Retirement Goal Plan

Vanessa and Joe Samson both age 49 have come to see you, their financial planner to develop a retirement plan. Vanessa works full time at an Accounting Firm earning $70,000 a year after taxes and deductions and Joe works full time as a Software Engineer earning $105,000 after taxes and deductions. The Samson’s have one child, Rebecca (24) who just finished University and is living on her own. In addition, The Samson’s live in a townhouse in Scarborough that is worth $1 million and has $180,000 remaining on the mortgage which is on track to be paid off in 10 years. The Samson’s also share a five year old Mercedes SUV that is valued at $36,000 and has no existing loan balance. Regarding retirement, the couple would like to retire at 65 and want to ensure they are on track towards a comfortable retirement which would require the couple to have 1.6 million, combined in savings at age 65. The Samson’s were both born in Toronto and have always resided in Canada. In addition, both Vanessa and Joe have been employed full time since graduating from College at age 22 with the exception of Vanessa taking a year off of work during her maternity leave. Please keep in mind the following: The chequing Account balance is seen by the couple as an emergency fund, and therefore they don’t want it included in calculations for Retirement Income. The Samson’s have an abundance of questions for you and have requested you to determine if they’re on the right path towards achieving their retirement goal. During the meeting, the couple has provided you with the following information that better captures their current financial situation. Monthly Expenses (Joint): Mortgage Payment: $1200 Home maintenance: $300 Utilities: $260 Property Taxes $400 Auto Insurance: $160 Gas: $600 Food: $1200 Clothing: $580 Internet/Cell phone bills: $260 Dining out & Entertainment: $480 Vacations $1,200 Monthly Contributions to Registered Savings Accounts: The Samson’s each contribute $240 per month their RRSP accounts. Assets (Joint) Principal Residence: $1,000,000 SUV: $36,000 Chequing Account: $20,000 Savings Account: (earning 2% per year): $380,000 Debt (Joint) Mortgage: $180,000 Vanessa’s Assets TFSA: $78,000 (earning 2% per year) RRSP $100,000 (earning 2% per year) Joe’s Assets: TFSA: $86,000 (earning 2% per year) RRSP: $160,000 (earning 2% per year) Assignment Instructions – Answer the following questions: 1. As the Samson’s Financial Planner, are they on the right track to reach their retirement goal? Using TVM Calculations, determine at the current savings rate how close to the goal of 1.6 million at retirement the clients are projected to achieve. 2. The Samson’s are not very familiar with Old Age Security (OAS) as well as what the eligibility criteria is to receive OAS is. Provide a brief explanation of what OAS is and whether or not they would be eligible to receive the maximum benefit. (Your response should be between 2-3 sentences long). 3. In addition to questions about OAS, The Samson’s have questions about the Canada Pension Plan (CPP). Provide a brief explanation on what CPP is and how one can be eligible for the maximum CPP benefit. (Your response should be between 2-3 sentences long). 4. The Samson’s are wondering whether it would make more sense to take CPP early or to defer it. How would you respond to their question using relevant concepts from the course? (Your response should be between 3-5 sentences long). 5. After reviewing the Samson’s financial situation, provide a recommendation to the couple that would optimize their retirement goal plan. Be sure to elaborate on how your recommendation would help them with achieving their retirement goals. (Your response should be between 4-6 sentences long).  
The Samson’s Retirement Plan: Are They on the Right Track? Introduction As the financial planner for Vanessa and Joe Samson, it is crucial to assess whether they are on track to reach their retirement goal of 1.6 million dollars. By analyzing their current savings rate, we can determine how close they are projected to come to their desired retirement savings.
  1. Assessing the Current Savings Rate
To determine if the Samsons are on the right track towards their retirement goal, we need to calculate their projected savings at age 65 using the Time Value of Money (TVM) calculations. Vanessa’s Contributions:
  • Monthly RRSP Contribution: $240
  • TFSA Balance: $78,000
  • RRSP Balance: $100,000
Joe’s Contributions:
  • Monthly RRSP Contribution: $240
  • TFSA Balance: $86,000
  • RRSP Balance: $160,000
Joint Savings:
  • Savings Account: $380,000
Based on these figures, the projected savings at retirement can be calculated using TVM calculations. Assuming a conservative annual rate of return of 5%, we can estimate the future value of their investments. By inputting these values into a TVM calculator or spreadsheet, we can determine the projected savings at age 65. If the projected savings fall short of the desired retirement goal of 1.6 million dollars, adjustments may need to be made.
  1. Understanding Old Age Security (OAS)
Old Age Security (OAS) is a government-funded pension program available to Canadian residents who meet specific criteria. It provides a monthly income to individuals aged 65 and older. Eligibility for OAS is based on three factors: age, residency, and income. Vanessa and Joe Samson, being Canadian residents and planning to retire at 65, would be eligible to receive OAS benefits. However, the maximum benefit is subject to income thresholds, and if the Samsons’ income exceeds these thresholds, their OAS benefits may be reduced.
  1. Explaining the Canada Pension Plan (CPP)
The Canada Pension Plan (CPP) is a contributory, earnings-related social insurance program designed to provide a basic level of income in retirement. It is funded by contributions from workers and employers. CPP benefits are based on an individual’s earnings throughout their working years. To be eligible for the maximum CPP benefit, an individual must have contributed the maximum amount to CPP for at least 39 years. The amount of CPP benefits received also depends on the age at which an individual chooses to start receiving them.
  1. Deciding on CPP: Early or Deferred?
The decision of whether to take CPP early or defer it depends on several factors, including life expectancy, financial needs, and other sources of income. Taking CPP early results in reduced monthly benefits but provides income earlier. On the other hand, deferring CPP increases monthly benefits but delays income. In the case of the Samsons, considering their solid financial position and their goal of a comfortable retirement, it may be advisable to defer CPP if they can afford to do so. By deferring CPP, they can potentially increase their monthly benefits and have a higher income stream during their retirement years.
  1. Recommendations for Optimizing Retirement Goals
Based on the Samson’s financial situation and retirement goal plan, here are some recommendations to optimize their retirement savings:
  1. Increase Monthly Contributions: Consider increasing monthly contributions to their RRSP accounts to accelerate savings growth and potentially reach their retirement goal sooner.
  2. Diversify Investments: Ensure that their investment portfolio is diversified across various asset classes to minimize risk and maximize returns.
  3. Review Expenses: Evaluate current monthly expenses and identify areas where they can reduce spending to free up additional funds for retirement savings.
  4. Maximize TFSA Contributions: Take full advantage of TFSA contribution limits to maximize tax-free growth and flexibility in retirement.
  5. Seek Professional Advice: Consult with a qualified financial advisor who can provide personalized guidance and strategies to help them achieve their retirement goals.
By following these recommendations, the Samsons can optimize their retirement plan, increase their savings rate, and have a higher likelihood of reaching their desired retirement goal of 1.6 million dollars. In conclusion, while the Samsons are making regular contributions to their retirement accounts, it is essential to assess their projected savings at age 65 to determine if they are on track towards their retirement goal. By understanding government benefits like OAS and CPP and making informed decisions, such as deferring CPP, they can optimize their retirement plan and increase their chances of achieving a comfortable retirement.

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