Reference no: EM133189964

Question - Rick and Rose Quartz are planning on retiring in 7 years time. They are both currently 57 years of age. When the couple retire, they want to move out of the city. They also want to play golf in the summer, ski in the winter and be able to travel a couple of times a year. The Quartz's believe that they will need $120,000 per year in retirement to cover their living and travel expenses.

Rose works at an automotive company as an engineer. She earns $145,000 per year and her company has a defined contribution pension plan (DCPP). She contributes 5% of her income and her company matches her amount. The current balance in her DCPP is $275,000 and it is invested in a balanced portfolio that has been providing an average annual rate of return of 5%.

Rick is a high school science teacher and earns $95,000 per year. He has been a member of his defined benefit pension plan (DBPP) for the past 26 years. He anticipates that his average earnings at retirement will be $96,000. His pension plan has a 1.75% factor.

The Quartz's have also been contributing to their RRSPs over the last number of years in anticipation of the retirement. Rose's RRSP is valued at $165,000 and has been earning an average rate of return of 5.7% per year. Rose has been contributing $450 per month and plans to continue these contributions until retirement.

Rick's RRSP is substantially smaller because he has minimal RRSP contribution room as a member of a DBPP. The value of his RRSP is $39,400 and has been earning an average of 6.5% per year. Rick has been contributing $100 per month and plans to continue these contributions until retirement.

The Quartz's plan on downsizing their home when they retire and move out of the city. They are anticipating that they will have some equity to put towards retirement.

Rick and Rose have lived in Canada all their lives and will qualify for the maximum OAS of $700 per month when they retire. They have also both been contributing to CPP since they started working. Both of them will qualify for the maximum CPP because of the level of their income and year of contributions. They anticipate they will each receive $1,400 per month when they retire.

Assumptions:

Life expectancy: 90 years old

Rate of Return in retirement 5.5% per annnum

Average Tax Rate 25%

Inflation 2.75%

Required -

1. What amount of money will the couple need when they retire at 64?

2. How much money will they have when they retire?

3. Do they have enough money?

4. What recommendations would you give to the Quartz's?