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The Oliver$$s

Fred and Wilma Oliver, both age $57,$ are coming to you to seek advice on their retirement planning. They are starting to wonder when they can retire. They would like to retire at age $65.$ 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 Oliver$$s believe that they will need $$100,000$ per in retirement to cover their living and travel expenses. This estimate of the amount they will spend is in todays dollars.

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 balance portfolio that has been providing an average rate of return of $5\mathrm{.}65\%.$

Wilma is a primary school teacher and earns $$102,000$ per year. She has been a member of her defined benefit pension plan for the past $26$ years. She anticipates that her average earnings at retirement will be $$110,000.$ Her pension plan has a $1\mathrm{.}75\%$ factor.

The Oliver$$s have also been contributing to their RRSPs over the last number of years in anticipation of the retirement. Fred$$s RRSP is valued at $$156,000$ and has been earning an average rate of return of $6\mathrm{.}5\%.$ Fred has been contributing $$400$ per month $($$$4,800$ per year$)$ 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 $$100$ per month $($$$1,200$ per year$)$ and plans to continue these contributions until retirement.

They do not contribute much to a TFSA. Currently Fred and Wilma have $$18,000$ and $$16,000$ in their TFSA respectively. They have $$80,000$ and $$83,000$ of contribution limit$,$ respectively, remaining.

The Oliver$$s plan on downsizing their home when they retire and move out of the city. They are anticipating that they will have some equity to put towards retirement. Although this amount has declined in last few years since rural properties have appreciated in value, they think they will clear $$300,000$ when they move on retirement day.

Fred and Wilma have lived in Canada all their lives and will qualify for the maximum OAS of $$8,500($today dollars$).$ They have also both been contributing to CPP since they started working. Both of them will qualify for the maximum CPP because of the level of their income and year of contributions. They anticipate they will each receive $$16,000($today dollars$).$

Assumptions:

$$ Life expectancy $95$

$$ Rate of Return in retirement $5\%$

$$ Average Tax Rate $20\%$

$$ Inflation $2\mathrm{.}10\%$

Required:

$1.$ What amount of money will the couple need when they retire at $65?(5$ marks$)$

$2.$ How much money will they have when they retire, from all income sources? $(16$ marks$)$

$3.$ Do they have enough money? $(1$ mark$)$

$4.$ What recommendations would you give to the Oliver$$s $(3$ marks$)$