Amy and Sam are meeting with their Financial Planner, Finn Wong, today regarding their retirement. They are both $43$ years of age and hoping to retire in $21$ years. They have two children, age $10$ and $12.$ They are unsure of how much money they will need to retire. They ask Finn to help them to make sure that they are on the right track to retirement.

Amy is a teacher in Toronto and earns a salary of $$103,000$ annually. She is a member of the Ontario Teachers Pension Plan, which is a defined benefit pension plan. She started teaching when she was $29$ years old, and her pension will be based on her best five average salary and a $2\%$ factor. She is currently at the top of the pay grid and expects that her salary will keep up with inflation. Amy asks Finn if she is eligible to retire with her full pension in $21$ years if the factor on her pension is $85.$ Once she starts to receive her pension it will be indexed for inflation.

Sam works for a candy company as a marketing manager. His income is $$81,000$ annually. He has a group RRSP through his employer where he puts in $6\%$ of his salary and they match $50\%$ of his contributions. He has chosen to invest this money in a balance portfolio earning $6\%$ per year, compounded annually.

Sam and Amy would like to spend their retirement travelling twice a year and golfing. They estimate that a golf membership will cost them $$12,000$ annually and their trips would cost them $$14,000$ annually. Amy is also concerned with making sure that they are not a burden to their children in the event that they become ill. They are also planning on downsizing their home and they anticipate that they will have $20\%$ of the equity from their home for retirement.

Net Worth Statement for Amy & Sam Barrie

As of December of Last Year

Assets

House

Group RRSP

RESP

DBPP

TFSA $($Emergency fund in cash$)$

Total Assets $$1,200,000$

$$228,000$

$$52,000$

$$308,000*$

$$21,000$

$$1,569,000$

Liabilities

Mortgage

Line of Credit

Credit Card

Total Liabilities $$676,893$

$$11,300$

$$0$

$$688,193$

Net Worth $$880,807$

Cash Flow Statement for Amy & Sam Barrie

As of December of Last Year

Income Annually

Sam$$s Employment Income $$81,000$

Less: Taxes, EI & CPP $$19,200$

Amy$$s Employment Income $$103,000$

Less: Taxes, EI & CPP $$25,050$

Less: Pension Contribution $$9,900$

$$61,800$

$$68,050$

Total Take Home Income $$129,850$

Expenses

Housing

Mortgage Payments

House Maintenance

Home Insurance

Utilities $$ Heat, water, electricity

Property Taxes

Automobiles

Lease Payments $($Honda & Audi$)$

Gas, Operating Expense & Repairs

Other Expenses

Phone, cable, internet

Food

Clothing

Entertainment & Vacation

Miscellaneous

Savings

Sam$$s Group RRSP Contribution

RESP

TFSA

$$46,925$

$$6,000$

$$3,400$

$$6,500$

$$4,200$

$$13,200$

$7,200$

$$3,840$

$$6,200$

$$3,600$

$$10,000$

$$6,000$

$$4,860$

$$5,000$

$$2,200$

Total Expenses $$129,125$

Surplus or $($Deficit$)$ $$725$

Assumptions:

$$ Inflation $2\mathrm{.}75\%$

$$ CPP Maximum $(2023)-$ $$13,600$

$$ OAS Maximum $(2023)-$ $$6,960$

$$ Amy$$s Best Five Years average $-$ $$120,600$

$$ ATR in retirement $21\%$

$$ MTR in retirement $31\%$

$$ Nominal Return in Retirement $5\mathrm{.}5\%$

$$ Life Expectancy $$ Age $90$

Requirements:

$1.$ Based on their current spending, what do you estimate that they will need in the first year of retirement to cover both expenses and taxes.