FINA 702: Retirement Planning

Case Joseph and Grace Magee

• Joseph and Grace Magee are 34 years of age.
• Both Joseph and Grace have been born and raised in Toronto, and have lived in Toronto their entire lives. The Magee's met while attending the University of Toronto, in their fourth year. They were married three years later. The Magee's do not have any children.

Joseph and Grace have been married for 8 years.

• Joseph and Grace are very concerned about saving for retirement. Both their parents are currently struggling to retire. Joseph's parents are 63 and 65 and Grace's parents are 60 and 65. Neither of their parents are in a financial position to retire yet. Thus, their concern with their own financial plan.
• Joseph's grandparents are still living and are well into their 90's; while Grace's grandparents are deceased and they passed away between the ages of 70 to 80.
• Their main concerns are:
• They want to retire with enough income to live comfortably

They want to ensure that should either of one of them passes away, the surviving spouse will have sufficient income to continue living a comfortable lifestyle; unlike their parents who are struggling to make ends meet.

Joseph is currently working for KPMG as an accountant earning $63,000 annually. He has been with KPMG for the past 8 years, and believes is job is fairly stable.

• Grace is a teacher and works for the public school board earning $58,000 annually. Grace has been working as a fully time teacher for the past 4 years. The Magee's are excellent savers and they have been contributing to their RRSPs every year; $1,000 for Joseph and $1,000 for Grace.
• Joseph has accumulated $7,000 in his RRSP account. This total was $10,000; however, there was a drop in the market, last quarter which caused the drop in his RRSPs.
• Grace has accumulated $5,000 in her RRSP account. She has her RRSP savings in short term GIC's.
• The Mage's also have $4,000 each saved in their TSA accounts

Joseph Grace

Age. 34 34

Salary $63,000 $58,000

Type of Pension Plan. DBPP DBPP

Annual Inc in Salary 2% 2%

% of Pensionable Earnings per year of service 1.85% 1.95%

Best 5 year at age 65 $85,800 $ 67,400

Years of Service 8 4

Indexing / CPI 3% 3%

Survivor Benefit 60% 65%

Returns before Retirement 9.5% 9.5%

Returns afyer retirement 7% 7%

The Magee's other assets consist of:

Savings $8,000

Home is worth $650,000, and they have a mortgage of $450,000 at a current rate of 5.00% which they just renewed for an additional 5 years.

Case Joseph and Grace Magee

Questions:

Prepare an excel table to provide the Mage's the answers to questions

1. Retirement Assets Required based on combined current income

a) (1 mark) Calculate total combined income of the couple = ?

b) ( marks) Calculate couple's total combined income for the 3 scenarios (100%, 75% and 100% show all calculations & values) (assuming normal retirement age NRA)

Current age to Normal Retirement Age

Retirement Assets Required:

100%

N=

i/yr =

PV =

Pmt =

FV =

75%

N=

i/yr =

PV =

Pmt=

FV =

50%

N =

i/yr =

PV =

Pmt =

FV=

c) Using the 3 scenarios from above (retirement assets required adjust the assets for inflation amount

Retirement Assets Required (inflation adiusted):

100%

N=

i/yr =

PV =

Pmt =

FV = ???

75%

N=

i/yr =

PV =

Pmt =

FV = ???

50%

N=

i/yr =

PV =

Pmt =

FV = ???

2. What are the requirement assets required for the Mage's using the inflation adjusted rate of return If the Magee's retire at age 60, 65, 70 and live to age 907 Once completed place into a table (show all calculations using financial calculator).

Age 60 TO Age 90

Age 65 TO Age 90

Age 70 TO Age 90

a) Retirement assets required with inflation, at various ages

100% (age 60)

N=

i/yr =

PV =

Pmt =

FV =

75% (age 60)

N =

i/yr =

PV =

Pmt =

FV =

50% (age 60)

N

i/yr =

PV =

Pmt =

FV =

3. What are some points that should be made to the Magee's when presenting the above table?

Explain in detail

a) Three other important factors to consider for retirement are? (3 Marks)

1.

2.

3.

b) What forms of savings are available to the Mage's for their retirement? Use ALL possibilities

4. Calculate the following for both Joseph and Grace:

a) What is the company pension benefits for both Joseph and Grace, for the current vear & at NRA? (show formulas and calculations for each)

b) Calculate the Pension Adjustment for both Joseph and Grace, for the current year (show formula and calculations).

5. RRSP contribution room.

a) Calculate the ARse contributiontoon brbot./osofand Grace for ine curentyear.(how al. calculations and formulas).

b) Calculate the future value of Joseph and Grace's RRSP at age 65 (show all calculations and formulas )

6. TSA accounts

a) Calculate the future value of Joseph and Grace's TFSA savings at age 65 (show all calculations).

b) Calculate the future value of Joseph and Grace's non-registered savings at age 65 (show all calculations). You can get creative here!

7. Principal residence:

a) Calculate Principal residence value (choose an age and give the reason for that age, be creative). Show all calculations and formulas)

.8. Putting it all together (place all value into a table)

a) Based on the value of their:

1 RPP

2 RRSP SAVINGS

3 TFSA SAVINGS

4 NON REGISTERED SAVINGS

5 OTHER ASSETS

6 You may use other assumptions, provided you back up your response.You may use other assumptions, provided you back up your response.

Will the Magee's be able to retire at age 65? YES OR NO