Patrick Gamble is single and has just turned 65. He works as taxi driver and earns $35,000 a year. This equates to about $30,000 after tax. He is in the bottom tax rate bracket so his average tax rate is 14.28% and his marginal tax rate is 20.05%. This will be his average and marginal tax rate in retirement too.  

His current living expenses are $2,000 a month and this will stay the same in his retirement. He has avoided the idea of retiring and has made little plans for his retirement. However, after turning 65 he cannot put if off any longer. After reviewing his finances, he sees his lack of retirement funds and is willing to keep on working for 5 more years. He believes he will now retire at age 70 and as he expects to live until age 90.

Patrick rents his home, and his only savings are $10,000 in his TFSA and $30,000 in an RRSP. He will save his money into his RRSP first and the tax refund into his TFSA.  

You have calculated that his CPP entitlement would be $689 a month and OAS would be $615 a month before tax. You also informed Patrick if he delays the start of receiving CPP and OAS the amounts will increase by: CPP payments will increase by 0.07% for each month up to the maximum at age 70 and OAS payments will increase 0.06% for each month up to the maximum at age 70.  

Use a discount rate of 3% p.a. as a real before tax rate of return.

Required

• As Patrick is going to work for 5 more years and save money into his RRSP, what would be the real balance of his TFSA and RRSP? How much could he withdraw as a real after tax amount each year to support his retirement in equal amounts?
• Using the CPP, OAS and your answer to a), calculate whether Patrick has enough annual income to retire with?