Retirement Planning for Mary McIntyre

Background and Financial Information

RETIREMENT PLANNING Mary McIntyre is a 35-year-old Marketing Director at a small business firm in Brampton, ON. She has a daughter, Sue, age 6, and a husband, John, age 40.John is a musician, and he does not earn any appreciable income. Before he was married and for the first few years of his marriage to Mary (he was married once previously), John worked at various jobs, mostly involving software programming and customer support.Mary's grandfather died at age 42; Mary's father died at 58. Both died from cancer, although unrelated instances of that disease. Mary's health has been excellent; She is an active runner and skier. There are no inherited diseases in the family except for glaucoma. Mary's most recent serum cholesterol count was 190.Mary's salary from the firm where she works consists of a nine-month salary (currently$95,000), on which the firm pays an additional 10 percent into a defined benefits pension planwith OMERS, a sustainable, affordable, and meaningful defined benefit Plan (https://www.omers.com/plan-features ). As the pension plan stipulates, Mary needs to pay 9 percent to the pension plan. She also regularly receives support for her commission, which consists of a further two- ninths of her regular salary. However, the firm does not pay retirement benefits on that portion of her income. Over the 12 years, she has been at the firm, and her salary has increased by 4 to 15 percent per year. However, with the current economic climate, she does not expect to receive such generous increases in the future. In addition to her salary, Marytypically earns $10,000 to 20,000 per year from consulting, executive education, and otheractivities.Additionally, Mary also contributes substantially to the RRSP (registered retirement Savings Plan) fund. She is currently setting aside $7,500 per year (before taxes). The maximum tax-deferred amount Mary can contribute is present $10,000, and the limit rises with inflation. If Mary were to increase her savings toward retirement above the limit, she would have to invest after-tax dollars. All of Mary's retirement savings are invested with the financial institutions. Still, in light of the problems with the Social Security trust fund, She is uncertain about the level of benefits that she will receive upon retirement. (the Social Security Administration's website is www.ssa.gov.) Mary's OMERS holdings currently amount to $137,000. These are invested in the long-term bond fund (20 percent) and the Global Equity Fund (80 percent). The Global Equity Fund is invested roughly 40 percent in U.S. equities and 60 percent in non-U.S. equities. New contributions are also allocated in these same proportions.In addition to her retirement assets, Mary's net worth consists of her home (purchase price $770,000 in 2007; Mary's current equity is $40,000) and $50,000 in a rainy-day fund. She has a term life insurance policy with a value of $580,000; the policy has no asset value but pays its face value (plus inflation) as long as Mary continues to pay the premiums. She has no outstanding debts in addition to her mortgage, other than monthly credit-card charges.Should Mary die while insured, the proceeds on her life insurance are tax-free to her husband. Similarly, if she dies before retirement, her retirement assets go to her husband tax-free. Either one can convert retirement assets into annuities without any immediate taxation; the monthly income from the annuities is then taxed as ordinary income.Mary's mother is 62 and in good health. She is retired and living in a co-op apartment in Manhattan, the U.S. Her net worth is on the order of $300,000. Mary's mother-in-law, who is 70, lives with her's second husband, who is 87 and has sufficient assets to pay for nursing home care if needed. Upon her husband's death, Mary's mother-in-law will receive ownership of their house in Newton, Massachusetts, as well as one-third of his estate (the remaining two-thirds will go to her two children). Mary's mother-in-law's net worth at that point is expected to be in the $300,000−400,000 range.Mary's goal is to work until she is 65. She would like to save enough to pay for her daughter's college expenses, but not for her expenses beyond that point. Mary and John would like to travel. Upon retirement, she would like to travel extensively, although she would live quite modestly otherwise. She does not foresee moving from the small town where She now lives.Mary has several questions about how she should plan for her retirement. Will the amount she is accumulating at her current rate of savings be adequate? How much shouldMary be setting aside each year? How much will Mary have to live on when She retires? How long after retirement will she be able to live comfortably?