Craig and Lyn Case Data Organization (provided to the students)

As a Financial Planner you will often have extensive meetings with your clients to collect all the information required to design an appropriate financial plan for them. Once you have acquired everything you need it is always a good idea to divide the data into sections based on various segments of financial planning (listed below). The same approach should be used when you, as a student, address a case study. To demonstrate how this will help we have completed this task for you for the Craig and Lyn case. We have also provided a cash flow statement for Craig and Lyn with the current expenses included. You can use this cash-flow statement as the basis for the projected cash flow statement you will complete which will include all the recommendations you are making for the couple. You will find the information divided into the following sections:

Financial and Life Goals

Risk Tolerance

Assumptions

Financial Management Plan Related Information

Asset Management Plan Related Information

Taxation Management Plan Related Information

Risk Management Plan Related Information

Retirement Management Plan Related Information

Estate Management Plan Related Information

Financial and Life Goals Short Term Goals (1 5 Years)

Find a way to budget for paying Craigs income taxes (Craig)

Long Term Care Insurance (both)

Critical Illness Insurance (both)

Disability insurance (both)

Quit smoking (Craig)

Life insurance (both)

Eliminate the Credit Card Debt (both)

Develop a workable budget (both)

Find ways to create an emergency fund (both)

Medium Term Goals (5 10 Years)

Buy a home in Florida to use for retirement (both)

Buy a new vehicle for Lyn

Long Term Goals (Over 10 Years)

Retire at age 65 (Lyn)

Retire at age 61 (Craig)

Put both children through post-secondary education (both)

All debt paid off by retirement (both)

Go on trips each year when retired ($10,000 per year) (both)

Live in Florida in the winter when retired (both)

Take a year off to write a book (Lyn)

Ongoing Goals

Save for Childrens post-secondary education (both)

Travel to an all-inclusive each year ($3,000) (both)

Continue camping trips with the kids ($2,000) (both)

Ensure no debt remains if one spouse dies and the children are taken care of if

both spouses die (both)

Ensure that the family does not suffer a hardship if Craig is injured and unable to

work (both)

Save for a new vehicle for Lyn

Assumptions Assumptions Relating to the Customer

Rental Property and Family Home will increase in value annually at the rate of inflation

No additional renovations will be required to the rental property

Lyns position at TD is secure and her salary will continue to increase annually at

the rate of inflation

Craigs salary will increase at the rate of inflation (based on his average salary for

the past 3 years)

If one spouse dies all debt will be paid off and expenses will be about 90% of

existing remaining expenses

Current non-fixed expenses will increase each year by the rate of inflation

Both children will complete post-secondary education and will be non-

dependents by the age of 21

Living expenses at retirement will be the same as now (except no debt or dependents, extra travel and no life or disability insurance premiums) all figures indexed for inflation

Lyns pension will be indexed to the inflation rate

No inheritance from Lyns father when he dies

The leveraged investment portfolio did not yield any return as there were no

dividends paid and the stock prices did not grow.

Craig and Lyn will both qualify for the maximum CPP and OAS pension at age 65

Assumptions Relating to the Economy

Pre-tax rate of return on medium risk investments is 7%

Pre-tax rate of return on GICs is 3%

Prime Rate = 3%

Inflation Rate = 2.5%

Canadian Dollar remains at par with the $U.S.

Assumptions Relating to the Government

Income tax rates will remain the same as today

Capital gains will continue to be taxed at 50%

The OAS claw-back range will increase each year by the inflation rate

The OAS and CPP payments will increase each year by the inflation rate

The current deductions allowed for taxes will remain the same in the future

The reduction or increase in CPP for receiving the pension earlier or later than at

age 65 will remain the same as it is today

The government will continue with the RESP subsidy program by depositing a

grant into the RESP equivalent to 20% of the contribution to a maximum of $500.00 per child.

Taxation Management Plan Related Information

Craig always has a problem paying income tax and is looking for ways to avoid the pain associated with filing his income tax every April.

The rental expenses and income are currently being added to Craigs tax return.

Tax returns are provided.

Risk Management Plan Related Information

Lyns father, Don, was diagnosed with Alziehmer's

Lyns benefit package consists of full medical and dental coverage for her and

her family, life insurance totaling 2 times her salary, short term disability for 6 months at full salary (paid for by her employer) and long term disability which she pays for and will provide her 70% of her salary.

Craig does not receive any group benefits or disability insurance from Remax which puts the family at risk should Craig become injured and unable to work.

Lyn does not have critical illness and long term care insurance.

Craigs parents are both deceased. His mother died of cancer when she was 60

and his father had a major stroke at the age of 65 and died a few months later.

Craig and Lyn are hoping that there is a way to make the palliative care process

easier on the family in the event that one or both of them are in this position.

If either Craig or Lyn die they wish the remaining spouse to take over all the

assets and have no debt to deal with.

If Craig and Lyn both live into retirement they are not interested in leaving a

legacy for the children.

Addendum (insurance costing assumptions)

Long-Term Care Insurance: Assume following rates:

Male: $50/month per $100,000 of coverage aggregate max

($8,000/month benefit)

Female $55/month per $100,000 of coverage

Critical Illness Insurance: Assume Following rates: Female (38): $45/month per $50,000 of coverage

Male (34): $45/month per $50,000 of coverage for non-smoker Male (34): $80/month per $50,000 of coverage for smoker

Disability Insurance: Assume Following rates: Assume annual cost/$100 of coverage of $44 for Male Example: $1,000 of monthly benefit would cost $440 per year

Life Insurance: Assume Following rates: Male 34 non-smoker: Assume $146/year per $100k of coverage Male 34 smoker: Assume $255/year per $100k of coverage Female 38 non-smoker: $141/year per $100k of coverage

Assignment Tasks:

1) Basedontheinformationprovidedinthecase,beginfillingintheprovided spreadsheet with the cash inflows and cash outflows the couple will incur into the future. Utilize spreadsheet formulas like inflation into your calculations where necessary.

2) CreateaNetWorthstatementbasedontheinformationprovided

3) Create an assumptions tab in your spreadsheet where you demonstrate the thought and analysis put into each section (i.e. insurance analysis, tax assumptions, etc.). The purpose here is not to challenge your assumptions, but to see the level of thought put into your model.

4) Make sure that you address all the areas of planning we have discussed in the course (to date).

Financial management (savings and debt considerations)

Risk Management (insurance)

Estate Planning (Wills/POAs)

Asset Management (investments and rental properties)

Retirement Planning (pensions, RRIF withdrawals, etc)

Education Planning (RESPs etc.)

Tax management (deductions, employments expenses, RRSP

deductions, etc.).

Debt Management

5) In addressing 4) above use the financial planning process as discussed in class

Overall: Step 1: Engage (assume Letter of Engagement completed) Step 2: Data Gathering (complete provided in case details) --------------------------------------------------------------------------------- For each of the above areas use the following approach Step 3: Analyze and Develop solutions

i. ii.

Assess the Clients Current Situation (create projections/calculations if

necessary)

Determine what they want (goal) or where they should be (e.g. retire at age 65

and cover 70% of pre-retirement expenses; children attend prestigious school)

iii. iv.

Note you can use cash flow projections or time value of money calculations using qualitative reasoning to conduct your analysis for each section.

---------------------------------------------------------------------------------- Step 5: Implement and Step 6: Monitor (ignore for this assignment)