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

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

$(2$ marks$)$ What is the after$-$tax present value, at retirement, of Marcia$$s OAS retirement income? $(3$ marks$)$ Before they retire, the couple decides that they will deposit $$1,100$ per month at the end of each month into Marcia$$s RRSP$.$ Including the current value of their RRSP$,$ what will be the after$-$tax value of their RRSP by the time they reach retirement age? What is the after$-$tax future value, at retirement, of their TFSA? $(2$ marks$)$ Based on your answers to the questions above, will they have enough money for retirement? EXPLAIN USING THE CALCULATIONS ABOVE. Assuming that they do not have sufficient retirement income, what options do they have to ensure that they have sufficient money for retirement?