We have completed the review of the elements in the retirement planning process. We will conclude Part I with a case assignment, which require students to apply what they have learned so far. Chapter 1 shows how the savings needs of Margot and Craig were identified, and how Francesca, their financial planner, estimated their retirement savings needs and how much they would need to save each year. To do so, Francesca has done a number of calculations:
1. How much they need after tax.
2. How much this is before tax assuming they are able to perfectly split their retirement income. This also provides their average tax rate in retirement.
3. The present value at retirement of their annual retirement income.
4. The present value at retirement of government and employer-sponsored pension plans.
5. The future value at retirement of their present RRSP balances.
6. The future value at retirement of the amount they plan to save each year.
Having completed Chapters 2 to 7, students are now ready to prepare their own financial plan.
You have recently been awarded the CFP designation after having worked for Francesca as an assistant planner for four years. Francesca has decided you are ready to work independently and has given you your first assignment: Leonard and Rose Domino.Background Information Leonard and Rose Domino, both age 43, have been married for 10 years. They live in Sudbury, Ontario. Leonard and Rose have two children, twins, age 8, Charlotte and Tony. The Dominos come to see you in early January 2011 and provide you with the following information.
Leonard work as a management accountant with a group of independent accountants who share office space and office staff. He has several clients who use his services on a part-time, monthly basis. His professional income after expenses was $92,000 for 2010 and has been that for several years. Leonard is, in effect, self- employed and, as a result, pays both the employee and employer's CPP contributions but not EI premiums.
He expects his income will remain about the same in real terms until retirement. There is no pension plan and he contributes the maximum possible to his RRSP every year. The accounting office has a group insurance plan - a benefits package that provides him with life insurance coverage for twice his annual income after expenses, short-term disability coverage, as well as an extended health care for his family. He pays the premium of $155 a month for family coverage. This amount is not tax deductible for him. In addition, Leonard pays, at work, $960 p.a. in long-term disability insurance premiums which would provide him with 2/3 of $92,000 should he become totally disabled. Because Leonard pays the premiums which are not tax deductible, the 2/3 would be received as non-taxable income.