Problem
Joe Smith, a close friend of yours, has been approached by his parents who have become increasingly worried about their retirement. Joe knows that you are taking a Personal Financial Planning course and has come to you for advice for retirement planning. Joe is 45 and Betty is 43. Joe's mom, Betty, is 43 years old and is an operations manager. dreams of them retiring at 65. Joe's dad, John is 45 and is self-employed. They dream of retiring at 65 and living in Florida 6 months of the year but they are unsure of having enough income to cover their expenses. They both have a combined income of $125,000 and they want to start planning for retirement which is 20 years away. Betty contributes $3,500 to her RRSP at the end of each year though she would want to contribute more. Her before-tax income based on her last pay raise was $52,000. John contributes on and off, whenever he can. He earns about $73,000 per year. His earnings has increased about 7% each year since opening the company 10 years ago. He expects this to continue increasing at the same rate until retirement. Betty has had a steady job and plans on staying at the same job until retirement. She expects a $5,000 pay increase per year until retirement.
When retired, the couple would like to cover their current annual expenses of $80,000. They anticipate that their expenses will go down to $70,000. John's father recently passed away and left John a beach house in Florida. The beach house will cost $2,000/month to maintain. John has to include this to his annual expenses.
They know they will receive OAS and CPP and that it will increase by about 2% each year. Betty and Johan have RRSP accounts currently valued at $20,000 and $47,800, respectively. Their RRSP will grow at an annual rate of 6% compounded annually from now until the end of their retirement.
They want to plan for retirement that lasts until Betty reaches 90.
They currently have a house which is $750,000 and a cottage in the Laurentians worth $350,000. Their dream is to move into their cottage on retirement for the warmer 6 months of the year. They both own cars currently worth about $10,000 each. Betty is considering whether she needs to have a car as her job is transitioning to being remote. She is wondering whether she should sell her car and put it towards investments. Betty also has a barbie collection that she has been valued at $15,000. Joe is a huge hockey fan and has been collecting hockey cards since his teenage years. His cards are worth $12,000. Also John & Betty want to make sure they leave Joe $500,000 in the event of them passing away.
Task
A. Help Joe's parents by determining how much money they will have when retired to reach their retirement goals.
B. Provide suggestions and alternatives based on the above facts to help them reach their retirement goals.
C. Use appropriate research tools, reference all your findings, provide exhibits, and provide up to date information. Support all your suggestions and alternatives.