Lisa and Mike Smith, both age 50 have come to see you, their financial planner to develop a retirement plan. Lisa works full-time at an Accounting Firm earning $50,000 a year after taxes and deductions and Mike works full-time as a Software Engineer earning $75,000 after taxes and deductions. The Smiths have one daughter, Sarah (16) who has dreams of becoming an Architect and is planning to study at a University in Toronto, for which the couple plans to pay (approx. $50,000). In addition, The Smiths live in a townhouse in Toronto that is worth $1.2 million and has $160,000 remaining on the mortgage which they would like to pay off in 10 years. 

The Smiths also share a five-year-old Hondo SUV that is valued at $26,000 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 2 million, combined in savings at age 65. Please keep in mind the following: The chequing Account balance is seen by the couple as an emergency fund, and therefore they don’t want it included in calculations for Retirement Income. The Smiths have requested you to determine if they’re on the right path towards achieving their goals for Retirement and Education funding. 

What recommendations can you provide them to optimize their financial plan? During the meeting, the couple provided you with the following information that better captures their current financial situation. Monthly Expenses (Joint): 

Mortgage Payment: $1400 Home maintenance: $100 Utilities: $300 Property Taxes $600 Auto Insurance: $200 Gas: $400 Auto maintenance: $200 Food: $1500 Clothing: $400 Internet/Cell phone bills: $300 Dining out & Entertainment: $350 Vacations $1,000 Monthly Contributions to Registered Savings Accounts: RRSPs combined $500 RESPs $200 Assets (Joint) Principal Residence: $1,200,000 Honda SUV: $26,000 Chequing Account: $50,000 Savings Account: (earning 1.5% per year): $425,000 RESP for Sarah: (invested in a flexible GIC earning 1.5% per year) $40,000 Debt (Joint) Mortgage: $160,000 Lisa Smith’s Assets TFSA: $60,000 (earning 1.5% per year) RRSP $120,000 (earning 1.5% per year) Mike Smith’s Assets: TFSA: $70,000 (earning 1.5% per year) RRSP: $150,000 (earning 1.5% per year)

Instructions 

As the Smith’s 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 I goal of 2 million at retirement the clients are projected to achieve. MODE P/Y C/Y N I/Y PV PMT FV 

Using relevant concepts from the course, provide 4 recommendations to the Smiths and explain why these recommendations would optimize their retirement plan. Each recommendation should be between 3-5 sentences long.