Case Study #1: Retirement Planning

Information on Abe Fisher: Qualitative:

• Abe has been a professor since obtaining his PhD at age 32

• He has been tenured at UofOttawa since 2010, now at age 45 he is seriously thinking

  about the future, especially retirement. No matter what, retirement must happen at 65

  he stated.

• He is single and believes that most likely things will stay the same in the future. (He does

  not rule out the rare possibility of the love bug, but is content with the status quo).

• Though he currently earns $90,000 annually today, he thinks retiring on 60% of this

  income would make retirement comfortable, assuming that inflation does not exceed 3%.

• Trying to stay healthy is his biggest challenge being single, and living on fast foods most of the time does not help. Yet, he hopes to outlast his grandfather and father (both passed

  away at 81 and 83 respectively), if his money can last to age 90, he would consider himself lucky. Getting old is not a problem, as long as I dont run out of money he said seriously.

• He expects to receive the current maximum CPP benefits ($ 13,850) and OAS ($ 7,285). Hopefully his employer would be able kick in the estimated $ 20,000 in annual pension. He likes the fact that these benefits (CPP/OAS/ pension) will constantly be indexed to the inflation rate.

• He has never had a thorough financial plan, but has always believe that to keep things simple:

  o Stay out of debt o Save for retirement as a top priority (being single with no dependents, allows him

  to focus on retirement as his biggest long term concern.) o Keep some money aside for emergencies

• As a result, he currently has $ 75,000 in RRSPs, and contributes $3,600/year annually. He is not sure if this is enough, but can put more into his investments if he has to.

• Abe enjoys fishing and golfing. He looks forward to the summer seasons. He tries to get away from Ottawa at least twice to Florida Destinations (fishing) and the Caribbean for (golfing).

• Overall he is very happy with his situation (financially and emotionally) but would like to ensure that he is on the right track. He has reached out to you with these questions:

  What would retirement look like at 65 (financially for him)? Is 65 a realistic time frame? What could he do to make it happen? Though not afraid of risk taking, he thinks he would be comfortable with a 7% rate of return to grow the RRSP until retirement. Once he converts to a RRIF at 65, he would be quite satisfied with 4% (if attainable).

Step 1: (8 Marks) Abe has indicated that he will need an annual income of $___________ in today's dollars in his first

Year of retirement. Assuming an annual inflation rate of ________% , this translates to $___________ (1)in future dollars.

Please show your work below as to how you arrived at your answer(1):

N= I= PV =

PMT =

FV =

Step 2: (9 Marks) Abe expects to receive the following annual income during his retirement:

Canada Pension Plan (CPP) = Old Age Security (OAS) = Guaranteed Income Supplement (GIS) =

Company Pension Benefit (RPPDB) =

Other Income (if any)=

Total =

Abes total annual retirement pension income from the above sources (when expressed in future dollars) is expected to be $___________. (2)This income will continue for the duration of his retirement. Please show your work below as to how you arrived at your answer(2):

N=

I=

PV =

PMT =

FV =

Step 3: (8 Marks) To meet his financial needs through ___________ years of retirement, and assuming he will

continue to earn a ___________% return on his RRIF investments during retirement, Abe will need to have saved $____________ (3)by the time he retires.

Please show your work below as to how you arrived at your answer(3):

N= I= PV =

PMT =

FV =

Step 4: (7 Marks)

Under Abes current savings plan, he will have a shortfall of $___________, as the existing funds he has already accumulated (if any) plus his existing annual contribution (if any) will grow and accumulate to $ ______________ (4)

Please show your work below as to how you arrived at your answer(4):

N= I= PV =

PMT =

FV =

Step 5: Your RRSP plan solution (6 Marks)

In order for Abe to meet his retirement goal, this is the additional annual deposit of $____________ (5)will be necessary in RRSP contributions.

Please show your work below as to how you arrived at your answer(5):

N= I= PV =

PMT =

FV =