Asrita and Sunil, both aged 56, plan to retire in ten years. They have no company pension plans so they will save for retirement using only their RRSPs. They estimate they will need $70,000 p.a. after-tax for both. They expect to live to age 95. Their RRSPs are valued at 160,000 and is earning a 5.5% real rate of return. They expect to be able to contribute $10,000 every year. Astrita & Sunil were immigrants and have lived in Canada for the past 20 years and will therefore qualify for 50% of the maximum OAS of $350 per month each when they retire. They have also both been contributing to CPP since they started working. Both will qualify for 50% of the maximum CPP per month because of the level of their income and years of contribution into CPP. They anticipate they each will receive $577 at retirement. Assumptions: Rate of Return in retirement 7% Average Tax Rate (20%) Inflation 2 % a. How much do they need p.

a. before tax at retirement?

b. What is the present value at retirement of their required retirement income before tax?

c. What is the present value of their CPP and OAS. Assume CPP and OAS are received in the end of the month. (Hint: Remember CPP & OAS are inflation adjusted)

d. How much will they have in the RRSPs when they retire?

e. What is the shortfall or surplus of their retirement income?

f. Will they have the comfortable retirement they envision? Why or why not? If not, what can they do have this comfortable retirement?