in this case . How do you create a debt plan?

By which means of payment can the debt be secured

Roberto and Maria moved to Canada when they were young. They met when they were in their early twenties and after university they got married. They are now 40 and realize they need some help with their financial concerns regarding their future that they need to plan for. They have 2 children, Luis (9-years old) and Anna (13-years old). Roberto works for the Region of Niagara and has a salary of $85,000 and Maria works for a local manufacturing company with a gross salary of $65,000. Both salaries are indexed annually at 2%.

Retirement Planning:

They are both enrolled in their employers Defined Contribution Pension Plans (DCP) where the employer matches whatever the employee contributes up to a maximum of 3% of the employees annual salary. They both currently maximize their contributions in order to take advantage of the employer matching and foresee continuing to do this until they retire. Robertos plan is invested with Great West Life in the GWL Income Fund (current value of $38,500) as he wasnt too keen on taking too much risk after experiencing the 2008-2009 housing crisis and market crash. Marias plan (currently valued at $30,000) is with Sun Life in the Granite Balanced Portfolio as she is less concerned about the short-term volatility of her investments since she has a while before she will retire. Ideally, they both want to retire when they are 60-years old but will work longer if it is deemed necessary. They feel they will need about 80% of their current income at retirement because they will want to travel while they are able to, and not be stressed about money. They want to know if you can advise them on whether or not their goal of retiring at age 60 is achievable. Other than their current pension plan, they want to specifically know what other options are available to help them achieve their goal.

Principal Residence:

Their principal residence was bought at a purchase price of $500,000 on October 1^st, 2018 and has a current market value of $800,000 after the massive run up of prices during the Covid pandemic. The mortgage they have is a 5-yr closed rate of 2.89% that will come up for renewal on October 1^st, 2023. At the time of purchase in 2018, they were able to come up with a 20% down payment as they didnt want to incur the CMHC fees. They make monthly mortgage payments and amortized the mortgage over a 25-year period. At renewal, they are not sure if they should go into a Variable or a Fixed-Term mortgage because they dont know what to expect going forward and are worried about rates going up higher. They would also consider renewing early if it was an option. Another item they have been thinking about is either paying bi-weekly or accelerated bi-weekly which theyve heard from friends can be very beneficial. They would like your advice on this matter as well as some insight into the current market environment for interest rates and whether it would be wise to stick with the fixed rate or go variable. The current posted variable rate at their bank, Bank of Montreal, is 5.45% and the 5-yr fixed renewal rate is 6.14%. In addition, the annual costs for the house are:

Property Taxes $4,500

Heating $2,400

Hydro $3,600

Water & Sewers $1,800

Cable (Cogeco) $1,800

Phone (Bell Landline) $1,200

Maintenance $3,600

Insurance (State Farm) $2,150 (Comprehensive All Perils)

They are concerned about rising costs and would like some kind of analysis to see if they are financially capable of maintaining this property.

Investment Property:

Three years ago, they bought a condo as a rental property, as they thought it would be a great investment. The rental property was purchased October 1^st, 2019 for $310,000 with a current market price of $400,000. The 5-yr closed mortgage rate was 3.25% APR and renews October 1^st, 2024. They were only able to come up with 10% for this down-payment so they had to incur a CMHC fee which was just added to the mortgage balance at the time of purchase. They are making monthly payments to the mortgage and it is amortized over a 25-year period. The renters that they currently have are decent, and Roberto and Maria are receiving $1,650 of monthly income. As well, the renters of the unit pay for all utilities. The only annual costs that Roberto & Maria have to pay are:

Property tax $2,000

Condo fees $3,600

Water & Sewers $800

Maintenance $1,250

Insurance (Co-operators) $1,500 (Building and Liability)

They are curious as to how best take advantage of this rental property and use it to help their financial plan going forward. Because it was built prior to 2018 it falls under the Residential Tenancy Act and has rent controls. The couple also wants to understand how to potentially maximize the profits from this investment while taking this into consideration.

Education Planning:

Unfortunately, they know they have neglected their childrens education planning and have saved very little. They have $6,000 saved in a family RESP plan invested in the TD Monthly Income Fund. This is a big concern for them as they are not sure how they will be able to afford their childrens schooling that they feel is very important to them. They suspect that the children will go to a local college in order to save some money for living costs, but they do want to be prepared in case they want an opportunity to study somewhere away from home in a special program.

Other Relevant Information:

They inform you is that they dont have Wills or Powers of Attorney. During the fact finding interview they tell you they feel that this is not something they really need at this point and dont understand the importance of them. They dont have any personal life insurance, but they note that does concern them as if something happens to either of them, they would be in some financial trouble. During your fact-finding interview you determine that the mortgage is currently NOT covered by any life or disability insurance. They both have employee benefit packages that they each pay at source off their pay ($40 each or $80 total a month). The benefits cover 80% of prescription drugs and paramedical coverage such as, chiropractor, massage therapy, psychotherapy etc. (to a max of $500 per practitioner), dental benefits that cover 80% of dental needs to a max annual payout of $2,500 for the entire family, $50,000 of group life insurance coverage for each adult, $5,000 per child of life coverage, and finally disability coverage that will cover 2/3s of their wage if they are unable to work. They are concerned about the definition of disability as a co-worker who became disabled 2 years ago has been informed that they may not qualify to receive the benefit anymore due to the definition of disability on group plans. They want to know if they should be concerned about this and if so how to avoid what their friend is experiencing. They have also heard of a new insurance called Critical Illness insurance and wonder if they should be looking into this too. They are not concerned with health and dental coverage as their current work plans are very good, but they want to have your opinion on this to verify their thinking.

Maria has aging parents (75 years of age) back in their home country of Peru. They are currently sending her parents $300 a month to help provide for them as they are retired and dont have a lot of income. They are considering sending more money to help them out as Marias other siblings dont currently help the parents out and this bothers Maria quite a bit. The couple has $7,014 in savings currently in a TFSA account in Robertos name. It is in a simple high interest savings account earning 0.8% with their bank. Maria and Roberto also currently have $10,250 in Visa card debt that is charging 19.99% APR. They are embarrassed of this and want to figure out a way to pay it off quicker. They own a 2017 Toyota Highlander that they bought used last year on Oct 1^st, 2021 for $38,000. It is currently worth $32,000 and they have a $300 deductible on the collision and comprehensive coverage for any damages. They took out an open-ended loan for the highlander that was over a 5-year period and at a rate of 6% APR compounded monthly. Roberto buys a bus pass for himself to get to work as Maria has to work out of town and needs the vehicle. Other expenses you discover from your fact-finding interview that they incur monthly are:

Groceries $1,200

Cell Phones (family plan Telus) $180

Health/Grooming $100

Car Loan ???

Mortgage (principle res) ???

Mortgage (rental property) ???

Gifts (not donations) $100

Sports/Activities for kids $150

Car insurance (Dominion of Canada) $300

Bus Pass $80

Vehicle Gas $500

Clothing $250

Entertainment $450

Eating Out $650

Car maintenance $150

Visa payment (current payment) $305

Union Dues Roberto $1,200 (annually)

Pension Payment ???

CPP/EI ???

Taxes ???

Charitable Donations $100

They have asked you to help them with a sound financial plan for all of their needs. They are not sure where all the money is going at times as it feels like they have nothing at the end of each month, and they are unable to set aside money. The concerns that they have asked you to look into are all discussed in the information provided and cover the full spectrum of their requested financial plan. Based on the information provided and your knowledge of appropriate planning techniques, please provide for them a comprehensive financial plan. You will have to create both a Net Worth and Cash Flow statement. Analyze their current financial situation for them, as well as make recommendations that will help better it. The categories to cover are: Education Planning, Retirement Planning, Estate Planning, Budgeting & Money Saving Opportunities, Debt Planning, House Mortgage & Renewal Option Analysis and Renewal Options, and Insurance Planning. You are required to complete both of their 2021 tax returns in order to help forecast future after tax cash flows.

WEBSITE REFERENCES

SunLife Investments (Maria pension):

https://www.sunlifeglobalinvestments.com/en/products/sun-life-granite-managed-solutions/

https://www.sunlifeglobalinvestments.com/en/performance/mutual-funds/performance/

Great West Life (Robertos pension):

https://greatwestlife.fundata.com/default.aspx