Q1) Jack and Jill are in the highest marginal tax bracket in Ontario and have maxed-out both their TFSA and RRSP. They have no more room in either tax-shelters and are in the 54% marginal tax rate on ordinary income and interest income and 27% on all realized capital gains. Now, assume Jack decides to invest $100,000 in a stock based mutual fund that earns a constant 5% pre-tax, but the fund is highly inefficient and realizes the entire return in capital gains every year. In contrast, Jill invests $100,000 in an extremely tax-efficient stock based mutual fund that earns a constant 4% pre-tax in unrealized capital gains each-and-every year. Both Jack and Jill withdraw – and plan to spend – the money from this account (“taxable bucket”) in 10 years. Question: Who has more money on an after-tax basis? Jack or Jill? Make any assumptions you think are necessary to answer this question, but that do not change the nature of the question.

Q2) You are 65- years old and considering retiring and drawing your Canadian Pension Plan (CPP) benefits. Assume you have contributed the maximum for a total of 40 years, since you started working at age 25. Now, you have been told that you can delay that start of your benefits by five years to the age of 70, in which case your benefits will increase by 42%. Assume that real (inflation-adjusted) interest rates are 2%, and that you are absolutely certain that you will only live to the age of 85. Which is the better option for you?