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Canada (509,138)
MTHEL 131 (111)
David Kohler (106)
Lecture 12

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Mathematics Electives
David Kohler

Government thought there was an opportunity to save my money by taking away OAS from high earnings seniors.  Clawback • For every dollar in income you earn >$70,000 as a senior, you must pay $0.15 • Canadian seniors making >$115,000 must pay back all of their OAS 3. Employer Pensions: R.P.P. (Registered Pension Plans) • Employer will contact a pension and benefit company, or an insurance company to develop their RPP • Job seekers should look at RPP to decide where they want to work • 2 types: o Defined Benefit Pension (DB) o Defined Contribution Plan (DC) Defined Benefit Pension Plan • Pension amount received at retirement defined by a formula • Considers: o years of service o earnings o factor Ex: years x earnings x factor 30 x earnings x 1.0% Other factors may be • 1.5% • 2.0% Depends on generosity of employer and company Earnings: Can be calculated in 3 different ways (with variations) 1. Career average earnings a. Ex: $60,000 2. Average of best 3 years b. Ex: $110,000 3. Average of last 5 years c. Ex: $100,000 Ex: a) $60,000 30 yrs 2.0% 30 yrs 1.5% =$60,000 1.0% =$49,500 =$18,000 pension c) $100,000 b) $110,000 30 yrs Not all defined benefit plans are equal – important to understand your pension Only the largest employers have defined benefit plans (+100K employees) Ex: government The employer takes on the full risk of investment returns. Most started in early 60s and 70s (when average age of death was lower) People are living longer, these pensions must be paid for life.  Employer takes on risk of longevity (old age)  Employee does not suffer from stock market crashes Defined Contribution Plan Amount of employee and employer contribution is defined by the pension  All plans have their own matching system (varies, ex: match $2 for $1) Ex: employee earns $3000/month Employee can contribute up to 4% their monthly income to their pension plan Employer must match this contribution, dollar for dollar • Most employees don’t sign up for employer matching/investment opportunities (they are optional) • Can choose to invest your contributions • Factors that affect the amount at the end o Employee contributions o Employer matching contributions o Years participating o Investment returns (success) • Can choose to invest in an annuity  cannot outlive your income • Full weight of investment risk is on the employee  no guarantees Process of financial (retirement) planning 1. Gather information 2. Establish objectives a. Retirement age b. Retirement income 3. Analysis (where will it come from) 4. Develop a plan (for shortage from analysis) to meet your objectives 5. Implement the plan 6. Monitor the plan (make change
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