ASSIGNMENT : RETIREMENT PLANNING
To get full marks, you must show all calculations and answer all parts of each question. Providing the answer only will result in part marks. When using financial calculator, indicate what values were used and indicate what you are solving for (PV, PMT, FV etc.) Submit to Dropbox.
1. At the end of 2017, Sam is retiring after 30 years of participation in his employer's pension plan. The pension plan provides a benefit based on 1.8% of his best earnings over four consecutive years. Given the following earnings history, calculate Sam's annual pension. Show your work. (2 marks)
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YEAR
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AMOUNT
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2012
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$60,000
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|
2013
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$65,000
|
|
2014
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$70,000
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|
2015
|
$75,000
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2016
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$71,000
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2017
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$60,000
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2. Harmit joined Moogle Inc.'s defined contribution pension plan on January 1, 1985. On December 31, 2017, Harmit plans to retire and expects that her pension accumulation will be valued at $243,750. If Harmit uses the assets to purchase a single life annuity that begins immediately with payments at the beginning of each month, what monthly income will the pension assets purchase? Assume a nominal return of 4%, compounded monthly, and a life expectancy of 30 years. Indicate values input into your financial calculator. (2 marks)
3. Simone participates in ABC Inc.'s defined benefit pension plan, which she joined 8 years ago. The plan provides benefits of 2% for each year of service, based on the member's best 3 consecutive years of pensionable earnings. Simone's best three consecutive years of earnings were the most recent three, with annual pensionable earnings of $43,000, $48,000 and $51,000. If Simone has eight years of service, calculate the amount of her annual pension benefit accrued to date. (2 marks)
4. Sangeeta is employed by Avatar Inc. and is a member of the DPSP sponsored by the company. Contributions to the plan are based on 1.75% of the annual profits generated by the company, which for this year was $1,875,000. If Sangeeta earns $82,000 and the money purchase limit for the current year is $25,370, what is the MAXIMUM amount Avatar Inc. can contribute to the DPSP on behalf of Sangeeta? (2 marks)
5. Kim and Kanye have been married for 20 years. Kim is 60 and Kanye is 65 years old. Each of them has been working for 35 years, meaning they have been contributing for CPP for the same number of years. Assuming Kanye's monthly CPP retirement benefit is $900 and Kim currently receives a monthly retirement benefit of $750, how much will each of them receive if the couple applies to assign their CPP benefits? (5 marks)
6. This year, Joel will turn 65 years old. Seven years ago, he returned to the work force and he has been a member of the defined benefit RPP sponsored by his employer for the past 5 years. The plan has a 1.5% unit. Based on Joel's earnings (provided in the table), if he were to retire today, he has been told that he will receive an annual pension benefit of $3,957.13. To what kind of defined benefit RPP does he belong? (Show calculations) (3 marks)
# of Years prior to Retirement Pensionable Earnings
5 years ago $49,750
4 years ago $51,325
3 years ago $52,860
2 years ago $54,100
Last year $45,675
7. Janice became disabled in September 2017 when she was entitled to receive CPP of $592 per month. What is her monthly disability pension? Use current figures from CRA website. (2 marks)
8. Lisa belongs to a defined contribution pension plan where employee contributions are set at 7% of their salary and employee contributions are matched by the employer. If she earns a basic salary of $150,000 and the money purchase limit for the year is $25,370, what is the MAXIMUM amount Lisa can contribute to the pension plan? (2 marks)
9. Simarpreet has 2017 net income of $89,000. Using the correct OAS threshold according to the CRA website, how much of his benefit will be clawed back? (1 mark)
10. Priya is currently 60 years of age. At age 65, she is entitled to a maximum monthly CPP retirement pension of $888.75. She is considering her options. How much CPP will she receive at the following ages: 63, 67, 70 and 72? (2 marks)
11. Rohit belongs to a defined benefit pension plan that will provide 1.25% of his career average earnings for each year of service. He expects to retire after 20 years of service. If Rohit has 15 years of credited service, and his average earnings over that time amount to $50,000, what will be the value of the annual pension entitlement shown on his pension statement? (1 mark)
12. Satiya is retiring after working for Goldstone Inc. for 10 years. He belongs to a defined-benefit pension plan that provides a benefit of 2% of average earnings up to the YMPE and 2.5% on average earnings above YMPE for each year of service. The maximum pension benefit for the year is $2,880. If Satiya has projected his final average earnings to be $100,000 and the final average YMPE to be $56,000, what will his annual pension benefit be? (4 marks)
13. Florence has participated in her employer's defined contribution pension plan for the past 10 years and has assembled the following information:
For 2016:
· Earned income: $50,000
· Employer pension contributions: $2,500
· Employee pension contributions: $2,500
For 2017:
· Earned income: $55,000
· Employer pension contributions: $2,750
· Employee pension contributions: $2,750
If Florence has $12,000 of carry-forward contribution room from years prior to 2016, what is the total amount she can contribute to an RRSP with respect to 2017? (3 marks)
14. Manni and his spouse, Anh have recently become quite serious about their retirement planning. Currently they have accumulated $850,000 in non-registered assets, and are wondering how much pre-tax income can be generated on an annual basis, based on the following assumptions:
· Retirement begins in exactly 5 years
· Payout period should align with the standard rule of thumb: the period of retirement begins when the first individual retires and extends to the point in time when the youngest spouse reaches age 90
· Annual nominal return of 6% compounded annually during accumulation phase
· Annual nominal return of 4% compounded annually during payout phase
· No additional contributions will be made, other than the investment earnings
· Income during retirement will be received annually at the beginning of each year
· Manni turns 55 today and Anh turns 53 today
Calculate the total amount of annual pre-tax income that the asset base will provide throughout retirement, based on the assumptions outlined above. (4 marks)