BFIN 255 Personal Financial Planning Case Study Background Lois Griffon, 36 years old, is a senior planner with the Calgary Board of Education at its head office, downtown, at Macleod Trail and 5th Ave SE. Her husband, Peter, is 33 years of age and is employed as a computer systems analyst, working for the City of Calgary at City Hall, located at Macleod Trail and 8th Ave., also in the Calgary downtown core. They have been married for 8 years and their two children, Brian and Stewie, are twin boys, now 3 years old. Lois and Peter do not plan on having any more children, and have both had medical procedures done to ensure it stays that way. Lois ears $ 75,000 a year (gross), and her net (take-home) pay is $ 49,000 per year. Her deductions (besides taxes, El, CPP, and contributions to the company retirement pension plan) include full family health care coverage (medical, drugs, dental, and optical). She also has disability coverage provided by her employer's group insurance for 70% of her gross salary, and three times her gross salary in life insurance coverage (straight-term, death benefit only, no cash value until death occurs while employed) under her employer's group package. Her annual pay raises for the last 3 years have averaged 4% each year. Lois is good at her job so her career (and her income) is considered to be "safe" She works from about 8:00 am to stulb Lois eams $ 75,000 a year (gross), and her net (take-home) pay is $ 49,000 per year. Her deductions (besides taxes, EI, CPP, and contributions to the company retirement pension plan) indude full family health care coverage (medical, drugs, dental, and optical). She also has disability coverage provided by her employer's group insurance for 70% of her gross salary, and three times her gross salary in life insurance coverage (straight-term, death benefit only, no cash value until death occurs while employed) under her employer's group package. Her annual pay raises for the last 3 years have averaged 4% each year. Lois is good at her job so her career (and her income) is considered to be "safe". She works from about 8:00a.m. to 5:00 p.m. Monday to Friday, and gets four weeks of paid annual vacation. Peter's gross income is $ 63,000 with a net (take-home) pay of $ 46,500 each year. He does not have group health, medical, or dental coverage from his employer because Lois's employer plan is better than his company's, so he does not have those costs deducted from his pay cheques. Peter does, though, have income tax deducted from his pay, as well as his contributions to his employer's retirement pension plan and normal things like El and CPP, as does Lois with hers. BFIN 255 Case Study 2019 Peter has group life insurance coverage from his employer that would pay a death benefit of $150,000. He also has disability coverage that would pay 60% of his gross income if he should get injured or disabled. He does have his own term life insurance policy that he has purchased from Canada Life that would pay a death benefit of $100,000. Like his wife, he is in the office from about 8:00 a.m. to about 5:00p.m. and he gets three weeks of paid annual vacation. His job is also considered to be "safe" and his annual raises for the last 3 years have averaged just over 5% each year. Their 40-year-old home is in very good shape, and is located on a street close to the Safeway store in Sunnyside (in fact, just around the comer from the Sunnyside LRT station). Their home was purchased seven years ago for $465,000 and is currently worth $920,000. The couple likes their home and plans to live there at least until their children have grown up, but they have recently considered keeping this as their primary (main) home for when they retire. Lois and Peter have a mortgage on their home in the amount of $320,000 which has a five-year fixed term with an interest rate of 6 %, a 20 year amortization. Property taxes are $ 4,400 a year, and last year they spent $6,880 on utilities and house maintenance expenses. The couple recently had their home insurance adjusted to raise the amount of replacement-cost coverage of their home contents (furniture, appliances, clothing, etc.) from $100,000 to $125,000. They know, of course, that if they did a personal balance sheet, the current value figure they would use for the contents would be far below what the insurance company would compensate them for in the event of a catastrophe, such as their house burning down. Being conservative, they think that they would estimate the "garage sale" value of the contents of their home at about $ 50,000 if they did a personal financial statement. The couple has not done a good job of keeping records of what they spend their money on, so for the full year 2017 Paraglider 4 4. 1.1 3 1 YaIUC ULTIC COTILCIS OI UICII TISCIVauve, UICY UHIN Ualley WOUI CSU UC yuruyc SIC home at about $ 50,000 if they did a personal financial statement. The couple has not done a good job of keeping records of what they spend their money on, so they have had to estimate what those expenses were. They estimate that, for the full year 2017, they spent the following amounts of money: Groceries Car insurance Home insurance Life insurance for Peter Day care for the boys Car loan payments Purchases and payments made on their credit cards Vacations and trips Eating out at restaurants and buying gifts 9,800 1,800 650 400 19,200 7,200 22,000 8,800 6,000 Their vehicles include a 1-year old Mini Cooper-S that cost $37,000 to buy new. It has a current market value of $21,000 and the loan that Lois took out will be paid off four years from now. They also have a four-year old Dodge Grand Caravan, bought new for $31,000 with a market value today of $12.000 and a loan that will be paid off one year from now. BFIN 255 Case Study 2019 BY In preparing to discuss their financial situation, Lois and Peter went through their files and have rounded-up some other information they think they will need to have so that they can have a meaningful discussion of their money situation. So far, here is what they have come up with: Balance in their joint-savings account Balance in their joint-chequing account Balance owing on Peter's MasterCard Balance owing on Lois's VISA card 4,150 910 7,100 5,200 Peter's self-directed RRSP at BMO - Bank of Montreal Lois's Mutual Fund RRSP at TD Canada Trust 11,680 8,720 Balance owing on the Mini Cooper loan Balance owing on the Dodge Caravan loan 14,200 2,400 Before their children were bom, Lois and Peter were each putting about $2,500 a year into their separate RRSPs. Both Lois and Peter have not put anything into their RRSPs since their children were born. They plan to start putting money into their RRSPs again, when the boys are in school full-time, which will be in two more years. Right now, Lois' RRSP contains "balanced" mutual funds that hold mainly stocks and bonds, which she thinks are pretty safe. They seem to grow at a rate of about 4% a year, she thinks. Peter's RRSP contains shares of ten small oil and gas exploration companies (all listed on the TSX Venture Exchange), most of which are recent start-ups (new companies) and have market values of between $1.50 and $2.25 a share. None of the companies that he owns shares in have paid any dividends, but Peter estimates the total value of the shares he owns has gone up Add-ins loaded successfully Focus Sun VCTIC LAUTNYC), MUST VI VITIT IELCHL Start-ups (MCW CompanNCS) and AVC HANGL values of between $1.50 and $2.25 a share. None of the companies that he owns shares in have paid any dividends, but Peter estimates the total value of the shares he owns has gone up about 10% in the last year. It is the intention of Lois and Peter to pay for their sons' college or university education, if Brian and Stewie choose to go to those levels of post-secondary education Lois and Peter plan to work until they are 65 years old, then they would like to retire. If she continues to work with the Calgary Board of Education until retirement Lois's pension will be paying her about $51,000 a year (gross). She plans to start receiving her Canada Pension Plan (CPP) and her Old Age Security (OAS) payments from the federal government when she reaches age 65. She has no idea of what her RRSP will be worth by the time she retires but, when she set it up 5 years ago, she hoped that it would be worth at least $300,000 by age 65. If Peter stays with The City until he retires, his employer pension income is estimated to pay him about $38,000 a year (gross). Other retirement income will consist of whatever income he can generate from his RRSP and from his CPP and OAS payments, which he plans to begin receiving when he tums 65. Peter is starting to get concerned about how much money he will actually be able to build into his RRSP by the time he reaches age 65 but, like his wife, originally thought he could have about $300,000 in his RRSP by the time he hits age 65. BFIN 255 Case Study 2019 Arressibilitr Good to on Add-ins loaded successfully Focus Page 4 of 5 When they do retire, Lois and Peter would like to spend at least 3 months each winter in either Arizona or Mexico. With this being part of their plan, they believe they will need to have a joint (combined) gross-annual income, at retirement, of at least $125,000 per year. Lois and Peter are not good at saving money, and even worse at knowing where the money goes. They use their credit cards to buy almost everything so they can build-up the Air Miles and other travel-points to take vacations on Some months they pay large amounts of money against their credit card balances, other months they make only the minimum payments. Your Assignment 1) create a joint personal balance sheet for Lois and Peter and provide your conclusions about what you see in their balance sheet. (5 marks for the balance sheet, and 5 marks for your commentary) 2) create a joint cash-flow statement for the couple and provide your conclusions about what that cash-flow statement seems to indicate. (5 marks for the cash flow statement and 5 marks for the commentary) 3) Evaluate their risk- management situation (their use of insurance products to protect various aspects of their lives). (5 marks) 4) Examine their investment portfolios (what each has in their RRSPs) and make some recommandations about the fines of investments they have and the risks they need to Examine their investment portfolios (what each has in their RRSPs) and make some recommendations about the types of investments they have and the risks they need to be aware of. (5 marks) 5) Comment on Lois's and Peter's current tax strategies and make any recommendations you think are appropriate. (5 marks) 6) From what you have concluded from the value of their investment portfolios (RRSPs) together with the other sources of income in their retirement what in your opinion, is the likelihood that the couple can achieve the goals they have with their respective RRSPs and that they can, together, have retirement income of $125,000 per year. (5 marks) 7) Discuss how they are using, and managing, their consumer credit and make recommendations. (5 marks) 8) Provide your comments and recommendations about the intention that the couple has to pay for their sons' post-secondary education. (5 marks) 9) Most important: apply large amounts of critical thinking to each question. BFIN 255 Case Study 2019 BFIN 255 Personal Financial Planning Case Study Background Lois Griffon, 36 years old, is a senior planner with the Calgary Board of Education at its head office, downtown, at Macleod Trail and 5th Ave SE. Her husband, Peter, is 33 years of age and is employed as a computer systems analyst, working for the City of Calgary at City Hall, located at Macleod Trail and 8th Ave., also in the Calgary downtown core. They have been married for 8 years and their two children, Brian and Stewie, are twin boys, now 3 years old. Lois and Peter do not plan on having any more children, and have both had medical procedures done to ensure it stays that way. Lois ears $ 75,000 a year (gross), and her net (take-home) pay is $ 49,000 per year. Her deductions (besides taxes, El, CPP, and contributions to the company retirement pension plan) include full family health care coverage (medical, drugs, dental, and optical). She also has disability coverage provided by her employer's group insurance for 70% of her gross salary, and three times her gross salary in life insurance coverage (straight-term, death benefit only, no cash value until death occurs while employed) under her employer's group package. Her annual pay raises for the last 3 years have averaged 4% each year. Lois is good at her job so her career (and her income) is considered to be "safe" She works from about 8:00 am to stulb Lois eams $ 75,000 a year (gross), and her net (take-home) pay is $ 49,000 per year. Her deductions (besides taxes, EI, CPP, and contributions to the company retirement pension plan) indude full family health care coverage (medical, drugs, dental, and optical). She also has disability coverage provided by her employer's group insurance for 70% of her gross salary, and three times her gross salary in life insurance coverage (straight-term, death benefit only, no cash value until death occurs while employed) under her employer's group package. Her annual pay raises for the last 3 years have averaged 4% each year. Lois is good at her job so her career (and her income) is considered to be "safe". She works from about 8:00a.m. to 5:00 p.m. Monday to Friday, and gets four weeks of paid annual vacation. Peter's gross income is $ 63,000 with a net (take-home) pay of $ 46,500 each year. He does not have group health, medical, or dental coverage from his employer because Lois's employer plan is better than his company's, so he does not have those costs deducted from his pay cheques. Peter does, though, have income tax deducted from his pay, as well as his contributions to his employer's retirement pension plan and normal things like El and CPP, as does Lois with hers. BFIN 255 Case Study 2019 Peter has group life insurance coverage from his employer that would pay a death benefit of $150,000. He also has disability coverage that would pay 60% of his gross income if he should get injured or disabled. He does have his own term life insurance policy that he has purchased from Canada Life that would pay a death benefit of $100,000. Like his wife, he is in the office from about 8:00 a.m. to about 5:00p.m. and he gets three weeks of paid annual vacation. His job is also considered to be "safe" and his annual raises for the last 3 years have averaged just over 5% each year. Their 40-year-old home is in very good shape, and is located on a street close to the Safeway store in Sunnyside (in fact, just around the comer from the Sunnyside LRT station). Their home was purchased seven years ago for $465,000 and is currently worth $920,000. The couple likes their home and plans to live there at least until their children have grown up, but they have recently considered keeping this as their primary (main) home for when they retire. Lois and Peter have a mortgage on their home in the amount of $320,000 which has a five-year fixed term with an interest rate of 6 %, a 20 year amortization. Property taxes are $ 4,400 a year, and last year they spent $6,880 on utilities and house maintenance expenses. The couple recently had their home insurance adjusted to raise the amount of replacement-cost coverage of their home contents (furniture, appliances, clothing, etc.) from $100,000 to $125,000. They know, of course, that if they did a personal balance sheet, the current value figure they would use for the contents would be far below what the insurance company would compensate them for in the event of a catastrophe, such as their house burning down. Being conservative, they think that they would estimate the "garage sale" value of the contents of their home at about $ 50,000 if they did a personal financial statement. The couple has not done a good job of keeping records of what they spend their money on, so for the full year 2017 Paraglider 4 4. 1.1 3 1 YaIUC ULTIC COTILCIS OI UICII TISCIVauve, UICY UHIN Ualley WOUI CSU UC yuruyc SIC home at about $ 50,000 if they did a personal financial statement. The couple has not done a good job of keeping records of what they spend their money on, so they have had to estimate what those expenses were. They estimate that, for the full year 2017, they spent the following amounts of money: Groceries Car insurance Home insurance Life insurance for Peter Day care for the boys Car loan payments Purchases and payments made on their credit cards Vacations and trips Eating out at restaurants and buying gifts 9,800 1,800 650 400 19,200 7,200 22,000 8,800 6,000 Their vehicles include a 1-year old Mini Cooper-S that cost $37,000 to buy new. It has a current market value of $21,000 and the loan that Lois took out will be paid off four years from now. They also have a four-year old Dodge Grand Caravan, bought new for $31,000 with a market value today of $12.000 and a loan that will be paid off one year from now. BFIN 255 Case Study 2019 BY In preparing to discuss their financial situation, Lois and Peter went through their files and have rounded-up some other information they think they will need to have so that they can have a meaningful discussion of their money situation. So far, here is what they have come up with: Balance in their joint-savings account Balance in their joint-chequing account Balance owing on Peter's MasterCard Balance owing on Lois's VISA card 4,150 910 7,100 5,200 Peter's self-directed RRSP at BMO - Bank of Montreal Lois's Mutual Fund RRSP at TD Canada Trust 11,680 8,720 Balance owing on the Mini Cooper loan Balance owing on the Dodge Caravan loan 14,200 2,400 Before their children were bom, Lois and Peter were each putting about $2,500 a year into their separate RRSPs. Both Lois and Peter have not put anything into their RRSPs since their children were born. They plan to start putting money into their RRSPs again, when the boys are in school full-time, which will be in two more years. Right now, Lois' RRSP contains "balanced" mutual funds that hold mainly stocks and bonds, which she thinks are pretty safe. They seem to grow at a rate of about 4% a year, she thinks. Peter's RRSP contains shares of ten small oil and gas exploration companies (all listed on the TSX Venture Exchange), most of which are recent start-ups (new companies) and have market values of between $1.50 and $2.25 a share. None of the companies that he owns shares in have paid any dividends, but Peter estimates the total value of the shares he owns has gone up Add-ins loaded successfully Focus Sun VCTIC LAUTNYC), MUST VI VITIT IELCHL Start-ups (MCW CompanNCS) and AVC HANGL values of between $1.50 and $2.25 a share. None of the companies that he owns shares in have paid any dividends, but Peter estimates the total value of the shares he owns has gone up about 10% in the last year. It is the intention of Lois and Peter to pay for their sons' college or university education, if Brian and Stewie choose to go to those levels of post-secondary education Lois and Peter plan to work until they are 65 years old, then they would like to retire. If she continues to work with the Calgary Board of Education until retirement Lois's pension will be paying her about $51,000 a year (gross). She plans to start receiving her Canada Pension Plan (CPP) and her Old Age Security (OAS) payments from the federal government when she reaches age 65. She has no idea of what her RRSP will be worth by the time she retires but, when she set it up 5 years ago, she hoped that it would be worth at least $300,000 by age 65. If Peter stays with The City until he retires, his employer pension income is estimated to pay him about $38,000 a year (gross). Other retirement income will consist of whatever income he can generate from his RRSP and from his CPP and OAS payments, which he plans to begin receiving when he tums 65. Peter is starting to get concerned about how much money he will actually be able to build into his RRSP by the time he reaches age 65 but, like his wife, originally thought he could have about $300,000 in his RRSP by the time he hits age 65. BFIN 255 Case Study 2019 Arressibilitr Good to on Add-ins loaded successfully Focus Page 4 of 5 When they do retire, Lois and Peter would like to spend at least 3 months each winter in either Arizona or Mexico. With this being part of their plan, they believe they will need to have a joint (combined) gross-annual income, at retirement, of at least $125,000 per year. Lois and Peter are not good at saving money, and even worse at knowing where the money goes. They use their credit cards to buy almost everything so they can build-up the Air Miles and other travel-points to take vacations on Some months they pay large amounts of money against their credit card balances, other months they make only the minimum payments. Your Assignment 1) create a joint personal balance sheet for Lois and Peter and provide your conclusions about what you see in their balance sheet. (5 marks for the balance sheet, and 5 marks for your commentary) 2) create a joint cash-flow statement for the couple and provide your conclusions about what that cash-flow statement seems to indicate. (5 marks for the cash flow statement and 5 marks for the commentary) 3) Evaluate their risk- management situation (their use of insurance products to protect various aspects of their lives). (5 marks) 4) Examine their investment portfolios (what each has in their RRSPs) and make some recommandations about the fines of investments they have and the risks they need to Examine their investment portfolios (what each has in their RRSPs) and make some recommendations about the types of investments they have and the risks they need to be aware of. (5 marks) 5) Comment on Lois's and Peter's current tax strategies and make any recommendations you think are appropriate. (5 marks) 6) From what you have concluded from the value of their investment portfolios (RRSPs) together with the other sources of income in their retirement what in your opinion, is the likelihood that the couple can achieve the goals they have with their respective RRSPs and that they can, together, have retirement income of $125,000 per year. (5 marks) 7) Discuss how they are using, and managing, their consumer credit and make recommendations. (5 marks) 8) Provide your comments and recommendations about the intention that the couple has to pay for their sons' post-secondary education. (5 marks) 9) Most important: apply large amounts of critical thinking to each question. BFIN 255 Case Study 2019