Bill and Mary Robins are now both 55 years old and they have worked hard to increase their net worth by increasing assets and paying down debt. As a result they currently have no liabilities and Bill has grown his RRSP to $250,000 and Mary has $270,000 in her RRSP. They each contribute $1,500 per month to these plans and will continue to do so until their planned retirement at age 65. These registered plans are 25% income and 75% equity.
Both Bill and Mary also have a defined contribution pension plan with their employer’s which is worth $200,000 and $250,000 respectively. Their employers will continue to invest 6% of their gross salaries into these plans until their retirement, with contributions added yearly at the end of the year. Bill is currently earning $80,000 gross per year and Mary is making $95,000; they are both at the maximum salary for their positions.
In addition, they have a joint non-registered portfolio worth $125,000 which is allocated 50% bonds and 50% growth equities. This non registered fund currently has an unrealized capital gain of $50,000. This portfolio pays no dividend income. They expect this fund to continue to grow by 8% per year with half of this growth resulting from capital gains which would remain deferred until they sell the securities.
Their house is held in joint tenancy and they have designated each other as beneficiary on their RRSP and Pension Plans. The non-registered account is held in joint names with rights of survivorship.
REQUIRED – 50 marks
1. Assuming 6% annual compound growth, what will the value of Bill and Mary’s RRSP be at age 65? Using the same growth rate, what is the value of their pension plans? Show these amounts separately for both Bill and Mary. (4 Marks)
2. If they leave their asset allocation the same and continue to earn 6% per year after tax what annual income could they each pay themselves from their RRSP and Pension plans without encroaching on capital? (4 Marks)
3. If they convert their RRSPs to a RRIF what is the minimum payment required based on their age 65? What is the minimum if they wait to withdraw the funds at age 71? State the minimum as a percentage and annual dollar amount (2 Marks)
4. If they were both eligible to collect the maximum CPP and OAS at age 65, what would their gross individual retirement incomes if they withdraw 6% from the pension plans but defer their RRSP/RRIF withdrawals to age 71? (6 Marks)
5. If they both have a marginal tax rate of 43%, how much additional tax will they each pay on the annual interest income from the joint non-registered account. How much tax will they pay each year on the unrealized capital gains? The taxable income from this portfolio is split evenly between Bill and Mary. Please do the calculation based on the value on the non-registered account at their age 65. ( 6 Marks)
6. They would like to purchase an RESP for their grandchildren aged 2 and 4, and also create a TFSA for themselves. They are medium risk investors and they don’t expect the grandchildren to attend University for another 13 to 15 years. They also want to shelter as much tax as possible inside the TFSA. Please recommend two specific mutual funds for these objectives and explain why you are recommending these funds. ( 8 Marks)
7. If Probate fees in the Province of BC are .6% on estate assets valued between $25,000 and $50,000 and 1.4% for assets above $50,000, how much would the Robins estate need to pay if only Bill died at his age 65? Assume that Mary is the beneficiary of his RRSP and Pension Plan; and that the house and non-registered account is in joint names with rights of survivorship. Assume the value of the home on Bill’ death to be $800,000. (2 Marks)
8. How would these probate fees change if the estate was the beneficiary of Bill’s RRSP and Pension Plan and the principal residence was held as tenants in common as opposed to joint tenancy? What is the amount owed in this scenario? (6 Marks)
9. Is it important for Bill and Mary to name a guardian in their Will, if so why? Also, what are some important characteristics that their executors should have in the event that both Bill and Mary die at the same time? (6 Marks)
10. If the investment markets are performing poorly when Bill and Mary are both aged 85 years old and they are concerned about outliving their capital, what options are available to them to ensure a guaranteed income for life? What factors determine if these options are a good choice or not? (6 Marks)
