FINA $248$ Case Study

Assume the Year is $2019$

Mary and Susan are a married same sex couple. They have been married for $25$ years and own their own home. Their home is valued at $$850,000$ and they have a $$200,000$ mortgage. Mary will be $50$ this year and Susan will be $48$ this year. Mary works for Bell Canada and earns $$100,000$ per year. She is a member of a DBPP$.$ The pension entitlement represents $2\%$ of her salary over the best $5$ years of employment.

Susan works as an office administrator for ABC Company and does not have any form of pension plan. Susan earns $$55,000$ per year.

Their number one goal is retirement planning. Mary loves her job and plans on working until she is $65.$ Susan wants to retire when Mary does so that they can enjoy retirement and travel extensively.

There assets and liabilities are as follows.

Mary RRSP $$25000$

Susan RRSP $$13,000$

Susan Spousal RRSP $$275,000$

Mary Income $$100,000$

Susan Income $$55,000$

Home Value $$800,000$

Mortgage $$200,000$

Mary TFSA $$55,000$

Susan TFSA $$10,000$

Assume you are Mary and Susan$$s financial planner and that Mary and Susan have hired you to complete a retirement plan for them.

$1.$ As an advisor you recommend that Mary maximize her RRSP into a spousal RRSP$,$ with Susan as the annuitant on an annual basis because Mary is in a higher marginal tax rate than Susan. Is this the best strategy? If so$,$ why? If not, please offer an alternative strategy and explain why it is a more appropriate strategy.

$2.$ How much is Mary$$s benefit entitlement for pension adjustment $($PA$)$ calculation purposes? $($Please show your calculation$)$

$3.$ How much RRSP eligibility would Susan accumulate in $2020?($Please show your calculation$)($Assume no $($carry forward$).$

$4.$ What ages should you use for the retirement projections you prepare for Mary and Susan?

a$)$ Mary$$s age for both

b$)$ Susan$$s age for both

c$)$ Mary$$s retirement age and Susan$$s life expectancy

d$)$ Susan$$s retirement age and Mary$$s life expectancy

Explain why you chose the answer you chose.

$5.$ How much would Mary contribute to CPP in $2019?$ Assume the YMPE is $$57,500($Please show your calculation$)$

$6.$ How much would Susan contribute to CPP in $2019?$ Assume the YMPE is $$57,500($Please show your calculation$)$

$7.$ As Mary and Susan$$s financial planner which of the following strategies would you recommend to them?

a$)$ Maximize both of their RRSP$$s before doing other savings.

b$)$ Maximize both of their TFSA$$s before doing other savings.

c$)$ Maximize Mary$$s RRSP and use the tax refund to fund her TFSA.

d$)$ Maximize Susan$$s RRSP and use the tax refund to fund her TFSA.

e$)$ None of the above

Explain why you chose this strategy.

$8.$ At what age will Mary and Susan be forced to convert their RRSP$$s into a RRIF or annuity?

$9.$ Assume Susan decides to RRIF her RRSP at the age of $65.$ If the value of her RRIF at the beginning of that year is $$57,500$ how much is the minimum she has to take from the RRIF in that year? $($Please show your calculation$)$

$10.$ At age $67$ Susan withdraws $$27,500$ from a RRIF created by the spousal RRSP$.$ Assuming Mary had contributed to the spousal RRSP up until Susan had turned $60$ how much of the withdrawal would be attributed back to Susan as taxable income?

$11.$ Assuming you are Susan and Mary$$s financial planner, what advice would you provide them in terms of the use of TFSA$$s

a$.$ Are TFSA$$s appropriate strategy for Susan and Mary? Why?

b$.$ What is the yearly TFSA limit$?($Assume $2019)$

c$.$ What are the benefits of using a TFSA?

d$.$ What savings goals are TFSA$$s used for?

e$.$ What happens as it relates to TFSA limits if a withdrawal is made from a TFSA?