Suzanne is 65 years old and has worked for BCE for 25 years. She is a member of
ID: 2613750 • Letter: S
Question
Suzanne is 65 years old and has worked for BCE for 25 years. She is a member of a Defined Benefit Pension Plan that will pay a retirement benefit of 2% of the average of her best 3 years of earnings multiplied by her years of service. Her salary in the year before retirement was $82,000, and rose by an average of 5% per year over the last few years. Suzanne also has $200,000 in her RRSP invested in Canadian stocks. She estimates her income needs in retirement at $50,000 a year before tax.
Part A: What will be Suzanne’s annual pension benefit from BCE? Calculate pension benefit.
Part B: If Suzanne expects to live until the age of 85, how much should she have in retirement savings at the time of retirement taking into consideration her corporate pension income? Ignore income from OAS (Old age security) and CPP (Canada pension plan) and assume an investment return of 5% per annum. Calculate amount required for her retirement savings.
Part C: Is Suzanne’s RRSP (registered retirement savings plan) asset allocation appropriate? Please explain one reason why it is, and one reason why it isn’t.
Explanation / Answer
Salary Before retirement $82000 82000 Salary Before $82000 82000*100/105 78095 Salary Before $77900 78095*100/105 74376.42 Defined benefit Plan = 0.02*Average of her best 3 yrs salary*yrs of service Average 3 months salary 82000+78095+74376.42/3 78157.14 Annual Pension Benefit = 0.02*78157.14*25 39078.57 The Annual Pension benefit from BCE would be $39078.57
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