FP 2 (5)- Retirement Planning

Question 1

What is a Commutable Annuity and a Non-Commutable Annuity

Answer 1

Commutable Annuity: at any time the policy holder can cancel and any unpaid amounts would be paid as a lump sum

Non-Commutable Annuity: the payment cannot be changed
-ex. if it was set up as monthly payments, then it cannot be changed

Question 2

Is it permissible for a company pension plan to make membership of its employees compulsory

Answer 2

yes, unless the employee does not want to participate for religious reasons

Question 3

RCA

Answer 3

• Not a registered plan (not registerd with CRA) do not affect RRSP contribution limits
• set up as a taxable trust
• employer pays tax that is refunded when the money is eventually paid out

Question 4

YBE= $3500
YMPE= $57400

John is self employed and earns $60000, assume the rate is 5.10% how much would he need to contribute to the CPP?

Answer 4

1. (YMPE- YBE)
   = (57400-3500)
   = $53900
2. Calculate employers portion
   = $53900 * 5.10%
   = $2748.9
3. Calculate employee portion
   = $53900 * 5.10%
   = $2748.9
4. Add both portions up
   = $2748.9 + $2748.9
   = $5497.8

Question 5

Structured Settlement Annuity

Answer 5

an annuity that is purchased when the injured or wronged party is awarded a settlement that is paid over time

Question 6

Straight Life Annuity

Answer 6

pays until the life annuitant dies

Question 7

Life Annuity with Guaranteed Term

Answer 7

pay an income until the annuitant dies or until the end of the guaranteed term, whichever period is longer

Question 8

Life Annuity, Cash Refund

Answer 8

The annuity pays for life however if the annuitant dies before receiving the initial premium back the difference is paid to the beneficiaries as a lump sum

Question 9

Instalment Refund Life Annuity

Answer 9

The annuity pays for life however if the annuitant dies before receiving at least the premiums back it will pay the beneficiaries an income until the premium is paid back

Question 10

Life Annuity with Guaranteed Term

Answer 10

the annuity will pay an income until the annuitant dies or until the end of the guaranteed term whichever is longer

Question 11

Joint and Last Annuity

Answer 11

This annuity is based on 2 lives continue to pay an income until both the annuitant have died

Question 12

Impaired Life Annuity

Answer 12

If the annuitant can demonstrate that they will not live long (shorter life expectancy) they can apply for an impaired life annuity and the payments wont be as high

Question 13

Indexed Annuity

Answer 13

payments will increase with the increase in CPI

Question 14

Participating Annuity

Answer 14

annuitant will receive extra income if interest rates are higher than forecasted

Question 15

SERP

Answer 15

Supplemental Executive Retirement Plans

• employee is already apart of the RPP
• increases retirement savings beyond RPP
• no tax deductions until the money is withdrawn
• attract and keep top talent

Question 16

Variable Annuity

Answer 16

• premiums are based upon the performance of a segregated fund
• many variable annuities offer a floor of 75% regardless of the performance of the segregated fund

Question 17

Integrated Annuity

Answer 17

• is a bridge between early retirement and age 65

- payments will decrease at the age of 65 when the annuitant will receive CPP and OAS

Question 18

Retirement Needs Analysis

Answer 18

1. What are the clients retirement goals
2. How much income is needed to meet those their goals
3. What are the sources of income in retirement
4. Adjust finances to meet retirement goals