PART B $(28$ marks$)$

Marty, age $56,$ and Marcia, age $53,$ are starting to think about retirement. Marty plans to retire

at age $65$ and he expects to live to age $85.$ Marcia plans to retire at age $65$ and she expects to

live to age $90.$ They estimate that they will need $$68,000$ per year, after$-$tax, in retirement to

give them the lifestyle they want. Marty will receive an indexed pension of $$30,000$ per year,

before$-$tax and Marcia will receive a small non$-$indexed pension of $$7,500$ per year, before$-$tax,

from a previous employer. Marty will receive a retirement pension of $$1,100$ per month from

the Canada Pension Plan $($CPP$)$ and $$600$ per month in retirement income from the Old Age

Security program. Marcia will receive a retirement pension of $$400$ per month from the Canada

Pension Plan $($CPP$)$ and $$600$ per month in retirement income from the Old Age Security

program. CPP and OAS payments are before$-$tax. CPP payments begin at retirement while OAS

payments begin at age $65.$ They currently have $$140,000$ in RRSPs and $$70,000$ in TFSAs. For

planning purposes, they are using a $7\mathrm{.}5\%$ nominal rate of return on savings before retirement

and a $4\mathrm{.}5\%$ nominal rate of return during retirement. Inflation is expected to remain at $3\%$ per

year throughout their lifetime. The tax rate applicable to their situation is $25\%.$ Please use the

appropriate discount rate and mode $($begin$/$end$).$

Use a timeline to describe Marty and Marcia's retirement cash flows. $(2$ marks$)$

In percentage terms $($e$.$g$.3\mathrm{.}2345\%),$ what is their real rate of return before and after

retirement? $($ROUND TO $4$ DECIMAL PLACES$)(2$ marks$)$

What is the after$-$tax present value, at retirement, of their required retirement income

need? $(2$ marks$)$

What is the after$-$tax present value, at retirement, of Marty's indexed pension? $(2$ marks$)$

What is the after$-$tax present value, at retirement, of Marcia's non$-$indexed pension?

$(2$ marks$)$

What is the after$-$tax present value, at retirement, of Marty's CPP retirement pension?

$(2$ marks$)$