FINA348 Assignment Due to drop-box(15 Case Study Moe Ziba...

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FINA348 Assignment Due: July 14, 2017 to drop-box (15%) Case Study: Moe Ziba Moe Ziba: overview of retirement circumstances It is December 1, 2014. Moe Ziba, who is widowed, is about to turn 65 years of age. He is planning to retire from his current position at the end of the month. Moe joined API Manufacturing on January 1, 1985 and has progressed slowly to be the division manager now. He currently earns $100,000 annually. Throughout his period of employment, he has been a member of API's pension plan and as a result he has accumulated a significant pension entitlement. Moe has been given the following choices: a) accept a pension of $60,000 per year, indexed for inflation by 3% per year b) take the commuted value of his pension—amounting to $675,000—and allocate it as follows: 1) transfer $550,000 to a locked-in retirement account and 2) receive a non-locked-in amount of $125,000 as income. As he has sufficient RRSP contribution room, Moe can transfer the non locked-in amount to his regular RRSP If he chooses the second options, minimum locked-in amount needs to be withdrawn starting when he is 65 years old. He has also been awarded a retirement allowance of $80,000 to be paid in recognition of his long service, excellent leadership, and strong commitment to API which he decides to receive as cash. Prior to working for API, Moe worked for the YYZ Corporation for about 10 years. He was also a member of YYZ's pension plan for the duration of his employment there. When he left YYZ, his vested pension benefits remained in the pension plan. Moe now has the option of either accepting an annuity that will provide him with a non-indexed income of $15,000 at the end of each year or receiving a lump-sum of $150,000, which he could transfer into an RRSP as he has sufficient room. Although Moe is retiring from API Manufacturing., he is not yet ready to leave the work force entirely. He plans to work on a part-time consulting basis until he turns 70. He expects to receive $50,000 this year and $10,000 lower each year until he stops working at age 70. Moe currently has $200,000 in tax-paid capital. He expects the account to continue to earn a return of 5%. He has never contributed to his RRSP as he assumed his pension would be enough.
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Whatever his course of action, Moe wants to be able to maintain lifestyle expenditures of $60,000 to $100,000 per year with inflation protection of 3% and the funds need to not run out before he is 75 years when he is expected to receive enough income from an unknown source to sustain him until his death. Assume a marginal Tax rate of 43%. All investments in this scenario are expected to earn 5%. For the purpose of this case study ignore any Capital Gains. To supplement his income, he withdraws funds from non-registered accounts first, and then RRSPs. Amounts in LIF are subject to minimum withdrawals.
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