?

But there is that matter of post-secondary education. Yes, you managed to stick some money in the kids' college funds. Sometimes, it wasn't much more than what the federal government paid you for the first six years of their lives. Later on, you scraped together a little more. You were pretty aggressive with those funds, believing you could take a chance because the kids wouldn't need the money for years. Well, the piper's going to want to be paid in a few years - and you're worried. How did the cost of education get to be so expensive?

You are building substantial equity in your home and you had been toying with the idea of putting some of it to work for you. Maybe take out a line of credit and invest the money. After all, borrowing to put money into those RSPs seems to have been a pretty good strategy, except that one of you is always trying to pay off an RSP loan. Still, you'd like to get something going outside the RSP even though you still have some contribution room left, and lots of people are talking about alternatives like the new tax-free savings plan.

Sandra Foster replies

With all these ideas from people around you, how do you know what's right for you?

There are a lot of good ideas, and a lot of ideas being floated in the news and in conversation. Some may apply to you and others may not. Some may be good ideas and others are just outright inappropriate for your personal situation.

'Anyone who suggested that a family could pay down their house, feed a family, save for retirement ... all at the same time doesn't know what it's really like'

The first thing I would recommend is to find out if your retirement is on track for freedom 60, 65, 70 or 75. Wouldn't it be nice to know rather than just wonder?

Teenagers — raising a family — are expensive. Anyone who suggested that a family could pay down their house, feed a family, save for retirement and save for their children's education all at the same time doesn't know what it is really like.

You mentioned that you are worried about the aggressive strategy you took with the children's money. If the money was held in an RESP and is used towards tuition, books and other education-related expenses, money is taxed in the name of the student at their tax rate at the time, not the parents'.

Some people have paid off their homes and then secured a line of credit against the house for investment purposes in a non-registered account (not an RRSP). If you and your partner are the type who have worked hard to pay off your house and are proud that you were able to pay it off, you may not want to turn around and use it to secure a loan. As well, if you are investing in the stock market, you will be taking on risk and unless you are in the top tax bracket, the interest you might be able to deduct will not help you as much as someone who makes more. As well, investing with borrowed money is much riskier that investing with money that is not borrowed, and I would not recommend it in general, and certainly not in the markets we find ourselves in in late 2008.

As of Jan. 1, 2009, both you and your partner can put $5,000 into a tax-free savings accounts each year. This could reduce your annual tax bills. For example, any interest earned on an investment held in a TFSA is not taxable. The interest earned on the same investment not held in a TFSA is taxable.

Judith Cane replies

It sounds like you've done all of the right things to reach your financial goals. You haven't mentioned how you would finance your retirement, so that would likely be the first step I would recommend. Determine what you would need to retire on, including income and your costs. While most people think that expenses in retirement are less than while you are working, in my experience it costs nearly the same — the expenses are just different.

If you are considering leveraging the equity in your home, I would seriously investigate whether you are willing to take the risk. Many people who leveraged a couple of years ago are now worrying because their investments loan is higher than their investments. If you have time to wait out this bear market, then it may be worth the risk. If you are going to need your investments in the near term (one to 10 years) then you may determine it's not worth the risk.

John Kason replies

Now that the family is established and experienced at budgeting with stable incomes, getting a full retirement plan designed with a certified financial planner is a must. This plan will focus on identifying clearly one's investment objectives, expectations, as well as carefully examining estate planning and tax planning. The plan will help answer what every family wants to know: How much will they need? What will they get? And when will they be able to retire? This exercise will provide you with some quantifiable figures, allowing the family to refocus their finances.

With teenagers approaching post-secondary school age, I do suggest that assets in the college fund be examined and, depending on the market conditions, rotate these assets into more conservative dividend-paying or balanced fund-type investments to reduce rapid capital erosion during turbulent markets.

The family has the ability to now invest more money, but dollars should not be borrowed to invest in RRSPs. Instead, money should be borrowed to invest in non-registered assets, if at all. This way, the interest can be tax deductible, creating tax savings. As well, growth from non-registered assets can then be used to make your RRSP contributions — in effect, double dipping.

A wise choice when borrowing to invest is to buy assets that pay dividends, as they provide the investor with some protection from market volatility, as well as a little coverage of the monthly payments.

A portfolio of Canadian dividend ETFs, U.S. dividend ETFs and even quality corporate debentures will provide great returns, steady income streams and reliable growth. I advocate that families shift their focus from having excessive RRSP portfolios to examining the significant benefits of non-registered portfolios. The non-registered portfolio, once established, will provide the family with a pool of assets that will not only support retirement objectives but also growth that can then be used to subsidize family expenses such as vehicles, education, holidays and, of course, reinvestment.

The tax-free savings accounts should become a component of the non-registered portfolio. With only $5,000 in annual contributions per person over 18 being allowed, these accounts will slowly allow investors to shelter capital gains and investment income. These accounts, although coming from after-tax dollars and creating no tax deductions, should be utilized to the fullest. I recommend that due to the limited amount of money on a yearly basis that you can invest in these accounts, they are a great place to be home to the speculative component of your portfolio.