Reference no: EM131521643

Although Monica, age 40, likes her work very much, she would like to start looking at her options for retirement. She wants to estimate what she would have to save each year in order to retire at age 60, 65, or 70. She has saved $30,000 in her RRSP and $31,000 in her TFSA. She bought her house 10 years ago and plans to have it paid off by the time she is 55. She likes to travel and takes a major trip every five years or so which she would like to continue doing in retirement until age 80. She finances these trips by putting aside $2,000 a year. Based on her current spending, she estimates she will need $60,000 a year after tax in today's dollars and that when she no longer travels, she will need that money for health care. She estimates her average tax rate on taxable retirement income will be 20%. She is a fairly conservative investor and will assume a real rate of return of 4% before retirement and 3% after retirement. CPP at age 65 is $12,000 and OAS is $6,500. She will take CPP when she retires and OAS at age 67 (the revised age) if she retires at age 60 or 65 and will take it at age 70 if she retires at 70. The OAS claw back threshold is $70,000. Each month earlier than 65 she retires CPP will go down by 0.6% and for each month later than 65 CPP will go up by 0.7%. For each month later than 67 OAS starts, OAS will go up by 0.6%. Her parents and grandparents lived to their late 80s and early 90s so she wants to plan for dying at age 95. Assume all income in retirement occurs at the beginning of the year and all savings occur at the end of the year.

Required: For each of the three scenarios (that is, retirement at age 60, 65 and 70), how much does she need to save each year assuming she puts $5,500 into the TFSA during the saving period and the rest of her savings are in an RRSP?

a. Under each scenario, what is the PVA at retirement of:

i. Her required retirement income before tax?

ii. CPP before tax?

iii. OAS before tax?

iv. The net after tax that she has to save in her RRSP and TFSA?

b. How much will she have in her TFSA at retirement if she can save $5,500 in today's dollars?

c. i. How much after tax does she need to have saved in her RRSP at retirement? How much is this each

year before tax?

ii. How much before tax does she need to have saved in her RRSP at retirement?

iii. How much she should have saved each year before taxes?