Learning Objective # 5 Determine your planned retirement income.

1. LO#5 Learning Objective # 5Determine your planned retirement income.

2. LO#5 Planning Your Retirement Income Public Pensions • Canada/Quebec Pension Plan (CPP/QPP) • Provide disability benefits, retirement pensions and survivor benefits • Contributions based on salary, Maximum per year • Can collect reduced benefits as early as 60 • Old Age Security (OAS) • Must be over 65 years old • Residency requirement

3. LO#5 Planning Your Retirement Income Public Pensions • Guaranteed Income Supplement (GIS) • Payable to low income OAS recipients over 65 years of age • Survivor’s Allowance (SPA) • Benefits to widow, widowers and spouses of OAS beneficiaries who are between 60 - 65

4. LO#5 Planning Your Retirement Income Employer Pension Plans - Defined Benefit • A plan that specifies the benefits the employee will receive at the normal retirement age • Employer’s contribution not specified • Employer makes the investment decisions for your and their contribution, but your benefit amount stays the same regardless of how the investments perform.

5. LO#5 Planning Your Retirement Income Employer Pension Plans - Defined Contribution • Money purchase pension plan • Specifies contribution from the employer and/or employee • Does not guarantee pension benefit you will receive • Vesting is employees right to at least a portion of the benefits accrued under an employer pension plan, even if they leave employ of company before retirement.

6. LO#5 Planning Your Retirement Income Employer Pension Plans - Defined Contribution • Defined Contribution plans include the following; • Employees can defer current taxation on portion of their salary • Money Purchase Pension Plans • Employee Stock Ownership Plan • Profit Sharing Plans

7. LO#5 Planning Your Retirement Income • Contributions from employer only • Tax-deductible for company • Based on company’s net income • DPSP holdings taxed when you withdraw them • Contributions to DPSP are subtracted from allowable RRSP contributions Deferred Profit Sharing Plan

8. LO#5 Planning Your Retirement Income Group RRSP’s • Property of employees • Can take money out if you need it • Participation may lower payroll tax withholdings

9. LO#5 Pension Plan Portability • Legislations enforces right to transfer pension credits from one employer to another • Three options when changing jobs • Leave credits and receive pension on retirement • Transfer to new employer • Transfer benefits to locked-in RRSP

10. LO#5 Personal Retirement Plans Registered Retirement Savings Plans • An RRSP is an investment vehicle that allows you to shelter your savings from income tax • Not a specific investment, but a way to register a variety of investments to shelter funds • Eligible investments include guaranteed funds, mutual funds, life insurance and life annuity products

11. LO#5 Registered Retirement Savings Plans • Types of RRSP’s • Regular • Self-directed • can invest in all categories • Spousal • spouse is named as beneficiary • Contribution Limits • 18% of earned income to a maximum amount • Maximum amount to increase in years to come • $22,000 by 2010 • reduced by RPP contributions • can ‘carry forward’ unused room to later years

12. LO#5 Options When You Deregister RRSP • Full withdrawal • required to pay income tax • Annuity • an investment that pays a fixed level of income on a regular basis for either a specified period of time or until death

13. LO#5 Options When You Deregister RRSP Advantages of an Annuity Disadvantages of An Annuity • Income payments until death • Level payments • Simple • No record-keeping • Legitimate tax shelter • No investment limits • Tax-free transfers • Less control over investments • Less control over income payout • No inflation protections, unless indexed • No opportunity for growth • No tax deferral • No lump sums • No protection for spouse, unless joint • No estate planning benefits

14. LO#5 Options When You Deregister RRSP • Life Annuities • Full amount of your RRSP fund will be transferred directly to the life insurance company • Convert those funds into a lifetime income payable to you • Fixed-Term Annuities • Funds are converted into an income stream to be paid out for a fixed term • If you die prior to the end of the term the remaining unpaid funds will be paid to your estate or beneficiary

15. LO#5 Options When You Deregister RRSP • Registered Retirement Income Funds (RRIFs) • Withdraw a minimum amount from the plan until you reach the age of 71 • Increases incrementally to age 94 • Can adjust the amount and frequency of the payments you receive • Life Income Funds (LIFs) • Withdraw a minimum amount every year • Subject to a maximum annual withdrawal amount • Must be used to purchase a life annuity by end of year you turn 80

16. LO#5 Options When You Deregister RRSP • Segregated Funds • Sold exclusively through life insurance companies • The purchase of units representing a share in a pool of assets supervised by a fund manager • The funds are kept separate from the company’s other assets • Advantages over mutual funds include; • If you die your fund’s assets go directly to your beneficiary • Percentage of your capital is guaranteed