22 - Where will my money come from?

Question 1

What are the 4 broad sources of retirement income and give examples of each?

Answer 1

1. Personal, non-registered plans (GICs)
2. Registered savings plans (RRSPs)
3. Registered pension plans (defined benefit plan, defined contribution plan)
4. Government retirement pensions (OAS, GIS, CPP/QPP)

Question 2

What are the 4 investments that do not qualify for a self-direct RRSP?

Answer 2

1. Precious metal bars and coins with FMV above their stated value as legal tender
2. Shares and bonds of private corporations
3. Commodity futures contracts
4. Works of art, jewelry, or antiques

Question 3

What happens to an RRSP upon death?

Answer 3

Tax-deferred benefits enjoyed by:
His/her spouse or;
Dependent children/grandchildren

Question 4

What are the rules regarding the Home Buyer’s Plan?

Answer 4

Owner can withdraw up to $25,000 of RRSP to buy or build a home.

Question 5

What are the rules regarding the Lifelong Learning Plan?

Answer 5

$20,000 of RRSP may be deducted to pay for a recognized educational institution for taxpayer or their spouse.
Limited to maximum of $10,000 per year.
Cannot be used for children.

Question 6

What are the 6 transfer options for locked-in RRSP funds?

Answer 6

1. Locked-in RRSP
2. Life Income fund (all provinces except Sask.)
3. Locked in Retirement Income Fund (LRIF) Newf. & Man.
4. Prescribed RRIF (Sask. & Man.)
5. Deferred life annuity
6. Registered Pension Plan

Question 7

What are the rules regarding RRIFs?

Answer 7

RRSPs can be rolled into RRIFs tax-free
Provides same tax-sheltered savings as RRSPs
Annual minimum withdrawals required
Can be rolled over to surviving spouse tax-free

Question 8

What are the rules for Locked-In Retirement Accounts (LIRAs)?

Answer 8

Is essentially a pension plan
Can hold the same investments as RRSPs
Can be transferred to other locked-in accounts
Can be unlocked only under specific circumstances

Question 9

What are the specific occasions under which LIRAs can be unlocked?

Answer 9

1. Serious financial hardship
2. Shortened life expectancy
3. Non-residency
4. When assets are below a certain level (established by provinces)

Question 10

What are the 3 forms an employer-sponsored RPP can take?

Answer 10

1. Defined Plan
2. Deferred profit-sharing plan (DPSP)
3. Group Retirement Savings Plan (GRSP)

Question 11

What are the differences between a defined benefit plan (DBP) and a defined contribution plan (DCP/MPP)?

Answer 11

DBP - Employee knows exactly how much they will pay for/receive as pension… Employer does not know
DCP - Employee and employer know how much they will pay… Employee does not know what the value of the pension will be.

Question 12

What are the 3 methods an insurance company offers to manage pension plans?

Answer 12

1. Group annuity contracts
2. Deposit administration contracts
3. Segregated fund contracts

Question 13

What are the 6 areas through which provincial legislation ensures pension benefits are protected?

Answer 13

1. Pension Eligibility
2. Vesting
3. Locking-in
4. Portability of pensions
5. Survivor’s benefits
6. Inflation indexing

Question 14

What are the rules for DPSPs?

Answer 14

1. Employer-only contributions
2. Limited to lesser of 18% of emp’s salary or $11,485
3. Vested irrevocably w. employee
4. Can be transferred to RPP, RRSP, or another DPSP

Question 15

What are the rules for Group RSPs?

Answer 15

1. All contributions deductible by employer from salaries

2. Not locked-in - can be cashed at discretion of employee

Question 16

What are the 4 types of Government Retirement Pensions?

Answer 16

1. Old Age Security (OAS)
2. Guaranteed Income Supplement (GIS)
3. The Allowance
4. Canada Pension Plan/Quebec Pension Plan (CPP/QPP)

Question 17

What are the rules for Old Age Security?

Answer 17

1. Applications made 6 mo. prior to eligibility
2. Full pension after 40 years of residence after age 18
3. Partial pension after 10 years
4. Calculated as (#of years resident)x(1/40)

Question 18

At what income level does the Old Age Security Clawback apply?

Answer 18

When net income exceeds $67,668 after most deductions have been made.

Question 19

What are the rules for Guaranteed Income Supplement?

Answer 19

1. Paid to residents who receive OAS and little else
2. Must meet annual income test
3. Reduced by $1 for each $2 of other monthly income for single pensioners
4. Reduced by $1 for each $4 of combined monthly income for married pensioners

Question 20

What are the rules for The Allowance?

Answer 20

1. Paid to residents whose spouse receives OAS and GIS
2. Applicant must be between 60-64
3. Must meet income-needs criteria

Question 21

What is offered by CPP/QPP?

Answer 21

Retirement pension, disability pension, survivor benefits.

Question 22

How are contributions made to CPP/QPP?

Answer 22

They are made between the Year’s Basic Exemption and the Year’s Maximum Pensionable Earnings by both employee and employer @ 4.95% each of employment earnings.

Question 23

What is the Year’s Basic Exemption?

Answer 23

Amount of income below which CPP contributions are not made.

$3,500

Question 24

Define Pensionable Earnings.

Answer 24

The amount of income on which the contribution is based.

Question 25

What is the Year’s Maximum Pensionable Earnings (YMPE)?

Answer 25

The amount of income above which contributions are not made.

$48,300

Question 26

What is the Average Monthly Pensionable Earnings (AMPE)?

Answer 26

The amount used to calculate monthly pension.
Total pensionable earnings/# of months in which contributions were made or 120 whichever is greater
(at age 65 it is 25% of AMPE)

Question 27

What is the formula for determining the CPP retirement pension?

Answer 27

[(Total Pensionable Earnings)/(the greater of # of Months of Contributions or 120 mo.)] x 25% = Monthly Retirement Pension

Question 28

What are the rules for Early or Late CPP retirement pension?

Answer 28

Decrease benefit by 0.5% for each mo. younger than 65.

Increase benefit by 0.5% for each mo. older than 65 (70 max).