Ron and Janice Mawson Case study

Ron and Janice Mawson are now both 55 years old but Ron was disabled for eight years which resulted in excess medical costs so they had to refinance the house. The current mortgage is $150,000 and the house has a market value of $800,000. They also have two children aged 12 and 14 and they continue to work in their current positions.

They currently have no liabilities other than the mortgage and they continue to invest in their RRSPs on a monthly basis. Ron has grown his RRSP to $300,000 and Janice has $350,000 in her RRSP. They each contribute $800 per month to these plans and will continue to do so until their planned retirement at age 65. These registered plans are currently invested 30% income and 70% equity.

Both Ron and Janice also have a defined benefit pension plan with their employer’s which will pay 1.5% of their final salaries times their years of service. Ron and Janice will have final salaries of $125,000 and $80,000 respectively. Their years of service are 25 years for Ron and 30 years for Janice.

In addition, Janice has a non-registered portfolio worth $100,000 which is allocated 50% preferred dividend funds and 50% capital growth equity funds. This non registered fund currently has an unrealized capital gain of $30,000. She expects this fund to continue to grow by 8% per year with all of the growth relating to capital gains. Ron also has $80,000 invested in Canada Savings Bonds that are earning 3% interest and he plans on holding these bonds until retirement.

Their house is held in joint tenancy and they have designated each other as beneficiary on their RRSP and Pension Plans. The non-registered accounts are held in their individual names and do not have beneficiary designations or rights of survivorship.

REQUIRED – 50 marks

  1. Assuming 6% annual compound growth, what will the value of Ron and Janice’s RRSPs be at age 65? Show these amounts separately for both Ron and Janice. (4 Marks)
  • If they leave their asset allocation the same and continue to earn 6% per year what income could they each pay themselves from these plans at age 65 without encroaching on capital? Assume a 5% withdrawal rate. (4 Marks)
  • If they convert their RRSPs to a RRIF what is the minimum payment required based on their age 65? What is the minimum if they wait to withdraw the funds at age 72? (2 Marks)
  • If they are both eligible to collect the maximum CPP at age 65, what would their individual retirement incomes be including a 6% gross withdrawal from their RRIF and pension plans? (6 Marks)
  • If Janice and Ron each have a marginal tax rate of 40%, how much tax will they each pay on the income from their non-registered accounts this year at age 55? Assume a dividend yield of 2.5% on Susan’s eligible dividend allocation and 3% interest on Ron’s bond allocation. Assume a gross up of 38%, a federal dividend tax credit of 15.02% and a Provincial tax credit of 12%. (4 Marks)
  • They would like to get life insurance to pay the taxes and probate fees on their estate. Assuming they both die in a boating accident at age 80 and that they were only withdrawing what they were earning on their RRIFs; and that the non-registered investments continue to grow by the amounts indicated with no withdrawals and interest and dividends reinvested- what amount of insurance do they need to cover the potential taxes? Assume a effective tax rate of 45% on the estate and probate fees of 1.4%. ( 8 Marks)
  • If Probate fees in the Province of BC are 1.4%, how much would the Mawson estate need to pay if only Ron died at his age 75? Assume that Janice is the beneficiary of his RRSP and Pension Plan; and that the house is in joint names with rights of survivorship. Assume the value of the home at Ron’s death to be $1,000,000. (2 Marks)
  • How would these probate fees change if the estate was the beneficiary of Ron’s RRSP? What is the amount owed in this scenario? (2 Marks)
  • What are some of the most important features for Ron and Janice to include in their Wills? (4 Marks)
  1. If Ron and Janice decide that they want a guaranteed income of at least 6% in retirement what options are available to them excluding the use of term deposits and GICs? What are some of the disadvantages of this type of product? (6 Marks)

Required Format:

Questions to be answered in the order provided, typed, double spaced and in 12 pt font.

This is an individual assignment and the work submitted must be your own. You may however discuss the case with colleagues as part of a study group.

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