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Retirement and Estate Planning- notes.docx

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Ryerson University
FIN 512
Coleen Clark

Chapter 1Retirement planning processWhen planning for retirement three aspects that most seriously affect your plan o Period of accumulationwhen do you begin to save o Amount of annual savings requiredhow much do you need to save each year o Rate of return The further you are from retirement the more estimates will sufficeRetirement planningis done in six steps o Gather current financial information o Prepare statements to reflect the current financial situationStatement of cash position and statement of cash flow o Quantify short and long term goals o Prepare short term budgets and estimate retirement spendingTo help client meet short term goalsTo ascertain how much client will be able to save each yearTo estimate annual retirement savingsMonitor results and make changes as neededThe planning modelGeneral model requires that the amount available at retirement be equal to the amount of savings in place nowfuture savings each year until retirement all compounded at a reasonable rate of return o The following variables need to be addressedHow much will you need in retirement What will you receiveHow much will you haveShortfall SurplusTime value of money TVM o FVFuture value o PVpresent value o Nnumbers of compounding periods annuitiesnumber of payments o inominal interest rate o kinterest rate per n o EAReffective annual rate o PMTamount of regular payment pmt assumed to be at end of period o Planning for retirement focuses on two main goalsOptimizing aftertax income during retirementOptimizing ones aftertax estate Implementing the process Gather current financial information o Employment informationAs well as general tax informationo AssetsFinancial assetsLiquid assetsNon registered investment assetsRPPRRSP investmentPersonal use assetsResidenceHousehold contentsVehicleLuxury assets o LiabilitiesShort termLong term o ExpensesPrepare statements to reflect current financial positions o Statement of financial positionFinancial assetsassets that provide income in retirement and can be consumed in retirement Recorded at market valuePersonal useassets that are used in everyday life Provide no income House and car valued at market value Rest valued at replacement costLuxuryassets that are used in everyday life but marginal to a familys needs Do not play a large role in retirement planning unless they are being sold at retirementLiabilitiesNet worthassetsliabilities o Statement of cash flowfamily determines its own categoriesdebt payments better to separate debt payments into liabilities and interest expensebut not useful when it comes to budgeting purposes it would be better to include mortgage payments with shelterPAGE 19Quantify short and long term goalsPrepare short term budgets and estimate retirement spending o Looking at Retirement ageEstimated retirement lifestylePlanned savings for retirementType of investments they can make to get the returns they require oCalculate required retirement savings o CalculateHow much they need to have at date of retirement to finance their needsHow much they can reasonably expect to receive from gov programsHow much they will have at retirement from current savings o Says to draw down assets in this order to minimize taxes during retirementNonregistered assets of lower income spouseNon registered assets of higher income spouseRegistered assets of lower income spouseRegistered assets of higher income spouseMonitoring progress
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