Class Notes (835,365)
MTHEL 131 (111)
David Kohler (106)
Lecture 12

# MTHEL131 lecture 12.docx

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School
Department
Mathematics Electives
Course
MTHEL 131
Professor
David Kohler
Semester
Fall

Description
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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