Thomas and Linda are now 50 years old. They have been working outside Canada but recently moved back, and would like to retire here at age 62 with enough income to support them to age 95. They estimate they will need $60,000 p.a. in today’s dollars before-tax income in retirement. They will get no employer pensions. They will each get a pension of $8,000 p.a. from the Canada Pension Plan at age 62, and $5,000 p.a. in Old Age Security, at age 66. These values are in before-tax today’s dollars, and they will be indexed. They have $30,000 total in TFSAs and $200,000 total in their RRSPs. They are each earning a salary of $60,000 gross p.a. and their marginal tax rate is 30%. Their pre-retirement asset allocation is 70% equity, expected nominal return 5% and 30% bonds, expected nominal return 3%. Once they retire they will shift their asset allocation to 60% bonds, expected nominal return 3% and 40% equity, and expected nominal return 5%. They are planning for a long-run inflation rate of 1.5%. They have a second goal. The year they retire, they want to take the trip of a lifetime around the world, for a cost of $80,000 in today’s dollars.

Their plan is to save the maximum they can in RRSPs (use 18% of gross income) for the next 12 years. They have no RRSP contribution room carried forward. They will save the tax refunds and deposit them in their TFSAs. Assume they have sufficient TFSA contribution room. They plan to pay the cost of the trip from the TFSAs and use the RRSPs to fund their retirement income needs. The cost of the trip is payable at the start of the year. All other values are at year-end. To reduce the number of calculations, combine the TFSAs together as $30,000 and the RRSPs together as $200,000, and do the same with the annual deposits to them.

Required:

Will they meet their retirement goal?