Planning for wealth, retirement and the great beyond :
After a distinguished career in finance you are fine-tuning your portfolio and thinking about retirement.
You plan to retire in 10 years at the age of 65, and your plans are based on the following circumstances:
• Your after-tax family income is $120,000 per annum, annual living expenses including mortgage
repayments are currently $90,000. Your salary and expenses are expected to increase in line
with inflation;
• You have three adult children, aged 27, 26 and 19. Your youngest daughter will complete
university in three years, the others have completed education and are employed;
• The market value of your home is $900,000; you expect its value will only keep up with inflation.
It is a three bedroom, three bathroom rancher in a desirable neighbourhood and it will not
require substantial renovations for the next 30 years;
• The mortgage on your house (currently $120,000) will be paid off in eight years, you have no
other significant debt;
• Your youngest daughter will have a student loan of $80,000 which you expect she will be able to
repay from employment once she graduates;
• The net value of all family non-real estate investments is $1.2 million. Of this, $650,000 is
invested in an RRSP and you and your spouse have $150,000 in unused RRSP contribution. This
RRSP is in your name and is a self-administered RRSP funded by your employer’s defined-
contribution pension plan. Your employer contributes 12% of your salary to this plan, you
contribute 6%;
• Your spouse has a defined benefit plan that will pay 24/80ths of final salary (currently $35,000,
rising with inflation) from age 65. Your spouse will also retire in 10 years;
• Your plans for retirement include part time charity work, an annual three week overseas holiday
and purchasing a recreational property in the Gulf Islands;
• Both you and your spouse are in good health and expect to outlive forecasts of average
mortality;
• You may make any reasonable assumptions necessary to complete this scenario.
You are required to provide the following:
Part 1: Managing your investment portfolio, transitioning from peak earning years to near
retirement
You need to provide a plan for the next ten years leading up to retirement. This plan will need to:
➢ Consider the minimum level of funding that you need to retire;
➢ It must also specify the level of contributions needed and the expected rates of return.
➢ In order to calculate this you will have to specify a portfolio of investments that balances risk
and return. As retirement gets closer you will probably have to rebalance that portfolio; you will need to provide an annual breakdown of your retirement portfolio’s estimated value, annual
rate of return and risk rating for the next ten years. You don’t have to specify individual stocks,
bonds, savings instruments or other investments, but the class and type of investment should be
specified