Reference no: EM133111878

Case Study 1.

Alan is 50, Joanne is 51. They have a large house worth $800,000 in Toronto and a cottage worth $200,000 in Muskoka. Mortgage payments on these properties are $42,000 p.a. and they will paid off in 10 years. They have no other debts, although they just finished paying off a car loan. They each own a recent model car, and they replace their cars every three or four years because they they do not want to be seen driving older models.

Alan's net income or take-home income was $100,000 last year, after taxes, CPP, EI premiums, medical insurance, etc. Joanne takes home $40,000 p.a. after the same set of deductions and contributions to her employer pension plan. They have two 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 the children are on their own. They are both carrying substantial life insurance and disability insurance, all of the cost of which is deducted from their gross pay in arriving at the net income reported above.

They have $10,000 in a chequing account and a substantial line of credit at 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 GIC's in an RRSP. She expects an indexed pension plan of $25,000 (in today's dollars) if she retires at age 61. They would each qualify for only 80% of maximum Canada Pension, and that would be further reduced if they start receiving it before age 65.

Alan has been earning gross income over $100,000 p.a. for five years, and he expects the $100,000 net income of last year to be substantial until he retires. He started saving money only in the last 2 years. Last year he deposited $15,000 in the mutual fund (this amount is included in the $30,000 balance). Joanne has been contributing $1,000-$2,000 p.a. to her RRSP for 10 years. They would like to retire in 10 years. Advise them in their retirement planning.

The marking guidelines are as follows:

1. Retirement Goals: How much money do they need?
   • 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)
2. How much have they got?
   • 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
3. How much additional saving is required over the next 10 years?
   • 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)
4. Recommendations
   • Feasibility, Reasonability, Pros and Cons & Why
5. Overall written report
   • Introduction, data collection, Recommendations, Appearance (use of charts/tables) and Clarity