Retirement Planning

Question 1

Real return

Answer 1

(1 + Nominal Return/1 + Expected Inflation) - 1

Question 2

Pre-tax Income

Answer 2

Post-tax income/(1 - tax rate)

Question 3

Retirement Income Needs Analysis Steps?

Answer 3

1. Ascertain the client’s retirement goals
2. Calculate how much a client will need to meet the retirement objectives
3. Determine the sources of income at retirement
4. Adjust finances to meet retirement goals

Question 4

Steps to ascertain client’s retirement goals?

Answer 4

1. When is the retirement age?
2. What kind of lifestyle will they be living?
3. Where will they be living?
4. How long do they expect to live?

Question 5

Calculate $$$ needed to meet retirement objectives

Answer 5

1. Estimate the client or the couple’s expected expenses at retirement in today’s dollars
2. Project these expected expenses to the client’s expected retirement year using assumed inflation rate
3. Calculate the required before-tax income to meet those expenses using the client’s average tax rate
4. Determine how much must be accumulated to generate the desired level of income

Question 6

Sources of Retirement Income

Answer 6

1. Government Plans
2. Employer-sponsered plan
3. Personal savings plan

Question 7

Types of adjustments to meet goals

Answer 7

1. Increase Income
2. Decrease Expenses
3. Adjust Goals

Question 8

Types of government pension programs

Answer 8

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

Question 9

Who qualifies for the OAS

Answer 9

Must be over 65 years of age AND

• A Canadian citizen or a legal resident of Canada on the day preceding the application’s approval; OR
• If no longer living in Canada, must have been a Canadian citizen or a legal resident of Canada on the day preceding the date the person stopped living in Canada.

***A minimum of 10 years of residency in Canada after age 18 are required to receive a pension

Question 10

Timing of OAS payouts starting

Answer 10

6 month delay

Question 11

Full OAS benefit is for people who:

Answer 11

• have lived in Canada, after reaching age 18, for periods that total at least 40 years; OR
  [- A person who has not lived in Canada for 40 years after age 18 BUT were 25 years of age or older on July 1, 1977 AND:
  1. Lived in Canada on July 1, 1977, OR
  2. Had lived in Canada before July 1, 1977 after reaching age 18, OR
  3. Possessed a valid immigration visa on July 1, 1977]
  [] In such cases, the person must have lived in Canada for the 10 years immediately prior to approval of the OAS application.

      ¼ IF they have any absence during the           10 year period, they may be offset if after reaching the age of 10, the applicant lived in Canada before those 10 years for a period of time that was at least 3x the length of absence. 
                 ½ HOWEVER The applicant must have lived in Canada for at least 1 year immediately prior to the date of the application's approval.

Question 12

How to calculate partial OAS benefit

Answer 12

People who don’t qualify for the full benefit may receive OAS still via:
1/40th of the full monthly pension x each full year lived in Canada after age 18

Question 13

Is OAS taxable?

Answer 13

Yup. The basic amount is taxed at the marginal tax rate.

Question 14

OAS Clawback?

Answer 14

If your income is above a specific threshold ($67,668 in 2011) you’ve got to repay a portion of your OAS payments.

Question 15

Calculation of OAS Clawback

Answer 15

15% x [post-tax income - specified maximum]

Question 16

Who qualifies for the GIS

Answer 16

lower-income OAS recipients who qualify under an income test

Question 17

Types of GIS

Answer 17

Two types:

1. Single pensioners (widowed, divorced or separated persons also)
2. Married pensioners (Spouses and common-law relationships)

Question 18

What’s the Allowance

Answer 18

It’s government pension which is provided for low income seniors who:

• have a spouse/common law partner who receives or is entitled to receive the Old Age Security pension and the Guaranteed Income Supplement
• 60-64 years old
• Are Canadian citizens or legal residents at the time the Allowance is approved or where they last lived here
• Have lived in Canada since age 18 for at least 10 years

Question 19

Maximum Allowance

Answer 19

= OAS pension + GIS pension at the married rate