Retirement Planning Week 15A

RETIREMENT PLANNING – FINAL EXAM

Tuesday, April 7, 2020, 12:00 noon to 2:00 pm (2.0 hours)

NAME: Sahil Sahil I.D. # 101261856

Question 1 (3 marks)
Don and Lisa, both 65, were married 36 years ago. Don has contributed to the Canada
Pension Plan (CPP) for 42 years, while Lisa has contributed for 40 years. If Don expects
to receive $700 per month in retirement benefits from the CPP, and Lisa expects to
receive $800 per month, calculate how an assignment of their pensions will redistribute
their monthly CPP incomes.

Don= CPP x years married = 700 x 36 = $600

Years of contribution 42

Lisa= CPP x years married = 800 x 36 = $720

Years of contribution 40

Pension after assignment = CPP remaining after assignment + 50% of pension to be

shared.

Don (700-600) + 50% (600+720) = 100 + 660= $760

Lisa (800-720) +50% (600+720) = 80 +660= $ 740
Total 1500 = 1500

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Question 2 (2 marks)
If Jessica retires at the normal retirement age (i.e. 65) she will receive $960.00 per month
in CPP benefits. Calculate the amount by which her monthly pension will be adjusted if
she elects to retire eight months before her 63rd birthday in 2020.

When Jessica retires at age 65 she would get 100% CPP benefits

When she retires eight months before her 63rd birthday in 2020
Normal retirement age- Elected retirement age

65 years- 62 years 4 months= 2 years 8 months= 24 + 8=32 months

So it would be 32 x0.6%=19.2% lesser

The adjusted monthly pension would be .

960 * 19.2% = 184.32

$960 -184.32 = 775.68

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Question 3 (3 marks)
Your employer contributes $150,000 to your Retirement Compensation Arrangement
(RCA) this year and next year. If the money is invested at 4%, what is the value after the
withholding tax and the income tax at the end of two years?

Activity Investment Refundable tax

account account
Year 1 Contribution 150,000

Refundable taxes withheld at source -75,000 75,000

Investment income 3000

Year-end payment of refundable taxes of -1500 1500

50% (attributed to investment earnings)
Balance at end of Year 1 76,500 76,500

Year 2 Contribution 150,000

Refundable taxes withheld at source -75,000 75,000

Investment income 6060

Year-end payment of refundable taxes of -3030 3030

50% (attributed to investment earnings)
Balance at end of Year 2 154,530 15,453

Question 4 (2 marks)
Explain the difference between a contributory and a non-contributory pension plan.

A contributory plan is in which it is required the pam members to contribute through

their payroll deductions.

Non contributory pension plan is in which the cost of providing benefits is taken care
solely or entirely by the employer.

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Question 5 (3 marks)
Amanda has resigned from her position as a systems analyst with a large multinational
firm, which she joined in 2015. Her annual earnings during the period are as follows.

2015 - $77,000 2018 - $84,500

2016 - $81,500 2019 - $86,500
2017 - $82,750 2020 - $22,500

a) Calculate her annual pension if the plan provides a benefit based on 1.75% of her
career average earnings.

$77,000+ 81500+82,750+84,500+86,500+22,500=434750 = 72458.33

6
Benefit = 1.75% that is 72458.33x 1.75%=$1268.02 x
6= 7608

b) Calculate her annual pension if the plan provides a benefit based on 1.75% of her best
average earnings over any consecutive three-year period.

Best average 82,750+84,500+86500 = 84583.33

3

84583.33x 1.75% x 6= $8881.25

Question 6 (2 marks)
Josh is a retiree who earns $110,000 in 2020, including the full Old Age Security pension
of $613.53 per month. How much will he receive each month after accounting for the
clawback on his OAS benefit if the minimum threshold for the OAS clawback in 2020 is
$79,054?

Josh Earning = 110,000-79054 =30946

OAS=30946 x15%= 4641.9 = $4641.9

per year 4641.9

Per month it would be 44641.9 = $386.33 answer = 613.53-386.33 = 227.20

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Question 7 (3 marks)
Veronica is a member of the defined benefit pension plan sponsored by her employer and
integrated with the CPP. Her contributions to the pension plan are established as 4.25%
of pensionable earnings up to the Year’s Maximum Pensionable Earnings (YMPE) and
5.75% thereafter. Calculate her Registered Pension Plan contributions if the YMPE is
$58,700 for 2020 and her pensionable earnings are $82,000.

YMPE= 58700 x 4.25% of YMPE= $2494.75

Pensionable earnings=82000
YMPE= 5.75%

23300 x 5.75% = $ 13281

Total RRP contributions: 2494.75 + 1328.1 = $3822.85

Question 8 (2 mark)
The purchase of Greg’s new home closes on April 10, 2020. He plans to withdraw
$18,000 from his Registered Retirement Savings Plan under the Home Buyers’ Plan to
help finance his purchase of the house.

a) Calculate the minimum amount of the first payment and the deadline for making it.
The Minimum amount for 1 st year = $18000/15 = $1200

The deadline to make the first payment would be 1st march 2023

b) If he only makes a partial payment of $400 for his first payment, what will be
the result? Show your calculation.

1200 - 400= 800 X 10 % = $ 80 tax implemented

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Question 9 (3 marks)
a) Mark earned $95,000 in 2019 and has unused contribution room of $24,500 carried
over from previous years. His employer paid $7,600 into his defined contribution
pension plan last year, and he also contributed $3,800. If he decides to invest
$7,000 to his wife’s RRSP, what is the most he can contribute into his own RRSP in
2020?

$95000x 18%= $17,100

+ 24,500
(-7600)
(-7000)
(-3800)
Total= $23,200

b) Mark’s wife Gina looks after their young child and earned $45,000 in 2019 while
working part-time. How much can she contribute to her own RRSP in 2020 after her
husband makes the $8,000 contribution? Explain your answer.

$45000x 18%= $8100

$8000 reduces husband contribution room not the wife contribution room.

Question 10 (2 marks)
a) Jenna, age 36, earned $75,000 in 2019. She contributes $7,000 in 2020 to an RRSP
belonging to her husband John, age 35. What are the tax implications for Jenna if
John withdraws $4,000 from his RRSP in 2022?

In this case Jenna will have to pay taxes on her own bracket if john withdraws
$4000 from his own RRSP.

b) If she makes no further contributions to the spousal RRSP, when can the husband
withdraw the funds without his wife incurring the tax implications in part (a) above?
Explain.

The husband can withdraw funds in the next 3 years that is 2023 if she makes no
contribution to the spousal RRSP.

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Question 11 (3 marks)
a) Kendra established a RRIF in October 2019, which contained assets worth $825,000.
The total value of the assets in the RRIF on January 1, 2020 is $850,000. What are
the minimum withdrawals that she must make from her RRIF in 2019 and 2020 if she
turned 68 years old in October 2019?

825000X4%= 33000

850000X4.25= 35875

b) Why might she have chosen to purchase an annuity last year instead of establishing a
RRIF? Provide two advantages of an annuity over a RRIF.

1. Annuities offer lifelong protection from inflation and a stream of guaranteed

income.
2. Withdrawals from RRIFs are taxed, whereas annuities are not.

Question 12 (2 marks)
Justine is single, receives an Old Age Security (OAS) retirement pension and has a base
income of $15,750 (i.e. over the OAS payments that she receives).

a) What is the purpose of the Guaranteed Income Supplement (GIS)?

Guaranteed Income Supplement means the monthly benefits that is paid to the OAS
recipients that are residing in Canada with no or very little income.

b) The maximum monthly GIS payment for 2020 is $916.38. How much will she
receive each month after accounting for the clawback on her GIS benefit?
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15750 x 50%= $656.25

12

916.38-656.25= $260.13 per month

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Question 13 (3 marks)
Yvonne will retire on December 31, 2020. Use the chart below to calculate her annual
retirement pension from the Canada Pension Plan. Calculate the average earnings ratio
(i.e. to four decimal places) and the annual pension.

2020 2019 2018 2017 2016

Pensionable earnings 55,500 51,500 48,500 46,500 45,500
Annual YMPE 58,700 57,400 55,900 55,300 54,900

Earning Ratio= 0.9454+0.8792+0.8676+ 0.8404+0.8287 / 5

Average ratio = 0.87594
Average annual YMPE= 58700+57400+55,900+55,300+54,900/5 x 25%= 14110

The Annual pension would be = 14110x 0.87594= $12359.51

Question 14 (2 marks)
a) You have an 85 year old client who owns a $350,000 home with a $75,000
outstanding mortgage. What is the maximum dollar value he can receive if he
purchases a reverse mortgage?

350000-75000= $ 151.250

b) How is earned income from a reverse mortgage taxed? Explain your answer.

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Question 15 (3 marks)
Brenda is a member of a defined benefit pension plan and has annual pensionable
earnings of $64,000. Her annual pension accrual is based on 1.80% on pensionable
earnings. Calculate her pension adjustment for the current year and the maximum RRSP
contribution for next year.

a) Pension adjustment:

64000x1.80= 1152

(9x1152)-600 = 10350-1152= 9198

b) RRSP contribution:

64000 x 18 = 11520-9198 = $ 2322

Question 16 (2 marks)
On September 24, 2019, Paul makes a contribution to his individual RRSP that causes
him to have total excess contributions of $4,250. He does not realize the problem until
several months later and corrects it on April 10, 2020. Calculate his tax penalty.

Calculating the months From September 24 2019- April 10 2019- 7 months

(4520-2000)= 2520x 1%x 7= $157.5

The tax penalty would be $157.5

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Send this exam to rsymmons@georgebrown.ca (Word and PDF files) by 2:00 pm

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