PPTS Flashcards
Time horizon
When does client need the money
Risk tolerance
- the emotion
- ability to withstand the emotion of a loss
- based on psychological factors
Risk capacity
- the financial
- Ability to overcome the financial loss
- based on financial factors
Personal risks
- longevity: cant conrrol how long we live
- leveraging: borrowing to invest
RRSP facts
- reduces taxable income in year of contribution
- contribution limit: 18%
- trfs dont impact contribution limit
- unused room can carey fwd
- growth is tax deferred (tax on withdrawals )
Max age: dec 31st of 71st year
RRSP contribution room formula:
Step 1: personal contribution limit cirrent yr : prev yr income X 18%
Step 2: deduct pension adjustment if any from prev yr (group RRSP/pension)
Step 3: unused room + current year contribution limit
Spousal RRSP
- can put some income is spouse RRSP to lessen tax birden in retirement
- RRSP belongs to spouse
- contributor gets tax deduction
RRSP @ maturity (R.A.W)
@ 71 must use an option to trf RRSP to R.A.W:
- RRIF
- Annuity
- Withdrawal (full withdrawal)
Registered Retirement Income Fund (RRIF)
- min amt must ne withdrawn every year (4%)
- withdrawals based on u and spouse age and increases w age
- if withdrawn above min = withholding tax
- all withdrawals = taxable income
Group retirement plans: Pension plans
- DBPP: Defined benefit pension plan
- DCPP: Defined Contribution pension plan
- PRPP: Pooled Registered pension plan
Group retirement Plans: retirement plans– need to update w more details
Transfer:
- LIRA
- locked in RRSP
- deferred life annuity
At retirement:
LIF
LRIF
RLIF
PRRIF
Group retirement plans: savings plans
DPSP: Deferred profit sharing plans
GRRSP Group Registered Retirement Savings Plans
Defined benefit pension plan
Missed notes
Defined contribution Pension Plan (DCPP)
- employer and employee contribution known as
- end benefit: not known
Pooled registered pension plan (PRPP)
- employer not required to pay
- not a specific employer –> 3rd party
- enrollment automatic
- deduction from pay
Deferred Profit sharing plans (DPSP)
- only employer can add
- comes feom company profits
- contributions reduce RESP (pension adj)
Group Registered Retirement savibgs plans (GRRSP)
Similar to RRSP but for group
Investment options in order of least risk
- savings account
- GICs
- bonds
- stocks
- real estste
Then:
Mutual funds
Seg funds and annuities
How does money grow?: time calue of money
FV= PV X (1 + interest rate) n
Calculator:
PV X %
Then press = for the amount of n
ORRR
PV + % + %+% etc… to the number of n
Segregated Funds
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- death benefit guarantee 75%
- maturity guarantee 75%
- reset option
MER: management expense ratio
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- used to pay the cost of operating the investment
- deducted from assets of fund
- covers operating expenses, management fees, etc…
Seg fund reset formula
New contract guarantee amount =
New market value X 75%
And can withdraw in #? Years?
Sales charge: commision (3 types)
- no load
- front load
- deferred sales charge/back end
Sales charge: commission: no load
???
Sales charge: commission: front end load
Charge commission up front
Sales charge: commission: deferred sales charge/ back end
Only charged if client withdraws money within 1st 7 yrs
Segregated funds real return:
Return % + MER%
What is an annuity
- Type of investment
- 2 types: accumulation(IN) or Payout(out)
- guaranteed income (i.e for retirement) , spousal/child support pmts
- duration: Term or Life or impaired
Impaired annuity
Ppl w shortened life expectancy due to health.
Annuities: factors affecting payments
NOT DONE!!!
Annuity income
- level
- variable
-indexed
Annuity income: leveled
Payment stays same
Annuity income: variable
Annuity paymets linked to the performance of the investment
Annuity income: indexed
Tied to inflation
Increases w inflation up to a max (determined by CPI)
Annuity limitations
- penalties to surrender/withdraw
- withdraw: taking a portik
- surrender: cancelling policy all together
Seg funds and annuities : creditor protection
- Protected class (parent, spouse, child/grandchild
- Irrevocable beneficiaries
Recommendign an investment: seg fund vs Ann.
Seg fund: wants investment w benefits of insurance contract , NOT seeking income
Annuity: seeking income
Seg funds and ann: associates risks
Seg funds: types of investments im the gund
Annuity risks: interest rate risk + inflation risk
Seg fund right of recission (to change mind)
2 biz days to get full refund
Seg fund and ann taxation
Sev fund withdrawals:
RRIF VS LRIF
RRIF- Registered Retirement Income Fund
- has min wothdrawal amt
LRIF- Locked-in Registered Retirement Income Fund
- has min and max withdrawal amt
- max is to ensure $$ lasts
Insured life annuity
- Buy permanent life insurance ins
- Buy immediate life annuity where income pmt equal/more rhan premium on insurance policy
How to bypass probate
Any product/account that allows investor to name a beneficiary can potentially avoid probate fees
I.e: life insurance, seg funds, RRSP
What valuation date used to deteemine seg fund redemtiom value?
Seg funds always based on NAVPU at NEXT VALUATION DATE
Insured Life Annuity (2 steps)
- buy PERMANENT lofe insurance 1ST
- Buy immediate annuity where the income payments equal/more than premium on life insurance policy
CPP entitlement formula (2 formulas)?
CPP % increase formula:
(%0.70 inc ) X # months of delay= ?? MAX 8.4%/yr, 42% over 5 yrs
CPP benefit $ entitlement increase:
(Monthly entitlement @65) X (100% + % Inc calculated above)
CPP entitlement INCREASE - if delay till 70
- CPP permanently INCREASED by 0.70% ea month DELAYED (after age 65)
- max increase 8.4%/yr , 42% over 5 years
CPP entitlement reductions- take early (before 70)
- permanently reduced by 0.60% ea month taken early (before age 70)
- Max reduction = 7.2%/ yr , 36% max over 5 yrs
