Chapter 17 - CHAPTER 17 General Comments The two retirement chapters are long and complex because they cover most of the issues in personal finance

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© 2005 Chris Robinson, Kwok Ho and Captus Press Inc. 17-1 CHAPTER 17 General Comments The two retirement chapters are long and complex because they cover most of the issues in personal finance. Investment, budgeting, goal setting, taxes and risk management all appear. The principles are the same as in the previous chapters, but the combination of all these problems at once is quite difficult for many students, and indeed for all of us. From here on in the book there are many possible solutions for almost every problem. We provide a reasonable solution, but a single change in assumptions about expected life, rate of return or desired consumption in retirement will change all the numbers. The overall advice and the general direction of the conclusions should remain the same for every problem as long as the assumptions are reasonable, however. The backbone of retirement planning is developing budgets and calculating the net value of shortfalls or surpluses, using the time value of money. This is a review of work the students have been doing since Chapter 2. We revisit the effect of inflation and taxes on discount rates. The length of time in the problems is a function of life expectancy, and so we reconsider that topic again, too. The best way to teach this quantitative material is to do it. We strongly advise that you work through one or two of the problems with the class in detail. You may find that short lectures on the mortality tables and calculating discount rates are necessary. We have simplified this chapter again in the third edition. The withdrawal of the Seniors Benefit and continuation of the OAS also simplifies the solutions to several problems somewhat. In addition, taxes and the amounts paid out for OAS and CPP have changed. Accordingly, a lot of the text has changed, and the solutions to problems have changed as well. Two of the problems are classified separately as case studies now. Another area covered in this chapter is the application of taxation principles (Chapter 8) and investment principles (Chapters 14-16) to the pre-retirement savings plan. These are straightforward repeats of those earlier chapters, and students should see the applications easily while doing the problems and cases. An important topic for every student to understand is pension plans. The Canadian public is ill-informed on even the most basic aspects of how pensions work, and we suggest that a lecture on this subject would be helpful. Once the students understand how pensions work generally, the details of government and employer pensions, and RRSPs, are much easier to follow. In this new edition, we also illustrated human capital as an important factor towards retirement planning.
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CHAPTER 17 © 2005 Chris Robinson, Kwok Ho and Captus Press Inc. 17-2 Solutions to problems 1. Age to Which a Person of a Given Age
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This note was uploaded on 10/16/2011 for the course ADMS 3541 taught by Professor Staff during the Fall '10 term at York University.

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Chapter 17 - CHAPTER 17 General Comments The two retirement chapters are long and complex because they cover most of the issues in personal finance

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