Retirement Planning Case Study

Fall 2024

The Case: Timothy and Lisa Falcone Note: paper cases have significant limitations as they are simply black ink on white paper and not based on actual people. This case will attempt to give you a sense of who these people are, but you will still need to make some assumptions as you work toward an overall retirement solution for this family. Personal Information - As at 1 January 2024 Name Timothy Falcone Lisa Falcone Date of Birth January 1st, 1990 January 1st, 1988 Smoking Status Non - Smoker Non- Smoker Health In good health In good health Pension Defined Benefit Defined Contribution Employment Timothy is schoolteacher at St. Thomas Aquinas Secondary School in London. Tim started teaching September 1st, 2016. Tim started teaching as soon as he graduated teachers' college. His starting salary was $71,000. His current salary is $89,940. Tim's salary in indexed to inflation every year on January 15t. Tim sees himself continuing to teach high school until his retirement.Lisa works for London Life in an office administration role. Lisa has been employed by London Life ever since she graduated from the University of Waterloo in 2012. Lisa is a member of their defined contribution pension. Her current salary is $64,000 per year. Interests Timothy and Lisa have always been active. Timothy likes to golf, play volleyball and watch football, while Lisa likes to play soccer and go jogging. Recently they have decided they are going to try pickleball and have joined a league through the City of London. Major Assets Timothy and Lisa jointly own a home in London, Ontario that was purchased for $550,000. The house is currently valued at $775,000. They have no intentions of moving and have a mortgage remaining of $110,000, that they expect to pay off over the next 10 years. Timothy and Lisa saved very little in retirement, as they believe the pensions they have through work will be enough to meet their retirement needs. See Appendix for asset values. Pension Plans Timothy is a member of his employer's mandatory defined benefit pension plan. He joined the pension when he was hired at the school board. The plan is based on the average of the best 5 years of employment and will pay Timothy a 1.325% credit per year of service up to the YMPE and 2% on the amount above the YMPE. The pension is indexed to inflation. The pension has a maximum of 35 years of service. The pension has a qualification factor of 85 for early retirement. The plan has a .25% penalty per month for early retirement. The pension plan provides survivor benefits to Lisa in the event of Timothy's death. Lisa will be entitled to a spousal pension worth 60% of Timothy's pension at the time of his death. Lisa is a member of a Defined Contribution Pension Plan. She contributes 2% of her salary to the pension plan and her employer contributes 2%. She has been a member of the pension plan since Jan 1, 2014. The plan is invested with a balanced mandate. Timothy and Lisa both have a moderate risk tolerance. Expenditures Please see appendix for a list of expenditures that Timothy and Lisa have provided. Future Timothy and Lisa have had some discussions with family members who have told them they need to complete a retirement plan. They have decided they want to retire on Jan 1, 2045. See the following pages for appendices. Appendix 1 - Timothy and Lisa's expenses Timothy and Lisa have not historically tracked their expenses well. They have provided details on specific items below but do not have an accurate breakdown of their current lifestyle. They have provided you with their gross salaries above. However, on an annual basis they have a surplus of $10,000 per year. Item Amount Frequency Mortgage $1,500 Monthly Property Tax $400 Monthly Entertainment $325 Monthly Timothy RRSP $325 Monthly Lisa RRSP $250 Monthly Groceries $1,100 Monthly Heat/Hydro $300 Monthly Insurance $400 Monthly Cable/Internet $180 Monthly Appendix 2 - Timothy and Lisa's Assets House $775,000 Timothy RRSP - $27,250 Lisa RRSP - $28,000 Lisa DC Pension - $62,250 Cars - $33,000 RRSP Carry Forward Room 2023 (amount to be carried forward to 2024) Timothy - $40,000 Lisa - $32,000\fASSIGNMENT INSTRUCTIONS Your role is as that of a retirement planner. Your objective is to help your clients organize themselves in order to do some financial planning. In the real world, you would do so with clear step by step communication. Details on their income, expenses, assets and liabilities are provided in appendices. Clearly state what assumptions you need to make to complete your assignment. Complete this assignment in parts per the requirements listed below. Part 1 (5 marks out of 25) a) Estimate the CPP benefits that Timothy and Lisa will receive in retirement, (calculate the ratio of earnings to YMPE) and the OAS benefits they will receive in retirement, in future dollars. Show your calculations and list any assumptions you are making. Timothy and Lisa plan to take CPP and OAS as soon as they can. Hint: you will need to make an assumption on future salary increases. b) Determine the RPP annual pension income that Timothy will receive from his pension when he retires. Hint: remember to base the benefits on the future salary. ) Estimate the value of Lisa's DCP plan when she retires. Be sure to state your assumptions. Section Out of: OAS Estimate CPP Estimate DB pension Estimate DC pension Estimate 16 12 12 TOTAL 438 X RP Case PT 1 (4) . Saved to this PC 9 Search X File Home Insert Page Layout Formulas Data Review View Automate Help Acrobat - Insert ab Conditional Formatting Calibri 12 ~ A " A " E Percentage 2 AY O $ ~ % " Format as Table x Delete Sort & Find & Sensitivity Add-ins Analyze Paste BIUV FLAV Cell Styles Format v Filter ~ Select Data Font Alignment Number Styles Cells Editing Sensitivity Add-ins Clipboard AutoSave Off Save ) Undo ~ Redo Open halima E18 vi X fx 100% A B C D E F G H J K L M 1 Timothy Falcon DOB: 01/01/1990 Lisa Falcon DOB: Kenneth Judge 2 Age Year Earnings YMPE Ratio Age Year Earnings YMPE 18 2008 SO $44,900 0.00% Drop 18 2006 $5,000 $41,100 12.17% Drop 19 2009 $15,000 $46,300 32.40% 19 2007 $5,500 $43,700 12.59% Drop 20 2010 $8,000 $47,200 16.95% 20 2008 $5,750 $44,900 12.81% Drop 21 2011 $8,500 $48,300 17.60% 21 2009 $10,000 $46,300 21.60% Drop 22 2012 $7,800 $50,100 15.57% Drop 22 2010 $18,000 $47,200 38.14% 32.80% 23 2013 $8,250 $51,200 16.11% 13.86% 23 2011 $37,500 $48,300 77.64% 24 2014 $10,000 $52,500 19.05% 24 2012 $39,000 $50,100 77.84% 25 2015 $14,000 $53,600 26.12% 25 2013 $41,000 $51,200 80.08% 26 2016 $41,000 $54,900 74.68% 26 2014 $42,350 $52,500 80.67% 27 2017 $73,500 $55,300 100.00% 27 2015 $44,000 $53,600 82.09% 13 28 2018 $76,000 $55,900 100.00% 28 2016 $45,000 $54,900 81.97% 14 29 2019 $79,000 $57,400 100.00% 29 2017 $47,750 $55,300 86.35% 15 30 2020 $81,000 $58,700 100.00% 30 2018 $49,000 $55,900 87.66% 16 31 2021 $84,250 $61,600 100.00% Future Assumptions 31 2019 $52,000 $57,400 90.59% Future Assum 17 32 2022 $86,000 $64,900 100.00% 32 2020 $54,890 $58,700 93.51% 18 33 2023 $87,500 $66,600 100.00% YMPE increase 2% per year 33 2021 $56,000 $61,600 90.91% YMPE increase 19 34 2024 $89,940 $68,500 100.00% Salary increase 2% per year 34 2022 $60,000 $64,900 92.45% Salary increas 20 35 2025 $91,739 $69,870 100.00% 35 2023 $62,500 $66,600 93.84% 36 2026 $93,574 $71,267 100.00% 36 2024 $64,000 $68,500 93.43% 22 37 2027 $95,445 $72,693 100.00% Contributory years 42 37 2025 $65,280 $69,870 93.43% Contributory ! Sheet1 Sheet2 Sheet3x Search X RP Case PT 1 (4) . Saved to this PC File Home Insert Page Layout Formulas Data Review View Automate Help Acrobat |12 A" A E Insert Calibri = 0 v ab General Conditional Formatting E AY $ ~ % " Format as Table 1% Delete Sort & Find & Sensitivity Add-ins Analyze Paste BIU VFMA 00 20 Cell Styles Format Filter > Select v Data Clipboard Font Alignment Number Styles Cells Editing Sensitivity Add-ins AutoSave Off Save ) Undo Redo Open halima U1 vixfry F G H K L M N O P Q R S Lisa Falcon DOB: 01/01/1988 Kenneth Judge Age Year Earnings YMPE Ratio Drop 18 2006 $5,000 $41,100 12.17% Drop 19 2007 $5,500 $43,700 12.59% Drop 20 2008 $5,750 $44,900 12.81% Drop 21 2009 $10,000 $46,300 21.60% Drop Drop 22 2010 $18,000 $47,200 38.14% 32.80% 13.86% 23 2011 $37,500 $48,300 77.64% 24 2012 $39,000 $50,100 77.84% 25 2013 $41,000 $51,200 80.08% 26 2014 $42,350 $52,500 80.67% 27 2015 $44,000 $53,600 82.09% 28 2016 $45,000 $54,900 81.97% 29 2017 $47,750 $55,300 86.35% 30 2018 $49,000 $55,900 87.66% 6 Future Assumptions 31 2019 $52,000 $57,400 90.59% Future Assumptions 32 2020 $54,890 $58,700 95.51% 8 YMPE increase 2% per year 33 2021 $56,000 $61,600 90.91% YMPE increase 2% per year Salary increase 2% per year 34 2022 $60,000 $64,900 92.45% Salary increase 2% per year 35 2023 $62,500 $66,600 93.84% 36 2024 $64,000 $68,500 93.43% Contributory years 42 37 2025 $65,280 $69,870 93.43% Contributory years 42Year Joe' Age Joe's YMPE Income Ratio 1992 18 $5,000 $30,500 0.16393 drop 1993 19 $8,000 $32,200 0.24845 drop 1994 20 $10,000 $33,400 0.29940 drop 1995 21 $17,000 $34,400 0.49419 drop 1996 22 $18,000 $34,900 0.51576 drop 1997 23 $19,000 $35,400 0.53672 1998 24 $20,000 $35,800 0.55866 1999 25 $25,000 $36,900 0.67751 2000 26 $25,000 $37,400 0.66845 2001 27 $25,000 $37,600 0.66489 2002 28 $25,000 $38,300 0.65274 2003 19 $25,000 $39,100 0.63939 2004 30 $25,000 $39,900 0.62657 2005 31 $25,000 $40,500 0.61728 2006 32 $29,000 $41,100 0.70560 2007 33 $29,000 $42,100 0.68884 2008 34 $29,000 $43,700 0.66362 2009 35 $29,000 $44,900 0.64588 2010 36 $29,000 $46,300 0.62635 2011 37 $29,000 $47,200 0.61441 2012 38 $29,000 $48,300 0.60041 2013 39 $30,000 $50,100 0.59880 2014 10 $30,000 $51,100 0.58708 FP Canada Assumption 2015 41 $30,000 $52,500 0.57143 Guidelines 2016 42 $30,000 $53,600 0.55970 2017 43 $30,000 $54,900 0.54645 Assumptions 2018 44 $30,000 $55,300 0.54250 YMPE 2% 2019 45 $30,000 $55,900 0.53667 drop .99 Salary 2020 46 $30,000 $57,400 0.52265 drop Drop Years 47 times 17% = 7.99 2021 47 $31,000 $58,700 0.52811 drop Average Ratio 0.58730 2022 48 $34,000 $61,600 0.55195 Average YMPE $84,498 2023 19 $35,000 $64,900 0.53929 Max CPP $21,124.51 2024 50 $36,500 $66,600 0.54805 Joe's CPP $12,406.442025 51 $37,230 $67,932 0.54805 2026 52 $37,975 $69,291 0.54805 2027 53 $38,734 $70,676 0.54805 2028 54 $39,509 $72,090 0.54805 2029 55 $40,299 $73,532 0.54805 2030 56 $41,105 $75,002 0.54805 2031 57 $41,927 $76,502 0.54805 2032 58 $42,766 $78,033 0.54805 2033 59 $43,621 $79,593 0.54805 2034 60 $44,493 $81,185 0.54805 2035 61 $45,383 $82,809 0.54805 2036 62 $46,291 $84,465 0.54805 2037 63 $47,217 $86,154 0.54805 2038 64 $48,161 $87,877 0.54805 26.21439 total of 3.30379 dropped ratios 22.91060 39.01000 years 0.58730