Retirement Goal Plan Assignment $15\%$

Franca and Ed Diaz, both age $40$ have come to see you, their financial planner to develop a retirement plan. Franca works full time at an Accounting Firm earning $$97,000$ a year after taxes and deductions and Ed works full time as a Software Engineer earning $$130,000$ after taxes and deductions. The Diaz$$s have one child, Rachel, who is $8$ years old. The Diaz$$s have not yet put any savings aside for Rachel$$s post secondary education but would like to start.

In addition, The Diaz$$s live in a townhouse in Mississauga that is worth $$1\mathrm{.}2$ million and has $$220,000$ remaining on the mortgage which is on track to be paid off in $12$ years. The Diaz$$s also share a four year old Volvo SUV that is valued at $$38,000$ 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 $1\mathrm{.}5$ million, combined in savings at age $65.$ Franca and Ed were both born in Toronto and have always resided in Canada. In addition, both Franca and Ed have been employed full time since graduating from College at age $21$ with the exception of Franca taking a year off of work during her maternity leave.

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 Diaz$$s have an abundance of questions for you and have requested you to determine if they$$re on the right path towards achieving their retirement goal. During the meeting, the couple has provided you with the following information that better captures their current financial situation.

Monthly Expenses $($Joint$)$:

Mortgage Payment: $$1500$

Home maintenance: $$300$

Utilities: $$280$

Property Taxes $$480$

Auto Insurance: $$160$

Gas: $$360$

Food: $$1400$

Clothing: $$380$

Internet$/$Cell phone bills: $$260$

Dining out & Entertainment: $$560$

Vacations $$1,600$

Monthly Contributions to Registered Savings Accounts:

Franca and Ed each contribute $$200$ per month their RRSP accounts.

Assets $($Joint$)$

Principal Residence: $$1,200,000$

SUV: $$38,000$

Chequing Account: $$20,000$

Savings Account: $($earning $3\%$ per year compounded annually$)$: $$200,000$

Debt $($Joint$)$

Mortgage: $$220,000$

Franca$$s Assets

TFSA: $$36,000($earning $3\%$ per year compounded annually$)$

RRSP $$80,000($earning $3\%$ per year compounded annually$)$

Ed$$s Assets:

TFSA: $$50,000($earning $3\%$ per year compounded annually$)$

RRSP: $$110,000($earning $3\%$ per year, compounded annually$)$

Assignment Instructions $$ Answer the following questions:

$1.$ As the Diaz$$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 goal of $1\mathrm{.}5$ million at retirement the clients are projected to achieve. $(3$ marks$)$

MODE P$/$Y C$/$Y N I$/$Y PV PMT FV

$2.$ The Diaz$$s are wondering what RRSP maturity option would provide them with flexibility and the ability to maintain control over how their funds are invested at retirement. Provide the Diaz$$s with an overview on which RRSP maturity option would best fit their needs and why. $($Your response should be between $3-4$ sentences long$).(3$ marks$)$

$3.$ The Diaz$$s have questions about Old Age Security. Provide a brief explanation on what OAS is and how one can be eligible for the maximum OAS benefit. $($Your response should be between $2-3$ sentences long$).(2$ marks$)$

$4.$ After analyzing the Diaz$$s respective RRSPs and TFSAs, you notice that they have not designated beneficiaries on either accounts. The Diaz$$s mention they$$re unsure of what a beneficiary is and ask you to provide some clarification. In $3-4$ sentences, help the Diaz$$s understand what a beneficiary is and how failing to designate a beneficiary on their registered accounts would affect their estate plan. $(3$ marks$)$

$5.$ After reviewing the Diaz$$s financial situation, provide $2$ recommendations to the couple that would optimize their retirement goal plan. Be sure to elaborate on how your recommendations can be implemented as well as how your recommendations would support the Diaz$$s retirement plan. $($Your response should be between $4-6$ sentences long$).(4$ marks$)$