Craig and Lyn Case Study

Lyn and Craig have been married for 10 years and have two children (Corrie - age 8 and Preston - age 7). Lyn is 38 years old. She graduated with a Commerce Degree from Wilfred Laurier University when she was 21 and was immediately hired by TD Canada Trust where she has worked her way up to her current position of Branch Manager at a medium sized Branch earning $75,000 per year. Her benefit package consists of full medical and dental coverage for her and her family, life insurance totaling 2 times her salary, short term disability for 6 months at full salary (paid for by her employer) and long term disability which she pays for and will provide her 70% of her salary.

She also contributes $4,400.00 to a defined benefit pension plan which will pay her a pension of $35,000 (in future dollars) if she retires at 65 and which will be indexed to the inflation rate. She and Craig think they can live on 70% of their pre- retirement expenses (excluding all debt payments). Over the past few years her income has been growing at about the rate of inflation (2.5%) and she believes that this will continue for the foreseeable future. Lyn's payroll deductions consist of $327.00 for her group plan, $3,499.80 for Canada Pension Plan and $952.74 for Employment Insurance.

Craig is 34 years of age and is working as a real estate agent for a local Remax Broker. He obtained his real estate license 6 years ago and since then he has worked hard to build up his client base. His income fluctuates from year to year (2019 - $78,000, 2020 - $96,000, 2021 - $82,000) however he has made several big sales this year and is anticipating his best year ever. Although this is good news Craig always has a problem paying income tax and is looking for ways to avoid the pain associated with filing his income tax every April. To maintain his current position with Remax Craig must pay a monthly desk fee of $500.00 plus all his expenses including phone, liability insurance and advertising (another $500.00 per month). He drives a 2019 Mustang which he leases for $520.00 a month (3 year lease coming due next month) and he puts about 2,000 KM per month on his car related to business.

He does not receive any group benefits or disability insurance from Remax which puts the family at risk should Craig become injured and unable to work. Craig's payroll deductions consist of $3,499.80 for Canada Pension Plan and $952.74 for Employment Insurance.

On a personal note Lyn is a bit of a health nut who expects to live until the age of 96 based on the life span of some of her relatives Lyn also plays tennis at a local club ($400.00 year for membership fees) and her hobby is scrap-booking (about $500.00 per year in supplies and courses). She drives a 2020 KIA Mini-Van worth about $25,000.00 and she has a loan for the van with a balance of $11,000.00 and monthly payments of $350.00 which should be paid out in 3 years. The van should last for another 5 years at which point Lyn will need a new vehicle with a projected cost of $25,000.00 and she thinks she will get $1,000.00 trade-in allowance for the 2015 Van. Lyn knows she can borrow for the new vehicle however she would like to have some money available at the time of purchase to reduce the size of the loan.

Lyn has a will which she created 15 years ago. She does not have a living will or any form of power of attorney. She has recently been taking some in-house courses at work about insurance and has learned about critical illness and long term care insurance, neither of which she has. Her only insurance is her group plan at work.

Her other goals are retiring at age 65, putting the children through their post-secondary education and her and Craig have been talking recently about buying a home in Florida to use in retirement.

Craig's parents are both deceased. His mother died of cancer when she was 60 and his father had a major stroke at the age of 65 and died a few months later. Both parents suffered a great deal in the last months of their lives and it was a difficult period for Craig and Lyn. They are hoping that there is a way to make the palliative care process easier on the family in the event that one or both of them are in this position. Craig hopes to live until the age of 82 although most of his relatives have not made it to that age. Craig does not have any insurance at this time. He is a smoker who would really like to quit (costs him about $10.00 per day) and enjoys golf (costing $500.00 per year) and watching sports on TV. Craig does not have a will nor does he have a living will or any form of power of attorney. Craig would like to retire at age 61 (when Lyn retires). He would also like to continue travelling once a year to the all-inclusive with Lyn, something they have done for the past 4 years and really enjoyed (costing about $3,000.00 per year).

Craig and Lyn have several expenses associated with their children. Preston and Corrie are finished school each day at 3:30 and attend after school programs until 6:00

with a total cost of $200.00 per week (for 40 weeks a year as Craig's sister looks after the children when they are not in school and not away on holidays with the family).

Corrie plays soccer in the summer and figure skates in the winter with a total cost of $1,200.00 per year. Preston plays soccer in the summer and hockey in the winter with a total cost of $2,500.00 per year. Lyn and Craig have been able to put a total of $3,000.00 into a joint RESP for the 2 children since they were born. The RESP is invested in a balanced mutual fund which has been yielding about 3.5% per year. The cost of post-secondary education today is $15,000 per year (including tuition, books, fees and accommodation) and is expected to increase each year by the inflation rate.

When Lyn's mother passed away her will outlined a provision for a testamentary trust allocating $20,000.00 for Preston and $20,000.00 for Corrie. The proceeds of the trusts are to be invested in GICs and used to fund education (the current rate for a 5 year GIC is 3%). If either child does not attend post-secondary education they will receive the total proceeds of the trust when they are 25 years of age.

Both Craig and Lyn are interested in ensuring that their children are taken care of in the event of their premature death. If either Craig or Lyn die they wish the remaining spouse to take over all the assets and have no debt to deal with. If both spouses die they are hoping that Craig's sister will take over responsibility for the children and will look after the money which will go to the children once they become of age. If Craig and Lyn both live into retirement they are not interested in leaving a legacy for the children.

In addition to the RESPs Lyn has $12,000 in RRSPs in an equity mutual fund at work which is currently returning about 7% per year. Her Risk tolerance is medium and she has $34,000.00 in unused RRSP contribution room. Craig has $6,000.00 in RRSPs in a money market mutual fund with a current yield of 1.5% per year and he has $46,000.00 in unused RRSP contribution room. He also has a medium risk tolerance. The current rate of return for portfolios classified as medium risk is 7%.

Craig and Lyn also own a rental property which they purchased 4 years ago. They bought the property at an excellent price through Craig's connections in the industry. The house cost $220,000 and is currently worth about $280,000. The couple invested an additional $10,000 at the time of purchase fixing up a few things and it has been rented ever since. There is currently a mortgage on the property for $215,000 which

was recently renewed for 5 years at 4 %( 27 years remaining on the amortization). The mortgage payment is $1,086.00 per month with taxes of $2,800.00 per year, house insurance of $620.00 and $500.00 per year in repairs. The tenant is responsible for all utilities and a monthly rent payment of $1,450.00.

The rental expenses and income are currently being added to Craig's tax return. Craig and Lyn are hoping to keep the property until they retire at which point there will be no mortgage and they will have a nest egg to fund their retirement dreams. They are unsure of the taxation impact of this plan and are interested in having you assist them with a strategy to address this.

Last year the couple sold their home and purchased a 3,200 square foot home currently valued at $440,000 which they hope to stay in until they retire. They have a mortgage of $320,000 with 4 years remaining on a 5 year term at 3.8% and 24 year remaining on their amortization. Their monthly payment is $1,695.00. Their annual taxes are $3,600.00, gas heating is $1,700 per year, electricity, water and sewage is $2,640 per year, phone and cable/internet is $80.00 per month and their house insurance is $710.00 per year. The value of the home and the rental property increase annually at the rate of inflation.

The only other debt the couple has consists of a series of credit cards totaling a rather excessive $32,000 (at 18% interest) which they struggle to make minimum payments on and would like to get rid of as soon as possible. The couple has been using their credit cards as an emergency fund which they realize is not a good plan but it seems that each month they are short on cash and this has been the only solution open to them.They are interested in finding better ways to address this problem. In addition, the couple has never completed a budget before and would like your help creating a workable budget. They provided the following list of additional monthly expenses:

Car Insurance for the mustang Car Insurance for the van Gifts Cell Phone for Lyn

Groceries Restaurant Meals Lottery Movie Rentals Home Maintenance Gas for Cars Car Maintenance (both cars)

$200.00 $120.00 $100.00 $100.00 $600.00 $200.00 $40.00 $40.00 $200.00 $400.00 $300.00

Clothing Charitable Donations Entertainment (movies, bowling, etc.) School Expenses for Children

$280.00 $80.00 $80.00 $80.00