Background Notes

- Fred is now 67 years old and Wilma is 56 years old.

- Both Wilma and Fred are healthy and both are still working full time.

- Wilma works for a marketing firm and expects to earn a salary of $135,000 in 2020. Wilma contributes to her Employer Pension Plan, as required by her employment agreement.

- At age 67, Fred still works (in the education field) and he expects to earn a gross salary of $85,000 in 2020. Fred works on contract and is not a member of an employer pension plan. Fred receives no benefits from his employer.

- In 2017 the Flints' got involved in sailing and now rent a large sailboat twice a year for a trip down the east coast of United States. These trips have added a large cost to the Flint's already very expensive lifestyle. The Flint's expect their total expenses for 2020 to be $255,000.

- Both Fred and Wilma want to retire in 2 years (at the end of 2022).

- In retirement, the Flint's estimate that they will require at least $160,000 in gross income per year (before expenses and before taxes). Fred expects to earn $60,000 total income per year at the start of his retirement (in 2022) and Wilma expects to earn $100,000 per year in the year she retires from her current employer (2022).Expected sources of retirement income for Fred is CPP, Old Age Security and 50% of the income from the Flint's non-registered investment portfolio.Wilma's expected retirement income includes 50% of the income from the non-registered investment account and from her employer's pension plan. Under her employer's early retirement package, Wilma expects to earn pension income from her defined contribution pension plan when she retires. Wilma was recently informed by her employer that her pension income amount was guaranteed at 60% of her ending salary when she retires.Wilma asks you to explain this guaranteed pension amount to her as that was not her understanding of how her employers DC pension plan worked.

- Fred hopes that this level of income in retirement will be equal to their expenses in retirement. However, the Flint's are not very good at managing their money and have never prepared a budget to monitor their spending. One of their key goals is to ensure that they do not run out of money in retirement. Their other financial goal is to ensure that all of their debt is paid off by the time they retire.

- The Flint's lease both of their cars.

- The Flints intend to live an active life in retirement (travel/sail, dine out, etc.) for as long as they stay healthy (say, after 10 years in retirement). For financial planning purposes, you assume that the Flints will live until the age of 90.

- On October 31, 2020, the Flint's assets included:

Their principle residence, which is currently valued at $1 million (purchased 12 years ago for $700,000);

The Flint's have a joint bank account totalling $2,000 in cash.

Wilma's RRSP, which is currently valued at $225,000.

Wilma's has a Locked-in RRSP account. This account was opened by Wilma in 2005 when she transferred over the money from her pension plan at her former employer.

Fred has a GIC for $145,000 in his non-registered account. This GIC is very safe and pays interest of 0.5% per year. This GIC matures in 3 months. Fred expects the interest rate to start to increase on a regular basis over the next 4 years.

Last month Fred's great uncle passed away. Fred uncle left him this Corporate bond (pays 3% interest per year). Interest is paid semi-annually. After doing some research, Fred determined that his uncle bought the bond at its face value of $25,000. Today, the bond is valued $28,500. The current interest rate in the economy is 2.25%. The Flint's are considering selling the bond and using the money to pay off some of their line of credit (debt).

Background on the Other Flint Family Members

Dino Flint

- Dino Flint, age 29, not working as he was disabled in a car accident last year.

- The Flint's are very concerned about their son Dino.

- According to the doctors, Dino will never be able to work full time and will therefore be limited in his capacity to earn a good living.

- Dino receives $3,500 per month from the insurance company as a result of the accident, to pay for his medical care.

- These payments will continue until Dino reaches the age of 60 and then they will stop.

- Dino was a student when the accident happened and has never paid into CPP.

The Flint's ask you to help them put a plan together so that Dino will be able to manage financially when Fred & Wilma are deceased.

Pebbles Flint

- Pebbles Flint, age 25, is a full time student and is married to Slate Stone.

- Pebbles and Slate are expecting their first child next month.

- Fred would like to surprise Pebbles with a special gift for her baby: 4 years of free college tuition when his granddaughter reaches the age of 18.

- Fred estimates that this will cost him $2,000 per year, for 18 year.

1.Tax Planning

Students to answer questions raised by the Flints:

What is the estimated tax amount on sale of principal residence?

Discuss options for saving for post-secondary school for Fred & Wilma's grandchild.

Are Spousal RRSPs a good idea for the Flints? Explain pros & cons of spousal RRSPs, as it relates to the Flint's situation.

Should Wilma make her retirement account contributions to her regular RRSP or to her Lock-in RRSP?

Are there any other investment accounts that the Flints should open that would provide a tax advantage. If so, how much can each of them contribute to their own account? ( Explain the advantages of both Fred and Wilma opening up TFSAs. How much can they each contribute if they open up the accounts in 2020.)

2.Retirement Planning

Based on the estimated income and expenditures provided by the Flint's, will Wilma and Fred have a positive cash flow in their first year of retirement?

Students to address retirement planning questions raised by Wilma:

Discuss Wilma's DC Pension Plan-is the amount to be paid out on retirement guaranteed?

Impact of the OAS "clawback" on the Flints in retirement, if any?

Are there any benefits of spousal RRSPs for the Flint's?Explain why and be specific?