The Stone's

Fred and Wilma Stone are planning on retiring in $7$ years time. They are both currently $55$ years of age. When the couple retires they want to move out of the city and golf. They also want to be able to travel a couple of times a year. The Stone's believe that they will need $$100,000$ per in retirement to cover their living and travel expenses. Fred works at an automotive company as an engineer. He earns $$130,000$ per year and his company has a defined contribution pension plan. He contributes $5\%$ of his income and his company matches his amount. The current balance in his DCPP is $$266,000$ and it is invested in a balance portfolio that hasmbeen providing an average rate of return of $5\%.$Wilma is a primary school teacher and earns $$92,000$ per year. She has been a member of her defined benefit pension plan for the past $26$ years. She anticipates that her average earnings at retirement will be

$$93,000.$ Her pension plan has a $1\mathrm{.}75\%$ factor.

The Stone's have also been contributing to their RRSPs over the last number of years in anticipation of

the retirement. Fred's RRSP is valued at $$156,000$ and has been earning an average rate of return of

$5\mathrm{.}5\%.$ Fred has been contributing $$400$ per month and plans to continue these contributions until

retirement.

Wilma's RRSP is substantially smaller because she has minimal RRSP contribution room because she is a

member of a DBPP$.$ The value of her RRSP is $$36,400$ and has been earning an average of $6\%.$ Wilma has

been contributing $$100$ per month and plans to continue these contributions until retirement.

The Stone's plan on downsizing their home when they retire and move out of the city. They are

anticipating that they will have some equity to put towards retirement.

Fred and Wilma have lived in Canada all their lives and will qualify for the maximum OAS of $$700$ when

they retire. They have also both been contributing to CPP since they started working. Both of them will

qualify for the maximum CPP because of the level of their income and year of contributions. They

anticipate they will each receive $$1,400$ when they retire.

Assumptions:

Life expectancy $90$

Rate of Return in retirement $5\%$

Average Tax Rate $25\%$

Inflation $2\mathrm{.}10\%$

What amount of money will the couple need when they retire at $62?(5$ marks$)$

How much money will they have when they retire? $(16$ marks$)$

Do they have enough money? $(1$ mark$)$

What recommendations would you give to the Stone's $(3$ marks$)$