1 FINA200 Winter 2011, Section W Case 3 - due Wednesday, April 6, 2011 Covering Chapters 9, 10, 13 - 15 _______________________________________________________ PLEASE NOTE ? THIS IS AN INDIVIDUAL ASSIGNMENT. ? YOU MAY SUBMIT THIS ASSIGNMENT IN MICROSOFT WORD 2007 (.docx), MICROSOFT WORD (.doc), MICROSOFT WORKS (.wps), PLAIN TEXT (.txt) OR WORD PERFECT (.wpd). ? PLEASE DO NOT SUBMIT YOUR ASSIGNMENT IN EXCEL. ? GO TO ASSESSMENT/CASE SUBMISSIONS AND UPLOAD THE FILE TO SUBMIT YOUR ASSIGNMENT. ? PLEASE QUOTE ALL SOURCES AND DO NOT COPY AND PASTE! _______________________________________________________ Rob and Ellen, both 60 years of age, were born in Quebec and have lived their entire lives in Canada. Rob has worked for a small pharmaceutical firm situated in Pointe Claire for the past 30 years. His salary in 2010 was $70,000. Ellen is a long-time administrator with the West Island English School Board (she has worked there for the past 22 years). Ellen's 2010 salary was also $70,000. This amount grew by 2% a year over the past 5 years. Their combined RRSP assets equal $100,000 and they would expect to withdraw 5% a year once they retire. While Rob is not a member of a registered pension plan, Ellen's defined benefit registered pension plan will pay an annual retirement benefit based on the following formula: Annual pension income = 2% X # of years X $ average salary ? Where the # of years is equal to her years of employment at the time of retirement, and ? $ average salary refers to the average salary earned over the last three years before retirement. 2 Rob expects to qualify for the maximum Quebec Pension Plan (QPP) retirement benefit based on his career average salary. Ellen expects to receive a lower amount, probably equal to about 1/2 of the maximum QPP amount. Ellen has just been reading the Ernst & Young Tax Alert found at: http://www.ey.com/Publication/vwLUAssets/Tax_Alert_2011_No_10/$FILE/TaxAlert2011No10.pdf Given the proposed changes to the QPP in the Quebec budget of March 17, 2011, she's come to consult with you about the impact these proposals would have on her CPP contributions and retirement income. Question 1 (45 marks) Please note: Research is required. Please quote your sources. a) How much would each be required to contribute to the QPP in 2011 based on their $70,000 salaries? Please show your calculations. (5 marks) b) How much pension income would each have received under the following plans if they had retired on January 1st, 2011? Assume this would have been their joint 60th birthday. (15 marks) ? Registered Pension Plan ? Quebec Pension Plan ? Old Age Security ? RRSP withdrawals ? Guaranteed Income Supplement c) How much would each be required to contribute to the QPP in 2015 based on the proposals contained in the March 17th, 2011 Quebec budget? Assume the base exemption remains the same and that the maximum pensionable earnings rise at a rate of 2% per annum. (5 marks) d) How much pension income would each receive under the following plans if they were to retire on January 1st, 2016 based on the proposals contained in the March 17th, 2011 Quebec budget? Assume that their salaries and payments under all public plans will rise by a rate of 2% per annum, while the balance of their RRSP would rise by 6% per annum. (15 marks) ? Registered Pension Plan ? Quebec Pension Plan ? Old Age Security ? RRSP withdrawals ? Guaranteed Income Supplement 3 e) Would they be better off to retire at 60 or 65? Please explain your reasoning. (5 marks) Question 2 (10 marks) In addition to the public pension plans, Rob and Ellen also have RRSPs. What options will they have when they retire if they want to draw money from their RRSPs? Identify one strength and one weakness of each option. Question 3 (15 marks) a) The couple's RRSP portfolio contains the AGF Canadian Large Cap Div-Classic fund. For this fund, look up and explain the load, MER, 1, 3, 5 and 10-year compound return and volatility rating. (10 marks) b) Is this an appropriate investment for the couple at this time? Please explain. (5 marks) Question 4 (20 marks) a) What two legal documents should the couple ensure are up-to-date if they want a sound estate plan? What would happen if either became incapacitated or died and didn't have any legal documents at all? Please quote your sources. (10 marks) b) Assume for now that Rob and Ellen were never married, but only common-law spouses. If one should die, would the other have the same rights in Quebec as a legal spouse? (Hint: Refer to the Quebec ruling with respect to Eric and Lola.) Please quote your sources. (10 marks) Question 5 (10 marks) The couple has no children and only $100,000 in RRSP investments. Would you recommend they have term or permanent life insurance? Please explain your reasoning.
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