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The Case: Jason Jones and Megan Jones

As at 31 January 2023

Personal Information

Jason R. Jones and Megan T. Jones are 38 years old and 40 years old respectively and currently live in London, Ontario. They met through a mutual friend Tony and married in 2016. Jason divorced his first wife Ava after 3 years of marriage. Jason is paying $500 per month in spousal support payments that will finish in December 2028. Jason and Megan currently have an 8 year old boy named Greg and a 4 year old girl, Kaley. For years they had trouble conceiving their second child and feel that Kaley will be their last child.

Employment

Jason:

After graduating from Fanshawe College in 2007, Jason went on to work at 4 Solutions Display Corp. as an Industrial Designer. His role primarily involved designing Point-of-Purchase (POP) displays for major retailers in Canada. In November 2015, after several years with 4 Solutions, Jason was let go due to a corporate restructuring. His annual salary at the time was $75,000. Forced to find employment in short order, Jason worked for a number of design firms on a temporary basis until he started his own business, BRM Design in January 2017. BRM Design focuses on producing POP designs for a select number of retailers that can be manufactured on time and on budget. He prides himself on his efficiency. The last two years have been very challenging for Jason but he has managed to generate positive cash flow every quarter. He works from his home office and has no plans to hire staff unless he absolutely has to. Jasons goal is to establish long-term design contracts with the firms he has been working with to make his business sustainable.

In 2023, Jason expects to generate $95,000 of self-employment income after expenses, an 8% increase over 2022 (30% over 2021). Over the long-term, Jason would be happy if his net income grows with inflation. Although he loves what he does, he would really like to retire early by age 60 so that he can golf, travel and enjoy the finer things in life.

Megan:

Megan completed a Bachelor of Science in Nursing program at George Brown College and is currently employed as a nurse at University Hospital. As a nurse, she earns $78,000 per year with a pension and benefits. Megan anticipates retiring at the same time as Jason so they can enjoy retirement together.

Major Assets and Liabilities

Jason and Megan purchased their semi-detached home jointly in London, Ontario for $450,000 in 2018 with a $50,000 down payment. They believe they could sell it for $850,000 today if they had to. They received a mortgage for $400,000 with a 25 year amortization, on a 5 year term at a 4.5% interest rate. They currently have 1 year left on their mortgage and are thinking about the possibility of refinancing at an interest rate of 3.25%.

Jason and Megan have various investment accounts (TFSAs, RRSPs and Non-Registered) as listed below. Every year at Christmas time, Jasons Dad gives them $2,400 as a gift and they have been using this to contribute to their TFSAs on an annual basis, and they plan to continue this. They consider themselves to be medium-risk investors, although they have told you they never completed a risk tolerance questionnaire. They dont have a great understanding of how financial markets work nor the time to figure it out. They have never completed an investment or retirement plan in the past and have made their investment decisions by listening to their friend Percy, a self-described investment guru, who gives them hot stock tips. They expect to make 8% per year on their investments and feel they are saving enough to meet their retirement goals.

Megan has a 6%, $20,000 car loan outstanding with BMO Bank of Montreal. The loan has 4 years remaining and she is making monthly payments.

As listed below, Jason and Megan each have a car and they are both in reasonably good shape at the moment. However, Jason will likely need to replace his car in 3 years. He is thinking of purchasing a Tesla Model X at that time.

Education Savings

As soon as Greg was born, Jason and Megan opened a RESP as joint subscribers and began saving $210 per month based on the advice of a bank branch employee. They did the same when their second child was born. The plan is currently worth $31,201.58 and is invested 100% in the BMO Dividend Fund. The plan was initially opened as a Family Plan.

Although it is early, they envision both of their kids attending a university in Canada, earning a four year university degree. They expect their children to attend university in another city. If possible, they would like to fully cover their childrens education costs.

Health

Jason and Megan have enjoyed relatively good health of late. However, 10 years ago Jason had a non-cancerous cyst removed from his leg and this past year Megan underwent surgery to treat her keratoconus. Jason and Megan are both non-smokers.

Financial Security

Jason and Megan recognize the importance of risk management and would like to ensure their family is financially secure in the event of death, disability or an emergency.

When Jason was let go from 4 Solutions in 2015 he opted to convert his group life insurance coverage to an individual life policy with the same carrier, Sun Life. The policy is a whole-life and has a face value of $75,000. The beneficiary on the plan is his ex-wife. Jason also had a defined contribution pension plan with 4 Solutions. When he was let go, he transferred the value to a LIRA.

Jason has not purchased any other insurance products and does not believe he needs to so long as he is covered under Megans work plan. University Hospitals Group Benefits Plan provides Jason, Megan and children with extended health care and dental care through Great-West Life. The premiums for extended health care and dental care are paid for by the hospital. The plan also covers Megan for short-term disability (100% of salary) and long-term disability (60% of salary after 3 months). Megan pays the premium of $67.10 for long-term any occupation disability coverage. Megan has $50,000 of life insurance coverage on her and she has opted for supplementary life insurance of $50,000 on her life. Jason and Megan have no other life insurance policies.

Jason and Megan would like to leave everything to each other in the event of death and then their children in equal shares. They want to ensure their kids are provided for in terms of education and living expenses and that the surviving spouse can take a year off work to grieve.

Jason created a will in 2011 and it has not been updated, but Megan has not. In the event of both of their deaths, Jasons sister Beverly has verbally agreed to care for their children.

Pension Plans

Megan is a member of her employers mandatory defined contribution pension plan. She contributes 4% of her earnings and her employer matches. The plan is invested with a balanced mandate comprised of 60% equities and 40% fixed income. Jason is listed as beneficiary on the plan.

Given Megans pension, their current and projected savings and the benefits they will receive from the government, Jason and Megan would like to have an income of 65,000 a year after tax in todays dollars.

Inheritances

Jasons dad is 72. He plans to leave one third of his estate to Jason which is currently worth around $90,000. Jason and Megan would like to pass on a sizable estate to their children, and are wondering if there is a way to minimize estate taxes or maximize estate values for their children.

Megans parents divorced when she was young and she does not anticipate any sizable inheritance upon their death.

Future Plans:

The next few years promise to be an exciting time for Jason and Megan. Once they establish themselves in their respective careers they hope to purchase a larger home to raise their family in. They would like to buy a resale detached house close to one of the best primary schools in the city. They expect to pay $850,000 for a 3 bedroom, 2000 square foot home. They are unsure if they qualify for the Home Buyers Plan.

Jason has also been heavily involved the Make-a-Wish Foundation. He is thinking of donating $50,000 to charity at his death. He is wondering the best way to do this and is unsure of the benefits, if any, this will provide his estate.

Expenses & Cash Flow

(note: this is not complete and you should make and state assumptions where appropriate.)

Jasons sister Beverly runs a home day care and charges Jason and Megan only $250 per month to care for Kaley. She previously did the same for Greg.

Jason and Megan believe they spend less and save more than the average family. However, they have not kept accurate records and have only collected the following list of personal expenses and savings plan contributions. They are unsure if this is a full accounting of expenses.

In the future, they plan to join a gym for the family and go on an annual family vacation to the Caribbean for one week to de-stress.

Jason and MeganExpenses Babysitting$50.00Groceries and pharmacy$1,050.00Fast food / restaurants$50.00Property taxes $500.00Spousal Support$500.00Utilities$325.00Car insurance$185.00Gas for cars$300.00Clothing$100.00Daycare$250.00Entertainment$250.00Phone, internet, cable$175.00Home insurance$80.00Life insurance - Jason$40.00Group Supplementary Life insurance$7.50Group long-term disability$67.10Savings: TFSA for Megan$200.00TFSA for Jason$200.00RESP (Family Plan) $420.00RRSP for Megan$200.00RRSP for Jason$450.00Pension Plan$260.00

Other Assets and Debts

JasonMeganCARS

2010 Pontiac Grand Prix

No loan, paid in full

2019 Ford Escape

BANK ACCOUNTS$4,514LIFE INSURANCE

$5,987.54

Cash value

NoneHOME FURNISHINGS$50,000

DEBTS

$3,400 BMO Air Miles MasterCard

Credit Limit $25,000, 19.9% interest rate

Car Loan (Megan) - $20,000

Investment Details

CURRENT INVESTMENTS WITH BMO BANK OF MONTREALRESP (FAMILY PLAN)

$31,201.58

Invested in BMO Dividend Fund

CURRENT INVESTMENTS WITH SCOTIA iTRADE JasonMeganNON-REGISTERED INVESTMENTS

$7,500.01

Invested 100% in Canadian Tire common stock

TFSAs

$8,356.36

Lululemon stock 20%

Royal Bank stock 40%

Suncor Energy stock 20%

Rogers common stock 20%

$7,750.67

Lululemon stock 30%

Royal Bank stock 40%

Rogers common stock 30%

RRSPs

$23,801.82

Manulife Monthly High Income Fund 10%

RBC Canadian Equity 60%

Manulife Bond Fund 30%

$12,107.11

BMO Dividend Fund 30%

Scotia Canadian Equity Fund 40%

BMO Canadian Small Cap Equity Fund 30%

LIRA

$21,672.99

Manulife Monthly High Income Fund

PENSIONSNone

$91,970.87

Managed by pension fund manager in a balanced mandate (60% equities, 40% bonds)