The simplest issue in the couple's portfolio is their house. With an estimated market value of $340,000, it has a $70,000 mortgage at 5 per cent to be paid off in 38 months. There are two other properties, each with a value of $200,000, and two mortgages: one for $90,000, one for $50,000, each at 5.5 per cent.

The first step is to rationalize interest payments, Mr. Moran says. Dave and Patricia should reamortize their rental mortgages as far as they can. That will free up money that was going to finance them. The money saved can be diverted to pay down their home mortgage, interest on which is not tax deductible. This move speeds up repayment of the house and saves taxes at the same time. A more important issue, however, is whether to keep the rental properties.

One of the rental properties is a condo in Toronto. Until a few years ago, they used it as a second home when in the city. It is now rented out, but they have not taken any depreciation on it. The couple did not do certain paperwork required by the Income Tax Act to declare that the condo was being shifted from personal use to rental, Mr. Moran notes. However, he estimates that 80 per cent of the gain will be free of capital gains taxes.

Should the condo be sold? Right now, counting the couple's rental properties and their home, they have 69 per cent of their assets in real estate. That's a lot. To achieve a safer diversification in which a third of their assets are in stocks, a third in fixed income, and a third in real estate, it would be useful to sell the condo and reallocate the money. There would be less rent to collect, fewer tenant issues and better diversification, the planner notes.

There is another way to pay off the mortgage on their principal residence. They could take $30,000 in non-registered investments from Patricia's account. It would reduce amortization time on the home mortgage to 18 months, saving $3,721 in interest. Any capital gains realized in her hands would be taxed at just 11 per cent, Mr. Moran says, and they could borrow to buy the stocks back and interest on this loan would be tax deductible.

The couple should also clear up a $12,000 registered retirement savings plan loan and $69,000 in lines of credit. The interest on these loans is not deductible. The cash to pay them off should be available once the mortgage on the principal residence is paid off.

Dave and Patricia should also rationalize the $330,000 they hold in a mix of mutual funds. Mr. Moran estimates that they are now paying $10,000 in annual management fees at what is likely to be 3 per cent a year when all recurring fees and sales charges are added up. They could change their method of asset management, either using a money manager or selecting lower fee index funds for at least a part of their portfolio, Mr. Moran says.

Before retirement, Dave can shift income to Patricia just by increasing her salary. She does work for Dave's business and could be seen as being entitled to higher compensation, Mr. Moran explains. The tax savings on taking $15,000 from Dave's salary and adding it to Patricia's would be about half the 40.16 per cent of his gross income already going to the tax man, he notes.

Before retirement, Dave could incorporate. He is the core of his business, but a corporate structure would provide liability protection and might even be a way to sell the business when he retires. Incorporation would reduce taxes on business earnings to 18.6 per cent, the small-business rate. The company would be a savings vehicle once Dave's RRSPs are maxed out, the planner adds. He would be saving and investing 84-cent dollars rather than the 59-cent dollars he is now left with after payment of taxes, Mr. Moran explains.

With incorporation, tax savings alone, channelled through a family trust, could help pay for their daughter's postsecondary education, which currently is not funded by a registered education savings plan. If she has no other income, the first $30,000 of income will be untaxed. Personal and dividend tax credits would offset provincial and federal taxes due, the planner says.

If incorporated, Dave could pay himself a salary equal to the amount needed to earn maximum RRSP contribution space. That's currently $100,000; $35,000 could be paid to Patricia as salary and the balance would be invested in the company as retained earnings, Mr. Moran explains. What's more, if the rental properties, assuming they are kept, are rolled into the company, then those mortgages could be repaid with 81-cent dollars instead of 51-cent dollars.

The couple are already easing into pension income. Patricia has elected to draw Canada Pension Plan early. She receives $380 a month. Dave, born abroad, has lived in Canada for 21 years and has earned above the maximum level of contributory earnings for that time. He has already earned credit for 56 per cent of the maximum payment, currently $10,135 a year, Mr. Moran estimates. If he makes full CPP contributions until he is 55, he would be entitled to 69 per cent of the maximum payout less 30 per cent if he elects to receive benefits at 60. At that time, he would lose 0.5 per cent of the age 65 benefit for each month that benefits begin prior to 65.

If Dave and Patricia work and save at their present levels, then their current $330,000 in RRSPs plus the $20,000 a year they add on average would push up the total RRSP accounts to $491,900 in 2006 dollars by 2011 when he is 55. That sum, if growing at 6 per cent a year less 3 per cent for inflation, could provide a stream of taxable, inflation-adjusted income of $23,680 a year for the next 28 years, which is five years beyond Dave's life expectancy of 77 years. Patricia is 11 years older, so, statistically, she would be the first to die.

Dave will qualify for 37/40ths of full Old Age Security when he reaches 65, currently $5,411 a year and indexed to the consumer price index. Patricia will qualify for full OAS.

"If they make the changes that I have suggested, they will boost their retirement income and have more money and more security," Mr. Moran says.

Main residence, $340,000; investment property No. 1, $200,000; investment property, No. 2, $200,000; cars, $25,000; RRSPs, $340,000; taxable investments, $33,000.

Mortgages, $2,040; loss from investment property No. 1, $200; loss from investment property No. 2, $100; property taxes, $300; food, dining out, $850; clothing, $100; daughter's expenses, $1,330; RRSP contributions, $2,000; fuel, car maintenance, $250; car and home insurance, $250; Dave's life insurance, $80; house maintenance, $500; car loan, $1,100; travel, $1,300; charity, $100. Total: $10,500.

Mortgage on main residence, $70,000; mortgage on investment property No. 1, $90,000; mortgage on investment property No. 2, $50,000; lines of credit, $69,000; RRSP loan, $12,000; car loans, $28,000.

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