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Franca and Ed Diaz, both age 4 0 have come to see you, their financial planner to develop a retirement plan. Franca works full time

Franca and Ed Diaz, both age 40 have come to see you, their financial planner to develop a retirement plan. Franca works full time at an Accounting Firm earning $97,000 a year after taxes and deductions and Ed works full time as a Software Engineer earning $130,000 after taxes and deductions. The Diazs have one child, Rachel, who is 8 years old. The Diazs have not yet put any savings aside for Rachels post secondary education but would like to start.

In addition, The Diazs live in a townhouse in Mississauga that is worth $1.2 million and has $220,000 remaining on the mortgage which is on track to be paid off in 12 years. The Diazs also share a four year old Volvo SUV that is valued at $38,000 and has no existing loan balance.

Regarding retirement, the couple would like to retire at 65 and want to ensure they are on track towards a comfortable retirement which would require the couple to have 1.5 million, combined in savings at age 65. Franca and Ed were both born in Toronto and have always resided in Canada. In addition, both Franca and Ed have been employed full time since graduating from College at age 21 with the exception of Franca taking a year off of work during her maternity leave.

Please keep in mind the following:

The chequing Account balance is seen by the couple as an emergency fund, and therefore they dont want it included in calculations for Retirement Income.

The Diazs have an abundance of questions for you and have requested you to determine if theyre on the right path towards achieving their retirement goal. During the meeting, the couple has provided you with the following information that better captures their current financial situation.

Monthly Expenses (Joint):

Mortgage Payment: $1500

Home maintenance: $300

Utilities: $280

Property Taxes $480

Auto Insurance: $160

Gas: $360

Food: $1400

Clothing: $380

Internet/Cell phone bills: $260

Dining out & Entertainment: $560

Vacations $1,600

Monthly Contributions to Registered Savings Accounts:

Franca and Ed each contribute $200 per month their RRSP accounts.

Assets (Joint)

Principal Residence: $1,200,000

SUV: $38,000

Chequing Account: $20,000

Savings Account: (earning 3% per year compounded annually): $200,000

Debt (Joint)

Mortgage: $220,000

Francas Assets

TFSA: $36,000 (earning 3% per year compounded annually)

RRSP $80,000 (earning 3% per year compounded annually)


Eds Assets:

TFSA: $50,000 (earning 3% per year compounded annually)

RRSP: $110,000 (earning 3% per year, compounded annually)


Assignment Instructions  Answer the following questions:


1. As the Diazs Financial Planner, are they on the right track to reach their retirement goal? Using TVM Calculations, determine at the current savings rate how close to the goal of 1.5 million at retirement the clients are projected to achieve. (3 marks)


MODE P/Y C/Y N I/Y PV PMT FV



2. The Diazs are wondering what RRSP maturity option would provide them with flexibility and the ability to maintain control over how their funds are invested at retirement. Provide the Diazs with an overview on which RRSP maturity option would best fit their needs and why. (Your response should be between 3-4 sentences long). (3 marks)


3. The Diazs have questions about Old Age Security. Provide a brief explanation on what OAS is and how one can be eligible for the maximum OAS benefit. (Your response should be between 2-3 sentences long). (2 marks)


4. After analyzing the Diazs respective RRSPs and TFSAs, you notice that they have not designated beneficiaries on either accounts. The Diazs mention theyre unsure of what a beneficiary is and ask you to provide some clarification. In 3-4 sentences, help the Diazs understand what a beneficiary is and how failing to designate a beneficiary on their registered accounts would affect their estate plan. (3 marks)


5. After reviewing the Diazs financial situation, provide 2 recommendations to the couple that would optimize their retirement goal plan. Be sure to elaborate on how your recommendations can be implemented as well as how your recommendations would support the Diazs retirement plan. (Your response should be between 4-6 sentences long). (4 marks)


DO IT TVM METHOD

P/Y=12

C/Y=1

I/Y=?

N=?

PV=?

FV=?

PMT=?


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