Retirement Planning Case Study
F2021
| Due Date | Graded out of : | |
| Part 1 | Sunday October 17th, 2021 | 5 |
| Part 2 | Sunday November 21st, 2021 | 8 |
| Part 3 | Wednesday December 8th 2021 | 12 |
| TOTAL | 25 |
Please submit each part of the assignment electronically to the appropriate drop-box on FOL by 11:59 pm on the due date. Late penalty is 20% per day. Part 1 and Part 2 of the assignment can be submitted in excel. Part 3 of the assignment is a report to the clients and needs to be submitted in a word file. Any tables needed for the report should also be included in the word file.
Statement on Academic Offences:
This case study assignment is worth 25% of your grade in the course. It is an individual assignment and you cannot work with others on it. Your work must be original and cheating will not be tolerated.
Fanshawe College is committed to Academic Integrity. Academic offences are taken seriously and students are directed to read the appropriate policy, specifically, the definition of what constitutes an offence, at the following Web site: http://www.fanshawec.ca/about-fanshawe/corporate-information/policies/academic-policies
The Case: Jamie and Janine Barker
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 31 December 2020
| Name | Jamie Barker | Janine Barker |
| Date of Birth | January 1st, 1976 | January 1st, 1976 |
| Smoking Status | Non – Smoker | Non- Smoker |
| Health | In good health | In good health |
| Pension | Defined Benefit | Defined Contribution |
Employment
Jamie is a nurse at Victoria Hospital in London. Jamie started his current job on January 1st 2021 and expects to continue in this role until his retirement. His current salary is $86,000 per year. Jamie is a member of the HOOP pension plan and joined the pension when he started at Victoria Hospital.
Janine works for London Life in an office administration role. Janine has been employed by London Life ever since she graduated from the University of Waterloo in 1998. Janine is a member of their defined contribution pension. Her current salary is $62,000 per year.
Health
Jamie and Janine have always been quite healthy. However, last month Jamie had his annual physical and it was discovered that he has moderately high blood pressure. His doctor was quite concerned as Jamie’s family has a history of high blood pressure. His doctor has suggested that medication is not required right now; instead he has advised Jamie to begin an exercise program, at 3 times per week and to pay close attention to his eating and sleeping habits to reduce stress from his life. He is currently 6 feet tall and weighs 190 pounds. Jamie and Janine consider themselves non-smokers as Janine only occasionally smokes a cigarette during a girls-weekend away in Las Vegas twice a year.
Major Assets
Jamie and Janine jointly own a home in London, Ontario that was purchased for $450,000. The house is currently valued at $775,000. They have no intentions of moving and have a mortgage remaining of $310,000, that they expect to pay off over the next 15 years.
Jamie and Janine 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
Jamie is a member of his employer’s mandatory defined benefit pension plan. The plan is based on the average of the best 5 years of employment and will pay Jamie a 1.325% credit per year of service up to the YMPE and a 2% credit on the amount above the YMPE. The pension is indexed to inflation. The pension has a maximum of 35 years of service. The pension plan provides survivor benefits to Janine in the event of Jamie’s death. Janine will be entitled to a spousal pension worth 60% of Jamie’s pension at the time of his death.
Janine is a member of a Defined Contribution Pension Plan. She contributes 2% of her salary to the pension plan and her employer matches. Janine also makes optional contributions of 2%, that the employer matches at a rate of 50%. The plan is invested with a balanced mandate. Jamie and Janine both have a moderate risk tolerance.
Expenditures
Please see appendix for a list of expenditures that Jamie and Janine have provided.
Future
Jamie and Janine 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 at age 62 and have provided you with a retirement budget in today’s dollars.
See the following pages for appendices.
Appendix 1 – Jamie and Janine’s expenses
Jamie and Janine have not historically tracked their expenses well. They have provided details on specific items below but are looking for your assistance on what living expenses amount to for their rest of their current lifestyle. They have provided you with their gross salaries above.
| Item | Amount | Frequency |
| Mortgage | $1,500 | Monthly |
| Property Tax | $400 | Monthly |
| RESP contributions | $325 | Monthly |
| Jamie RRSP | $225 | Monthly |
| Janine RRSP | $225 | Monthly |
| Groceries | $1,100 | Monthly |
| Heat/Hydro | $300 | Monthly |
| Insurance | $400 | Monthly |
| Cable/Internet | $180 | Monthly |
Appendix 2 – Jamie and Janine’s Assets
House $775,000
Jamie RRSP – $14,000
Janine RRSP – $24,000
Jamie LIRA – $6,200
Janine DC Pension – $48,000
Savings – $1,400
Cars – $23,000
RRSP Carry Forward Room 2020
Jamie – $139,000
Janine – $98,000
Appendix 3 – Historical Incomes
| Year | Jamie’s | Janine’s Age | Jamie’s Income | Janine’s Income | |
| Age | |||||
| 1994 | 18 | 18 | $10,000 | $7,000 | |
| 1995 | 19 | 19 | $13,000 | $9,000 | |
| 1996 | 20 | 20 | $15,000 | $9,000 | |
| 1997 | 21 | 21 | $28,000 | $9,000 | |
| 1998 | 22 | 22 | $33,000 | $9,000 | |
| 1999 | 23 | 23 | $33,000 | $9,000 | |
| 2000 | 24 | 24 | $38,000 | $10,000 | |
| 2001 | 25 | 25 | $40,000 | $15,000 | |
| 2002 | 26 | 26 | $44,000 | $17,000 | |
| 2003 | 27 | 27 | $46,000 | $20,000 | |
| 2004 | 28 | 28 | $48,000 | $24,000 | |
| 2005 | 29 | 29 | $48,000 | $28,000 | |
| 2006 | 30 | 30 | $49,500 | $31,000 | |
| 2007 | 31 | 31 | $51,000 | $32,000 | |
| 2008 | 32 | 32 | $51,000 | $37,000 | |
| 2009 | 33 | 33 | $52,000 | $40,000 | |
| 2010 | 34 | 34 | $54,000 | $41,000 | |
| 2011 | 35 | 35 | $56,000 | $45,000 | |
| 2012 | 36 | 36 | $56,000 | $46,000 | |
| 2013 | 37 | 37 | $56,000 | $47,000 | |
| 2014 | 38 | 38 | $57,000 | $50,000 | |
| 2015 | 39 | 39 | $58,000 | $52,000 | |
| 2016 | 40 | 40 | $59,000 | $53,000 | |
| 2017 | 41 | 41 | $61,000 | $54,000 | |
| 2018 | 42 | 42 | $63,000 | $54,000 | |
| 2019 | 43 | 43 | $67,000 | $55,000 | |
| 2020 | 44 | 44 | $69,000 | $57,000 | |
Appendix 4 –Monthly Retirement Expenditures (in today’s dollars)
Housing Maintenance – $300
Groceries – $975
Dining Out – $525
Hydro – $275
Heating – $100
Internet/Cable – $225
Gas – $250
Automobile Insurance – $255
Entertainment – $200
Vacation – $600
Memberships – $200
Gifts – $200
Home Insurance – $75
Property Tax – $400
Cell Phones – $120
Vehicle Maintenance – $275
Personal Care – 200
Medical – $300
Miscellaneous – $200
ASSIGNMENT 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 Jamie and Janine will receive when they are 62, (calculate the ratio of earnings to YMPE) and the OAS benefits they will receive at age 65, in future dollars. Show your calculations and list any assumptions you are making.Hint: you will need to makean assumption on future salary increases. You will also need to use the historical YMPE/YBE figures to complete.
- b) Determine the RPP annual pension income that Jamie will receive from his pension when he retires at age 62.Hint: remember to base the benefits on the future salary.
- c) Estimate the value of Janine’s DCP plan when she retires.Be sure to state your assumptions.
| Section | Out of: |
| OAS estimate | 10 |
| CPP estimate | 16 |
| DB pension estimate | 10 |
| DC pension estimate | 14 |
| TOTAL | 50 |
Part 2 (8 marks out of 25)
- a) Project until life expectancy the CPP and OAS income for Jamie and Janine. At this point, don’t worry about the OAS clawback.
- b) Project until life expectancy the DB pension income for Jamie.
- c) Assume that Janine converts her DC pension at retirement to a LIF and project the income from it until life expectancy. At this point, assume that she takes the minimum withdrawal amount.
- d) Calculate, and show, the RRSP contribution room for each of your clients from now until they retire. You must show the contribution limit (including the cap on the limit) pension adjustment and carry-forward for each year.Their starting RRSP values are listed in the case.
- e) Calculate the total value in their individual RRSPs when they retire. State what investments you will choose (asset category, not the specific investment) and what rate of return you will assume. It is important that you validate the rate of return used.
- f) Convert the RRSPs to RRIFs at retirement and show the minimum withdrawal amount each year.
- g) Develop a table that shows the expected total before-tax income for both Jamie and Janine from retirement to their expected deaths.
| Evaluation | Marks |
| CPP and OAS projection (before clawback) throughout retirement | 4 |
| DB pension income projection | 4 |
| LIF income projection | 12 |
| Annual RRSP Contribution Room | 8 |
| Pension Adjustment | 8 |
| Total RRSP Contribution Room | 8 |
| Future Value of RRSP Contributions | 12 |
| RRIF Minimum Withdrawal Amount Projection | 12 |
| Before-tax income Projection | 8 |
| Total | 76 |
Part 3 (12 marks out of 25)
- a) Show the OAS clawback threshold for each year in future dollars. Determine whether the OAS clawback will apply.
- b) Estimate income taxes using current federal and provincial tax brackets applied to taxable income. (Be sure to increase the income ranges for inflation) . Ignore surtaxes, credits and deductions but include the basic non-refundable tax credit.
- c) Develop a table that shows the expected total after-tax income, considering all sources, for your clients from retirement until their expected death. Compare this to their goal established in part
1 and show any shortfalls or surpluses.
- d) Prepare a list of recommendations for Jamie and Janine to assist in their retirement planning. If they have a shortfall, describe what, if anything, can be done to eliminate it. If they have a resulting surplus, advise them on appropriate strategies incorporating this expectation. Be cognizant of taxes. Please note the quality of your recommendations will be assessed. Generic strategies will not receive full marks. Recommendations should be supported with analysis and numbers.
- e) Assemble the 3 parts of this case study into 1 professional consolidated word document, maximum 15 pages, using the following main sections:
- Executive Summary (1 page max)
- Retirement Goals and Objectives (1 page max)
- Summary of Expected Retirement Expenditures (2 pages)
- Summary of Expected Retirement Income Sources (6 pages)
- Government sources(2 pages)
- Employer sources(1 page)
iii. Private savings sources (3 pages)
- Summary of Expected Retirement Surplus or Shortfall (2 pages)
- Recommendations (3 pages max)
- Appendix (as needed)
- f) Remember to write your report to Jamie and Janine. Your document should be extremely professional in nature and easy to understand. Make use of the appendix to highlight detailed calculations and assumptions refer to these in your report so as not to confuse your clients.
| Evaluation | Marks | |
| Executive Summary | 4 | |
| Retirement Goals and Objectives | 4 | |
| Summary of Expected Retirement Expenses | 4 | |
| Summary of Expected Retirement Income Sources | ||
| – | Government Sources | 8 |
| – | Employer Sources | 4 |
| – | Private Savings | 12 |
| Summary of Expected Retirement Surplus or Shortfall | 8 | |
| Recommendations | 24 | |
| Current and Recommended After Tax Retirement Income Table | 16 | |
| Appendix | 6 | |
| Professionalism | 10 | |
| Total | 100 | |
