Fred and Wilma Stone are planning on retiring in 7 years’ time. They are both currently 55 years of age. When the couple retires they want to move out of the city and golf. They also want to be able to travel a couple of times a year. The Stone’s believe that they will need $100,000 per in retirement to cover their living and travel expenses.

Fred works at an automotive company as an engineer. He earns $130,000 per year and his company has a defined contribution pension plan. He contributes 5% of his income and his company matches his amount. The current balance in his DCPP is $266,000 and it is invested in a balanced portfolio that has been providing an average rate of return of 5%.

Wilma is a primary school teacher and earns $92,000 per year. She has been a member of her defined benefit pension plan for the past 26 years. She anticipates that her average earnings at retirement will be $93,000. Her pension plan has a 1.7% factor.

The Stone’s have also been contributing to their RRSPs over the last number of years in anticipation of the retirement. Fred’s RRSP is valued at $156,000 and has been earning an average rate of return of 5.5%. Fred has been contributing $400 per month and plans to continue these contributions until retirement.

Wilma’s RRSP is substantially smaller because she has minimal RRSP contribution room because she is a member of a DBPP. The value of her RRSP is $36,400 and has been earning an average of 6%. Wilma has been contributing $100 per month and plans to continue these contributions until retirement.

The Stone’s plan on downsize their home when they retire and move out of the city. They are anticipating that they will have some equity to put towards retirement.

Fred and Wilma have lived in Canada all their lives and will qualify for the maximum OAS of $700 when they retire. They have also both been contributing to CPP since they started working. Both of them will qualify for the maximum CPP because of the level of their income and year of contributions. They anticipate they will each receive $1,400 when they retire.

Assumptions:

• -Life expectancy 90
• -Rate of Return in retirement 5%
• -Average Tax Rate 25%
• -Inflation 2.10%

Questions:

1. 1. What amount of money will the couple need when they retire at 62?
2. 2. How much money will they have when they retire?
3. 3. Do they have enough money?
4. 4. What recommendations would you give to the Ramsey’s?