CASE STUDIES1.STARTING YOUR RETIREMENT PLAN AT 50Alan is 50, Joanne is 51. They have a large house worth $800,000 in Torontoand a cottage worth $200,000 in Muskoka. Mortgage payments on these properties are $42,000 p.a, and they will be paid off in 10 years. They have noother debts, although they just finished paying off a car loan. They each owna recent model car, and they replace their cars every three or four yearsbecause they do not want to be seen driving older models. Alan's net incomeor take-home income was $100,000 last year, after taxes, PP, El premiums,medical insurance, etc. Joanne takes home $40,000 pa. after the same setof deductions and contributions to her employer pension plan. They havetwo children whom they are currently helping through school, at a cost of$25,000 p.a. This cost will continue for another five years, after which thechildren are on their own. They are both carrying substantial life insuranceand disability insurance, all of the cost of which is deducted from their grosspay in arriving at the net income reported above.They have $10,000 in a chequing account and a substantial line of creditat the bank if they need it. Alan has $30,000 in an oil and gas mutual fund.He has no pension plan. Joanne has $20,000 invested in GICs in an RRSPShe expects an indexed pension plan of $25,000 (in today's dollars) it sheretires at age 61. They would each qualify for only 80% of maximum CanadaPension, and that would be further reduced if they start receiving it beforeage 65.Alan has been earning gross income over $100,000 p.a. for five years, andhe expects the $100,000 net income of last year to be sustainable until heretires. He started saving money only in the last two years. Last year hedeposited $15,000 in the mutual fund (this amount is included in the $30.000balance). Joanne has been contributing $1,000-$2,000 pa. to her RRSP for10 years.They would like to retire in 10 years. Advise them in their retirementplanning.
- Retirement Goals: How much money do they need? (3 marks)
- Calculate required income (Starting point not given, estimate it from present income and expenditures)
- What level of retirement income is appropriate?
- How long do they need the income? (Based on Alan’s life expectancy of 91 and Joanne 96)
- How much have they got? (3 marks)
- Determine OAS full amount each at 67
- Determine CPP, assume they qualify for 80%
- Determine Joanne’s pension
Outline any assumptions (income splitting, investment portfolio, RRSP’s, TFSA's)
- How much additional saving is required over the next 10 years? (4 marks)
- Assuming that they save $17,000 for 10 years in RRSP’s (Alan $15k, Joanna $2k)
- How does this affect their taxes?
- Calculate Alan’s marginal tax rate
- Calculate Joanne’s marginal tax rate
- Determine tax credits (federal and provincial)
- Recommendations (3 marks)
- Feasibility, Reasonability, Pros and Cons & Why
- Overall written report (2 marks)
- Introduction, data collection, Recommendations, Appearance (use of charts/tables)and Clarity