Case 1

(15 marks)

FIP 502: PLANNING FOR RETIREMENT, EDUCATION & INDIVIDUALS WITH A DISABILITY Group Assignment: 30 marks worth 20% of grades Due on Aug 3rd 11:59 pm

Anand & Priya both aged 55 are in exceptionally good health and have a lot of time as their children are away at university. Anand owns a cafe in Toronto and Priya was self-employed as a software engineer. Anand earns a gross income of $45000 and $31500 net income after taxes. Priya has a gross income of $135000 and a net income of $97200 after taxes. Looking back, they realise how hard they worked to come thus far. They thoroughly loved raising their two children and have always made financially sound decisions. Now they look forward to their retirement years and hope to retire at 65. They have been saving regularly and investing wisely over the years. They keep a close eye on their investments and adjust their strategies whenever necessary. They have no credit card balances and bought their car with the cash they had. They use credit cards for convenience only. Both their children have work-study programs at the university and so have

their education covered. The couple wishes to

Current financial Situation

Chequing account Savings account Emergency fund savings account House (Mortgage value $63000) TFSA $90000 RRSP $400000 Non registered investments (stocks & bonds) Life insurance cash value Car : Anand Car : Priya

purchase a smaller home in Niagara Falls area.

Monthly expenses

Mortgage $1542.77 Property taxes $400 Homeowners insurance $200 TFSA contribution $300 RRSP contributions $1000 Utilities $350 Food $600 Gas /Maintenance $485 Entertainment $400 Life insurance $475

$8500 $53000 $55000

$875000

$300000 $125000 $12500 $16000

Note: Assume the portfolio of assets in the various investments earns an average of 5% APR compounded monthly for investmentaccountsand1%APRcompoundedmonthlyforthesavings/emergencyaccounts. Ignoretaxes&inflation

1. Looking over Anands & Priyas assets, which ones could be valuable to them for income as retirement approaches? (2 mark)

2. What government pensions will they be entitled to at retirement? What is the earliest they can collect these government pensions and how would taking it early impact the pension? (3 marks)

3. Assuming they continue to contribute the above amounts to the RRSP's and TFSA's, how much will they have in assets to use for retirement at age 65 (include the non-registered investments as well in your calculations)? (5 marks)

4. How much can Anand & Priya withdraw each month and still leave their nest egg intact?

   (1 mark)

5. How much can they withdraw each month that will reduce their nest egg to zero assumingtheyliveuntiltheyare90yearsold? (2marks)

6. What are some issues that could come in the way of their retirement plans? (2 mark)

Case 2 (10 marks)

You are the financial planner and Charles & Emma have come to you for recommendations. Charles & Emma earn $100000 per annum now and estimate they need to have 50% of their current earnings a year after tax in retirement. Further, Charles & Emma now have $100,000 in their RRSPs and they would like to retire in 15 years when Cathy is 60. The investments in the RRSP grow at 5% annually. They imagine they will be retired for 30 years. They are concerned about their retirement and ask how much they will have to save each year from now until retirement to finance their retirement. They expect to receive $24000 a year before taxes from government programs and expect that their tax rate at retirement would be 20% of their income and a real return of 4% after tax.

1. How much do they need to have saved when they retire? (3 marks)

2. How much will their present savings grow to by retirement? (2 marks)

3. What is their after-tax income from government programs in retirement and how much will

   this reduce their required savings by? (2 marks)

4. How much do they need to save by end of every year till retirement? (3 marks)

Case 3 (5 marks)

Mark wants to retire in 22 years at age 64 in Mississauga, Ontario. He expects to receive an indexed employer pension of $20000 per year and 75% of the maximum CPP which is also indexed. He expects his retirement to last for 30 years and will require an after-tax pension of $40,000. Assume a marginal tax rate of 35% for the next 22 years, nominal rate of return of 10% and inflation of 4%. Mark has $20000 in an RRSP now.

How much will she have to save each year to reach her goal if

1. she saves in an RRSP and also contributed the first tax refund due to the RRSP contribution

   into the RRSP (Assume the contribution of the refund occurs at the same time as the

   original contribution). (3 marks)

2. She saves in a TFSA? (2 marks)

Note: Use 2021 figures for maximum OAS of $7421 and Maximum CPP $14445. Assume the average tax rate at retirement is 15%