Mod 2 set 1- Individual - Old Age

Question 1

what does the economic problem of old age consist of?

Answer 1

1. growing population of older ppl
   - baby boomers
2. loss of income earned because of retirement
   - many retire prior to 65
3. longer retirement period
   - ppl live longer, retire earlier
4. insufficient income and assets
   - differences in elderly groups
5. poor health
   - old ppl see docs more
6. LTC
7. heavy property taxes
   - can be income, rent can also be expensive
8. inflation
9. other financial issues
10. abuse of elderly

Question 2

some techniques used to help address old age problems

Answer 2

• continued employment
• tax relief
• retirement planning programs

Question 3

other source of retirement income not in “the pillars”

Answer 3

1. post retirement employment
   - working part time
2. provide intergenerational transfers
3. reverse mortgages and other emerging techniques
   - home equity turned into income

Question 4

difference between retirement savings and retirement income

Answer 4

savings- efforts to save money for retirement

income- turning savings into income upon retiring

Question 5

what are the two ways an individual can save for retirement

Answer 5

1. savings in a registered plan

2. savings in a non-registered plan

Question 6

what is non registered savings

Answer 6

-This is money saved outside of an RRSP or pension plan
-An individual can save for retirement in one of two main ways:
savings in a registered plan savings in a non-registered plan
– A key characteristic is that money invested comes from your after-tax income and thus this savings is not taxable when turned into retirement income (note: would still pay taxes on interest income, gains/losses unless money is invested in a TFSA, see below)
– an option for this type increasing in popularity is the Tax Free Savings Account (TFSA) introduced in 2009

Question 7

TFSA Highlights

Answer 7

• 2009, tax saving vehicle
• contributions NOT deductible
• NO TAXES or intrest earned on gains/lossses incurred on investments inside a TFSA
• 18+
• withdrawls made are not included as income for federal government means tested benefits
• limits are indexed; 5500
• unused room accumulates

Question 8

What is an RRSP?

Answer 8

• 1957
• designed to encourage individuals to save for their retirement on a tax sheltered basis
• important for self employed ppl
• 70% of workers who don’t have employer pension plans

Question 9

Characteristics of RRSP

Answer 9

• contributions are tax deductible
• intrest income income an RRSP not taxable
• contributions, intrest income, and capital gains are taxable when withdrawn from RRSP
• withdrawls fully taxed
• can invest
• RPP can be transferred to RPP but may be locked in

Question 10

RRSP eligibility

Answer 10

• must have earned income from employment in previous year OR
• have some RRSP contribution room carried from previous year
• you can deposit money into an rasp for you or partner

Question 11

what can RRSP be used to purchase

Answer 11

-life annuity, RRIF, or fixed term annuity

Question 12

Annual contribution limit for RRSP

Answer 12

unused room+ lesser of 18% earned income or max from that year - pa for preceding year

Question 13

when can you withdraw from RRSP?

Answer 13

• anytime
• if you withdraw before retirement, any withdrawlwas will be taxed as income in year it is withdrawn
• RRSP issuer will withhold some of this tax to reduce taxes owing at annual tax filing
• you will have to claim the full amount of the withdrawl as income

Question 14

what are the 2 exceptions where you will not be taxed if you withdraw before retirement?

Answer 14

1. Lifelong learning plan: 20,000 can be withdrawn to pay for tuition, 10,000 yearly max
2. Homebuyers plan: 25,000
   to purchase to build home for first time owners

Question 15

When is the last day to contribute to RRSP

Answer 15

dec 31 or age 71

Question 16

deadline to transfer rrsp funds?

Answer 16

end of calendar year of your 71 birthday

Question 17

4 ways you can turn RSSP into retirement income?

Answer 17

1. Lump sum cash payment
2. Life annuity
3. RRIF
4. annuity certain

Question 18

What is a lump sum cash payment

Answer 18

This payment would be fully taxed when paid (as compared to the other 3 options, which allow transfer RRSP money tax free to another retirement income product)

Question 19

life annuity purchase

Answer 19

(part or all of )RRSP funds used to purchase a life annuity
– The life annuity provides for a specified monthly income which is guaranteed for life of individual (larger amounts purchase larger monthly payments)
– The monthly income is taxable income(fully taxed)
– historically(until 1978) this was the only choice

Question 20

Registered Retirement Income Fund

Answer 20

part (or all) of RRSP funds used to purchase a RRIF
– introduced in 1978 as a choice to allow more control over
the investment of the fund
– more flexibility in the timing of withdrawals (vs. annuities)
– Income Tax Act(ITA) stipulates what minimum monthly RRIF payments can be
o no withdrawal is required in year RRIF is purchased, but there is a minimum each following year
o RRIF minimum payout information will follow
– note that higher monthly payments can be chosen
– with RRSPs money grows tax free, whereas with RRIF, money is fully taxed on withdrawal (RRIF can be viewed as a reverse RRSP)

Question 21

annuity certain

Answer 21

this give a specified monthly income that is guaranteed to be made until age 90
–
the term of the annuity equals (90 – age of annuitant) or can be (90 – age of the spouse)

Question 22

RRIF minimum payouts

Answer 22

=MV at beginning of year x prescribed factor