Case #$3$: Cashflow

Josephine, a CFP professional, is meeting Alex, age $22,$ for the first time. Alex works as an

Aviation Technician for WingSPAN Corp. His parents passed away from a motorboating

accident when he was four years of age. In the aftermath, Alex inherited the family home, which

he owns outright and in sole name. After deductions, Alex$$s monthly take home pay is $$11,500.$

He would like to retire at age $65$ and believes he has a life expectancy of $90.$ Alex informs

Josephine that he wants to purchase a vacation property in Truth or Consequences, a city he

visits frequently in New Mexico. The property will cost him CDN $$145,000.$ He also mentions

that he will not make the purchase until he is able to pay for it outright.

Below is list of Alex$$s regular expenses:

RSP contributions: $$2,200$ per month

Utilities: $$300$ month

Clothing: $$250$ month

Meals and Entertainment: $$2,000$ month

Property taxes: $$4,800$ per year

Vehicle payment: $$500$ per month

Vehicle Insurance: $$1,800$ per year

Food: $$650$ per month

Cell phone: $$110$ per month

New Mexico trips: $3$ per year at $$7,500$ each

Alex currently has $$34,000$ in his RSP which is his primary retirement savings vehicle. He also

owns a non$-$registered savings account valued at $$38,000($ACB $$52,000).$ The non$-$registered

account is earmarked for his vacation property goal. His KYC form indicates that Alex has a

conservative risk tolerance and that his current asset mix is consistent with this assessment.

Based on the asset mix and projected inflation rate, an assumption of a $3\%$ real return,

compounded monthly has been projected for both of his portfolio$$s$.$ Alex also mentions that a

Robo Advisor at another bank recommended that he invest more aggressively to benefit from

higher expected returns. Alex has asked Josephine for her opinion.

$1)$ By completing a cash flow statement, determine how much Alex is able to add to his non

registered savings at the end of each month. $(2$ marks$)$

Cash Flow Statement

Income$/$ Expense item Monthly Amount $($$$)$

Monthly Savings $

$2)$ Calculate the number of months before Alex is able to purchase the New Mexico

property, ignoring any tax implications. $(3$ marks$)$

$3)$ Calculate the projected value of Alex$$s RSP account at retirement and the projected

monthly income available during retirement. $($Ignore RIF minimums$).(6$ marks$)$

Account Value at Retirement:

Projected Monthly Income During Retirement:

$4)$ Briefly explain two elements of Alex$$s circumstances that could indicate his suitability to

change to a more aggressive asset allocation in his retirement portfolio and two elements

of Alex$$s circumstances that could indicate that a more aggressive asset allocation is not

suitable. $(4$ marks$)$

Two factors suggesting more aggressive asset allocation IS suitable

$1.$

$2.$

Two factors suggesting more aggressive asset allocation is NOT suitable

$1.$

$2.$