Tuesday, September 27, 2016

Viewing Detailed Cash Flows


Question:

On the future assets table in the report, the registered assets at age 94 (year 2054) for the surviving client are $240,979.

At that age the client is required to withdraw a minimum 20% which would be $48,200. The investment return is a net 5% or about $12,000 maximum yet the client’s registered assets at the start of the next year are $217,683, which is about $13,000 more than the math would indicate it should be.

The cash-flow forecast for age 94 (2054) shows only $31,711 being withdrawn from the registered assets of $240,979 which is 13% and not 20% as required by CRA. Is there an explanation for this?

Is there something else in ‘registered’ other than a RRIF or a LIF that might distort the figures, like a TFSA?

Answer:

For each spouse on the 'Accumulations' tab on the 'View' page there is at the bottom under 'Your Future Assets - Detailed Data Table' links to pop-up tables that provide the detailed cash flow. You will see that the withdrawals are 20% at age 94.

For investment income, it will be based on the rates of returns selected in the 'Economic Forecast' page (less investment fees), weighted in accordance with the basis selected in 'Asset Mix for Projections' on the 'Options' page.

The summary tables on the results page combine TFSA, LIFs and RRIFs.

The Accumulations and Income Forecast tabs have detailed pop up cash flow tables that show all cash flows.

Friday, September 23, 2016

RRIF Withdrawals


Question:

How do I delay RRIF withdrawals to age 71 in the program?

Answer:

On the Options page, select "Start Withdrawals of Registered Investments" and the program will defer the RRIF withdrawals as long as possible.

Please note that if funds are not sufficient to meet the retirement income goal, then the RRIF will be opened before age 71 in order to meet the income goal. So if non-registered (or TFSAs) are not sufficient, reducing the goal will facilitate the deferment of the RRSP to the latest age.

As well, ensure you select 'Use Investment Earnings and Capital' for 'Use of Non-Registered Assets After Retirement' on the same page.

Wednesday, September 21, 2016

Future Income Tax


Question:

I ran the model and the level of income taxes seem low for the amount of income each year in the future.

With a  gross incomes of around $80,000, it shows about $10,000 in taxes for example.

Answer:

Income taxes may seem low but remember these are "future dollars", and the income mix may be from capital withdrawals from a non-registered account, investment income which is taxed a lower rates if it's from realized capital gains and dividends.

Monday, September 19, 2016

Expected Investment Income


Question:

How are investment income calculated for the projection?

Answer:

Registered funds are projected in the future based on the rates selected in the Economic Forecast on the Forecast page, and the asset allocation selected on the Options page.

If you base your projection on the current asset mix, then you should enter the asset allocation of registered assets by clicking the blue icon next to the 'Registered' balance on the second tab of the
Financial Information page. In setting your rate for fixed income consider that part of the assets will earn 8% on the mortgages and part will earn a lower rate for mutual fund investments, bonds, etc.

Also recognize that the expected rates may apply for 30 to 50 years in the future, so it is best to use a conservative approach and consider that rates that may be guaranteed for
the next few years may not apply for the entire life expectancy.

Thursday, September 15, 2016

RRIF Withdrawals Based on Younger Spouse's Age


Question:

Is it possible to use my spouse's DOB for my RRIF payments? Also, can I  control how much income comes from a RRIF, subject to the minimum?

Finally, how can I see the annual RRIF income coming out of my plan?

Answer:

You can use the spouse's age by selecting this information on the Option page  under 'Registered'

There are detailed pop up tables for the asset and income cash flow on the results page. The links to the pop ups are under the last header of the Accumulations and Income Forecast tabs.

You can control how much income comes from the RRIF by selecting the option under 'Registered' on the 'Options' page. You can select an annual amount or minimum payments, and select the age of commencement of payments from the RRIF. Please note that the actual payment may differ if more funds are required to meet the retirement income goal in any particular year.

You also have the option of starting registered withdrawals as late as possible, or at retirement.

Tuesday, September 13, 2016

Tax Brackets and Marginal Tax


Question:

How do you determine the tax bracket/marginal tax many years in the future?

Answer:

The program assumes brackets, credits and other amounts will grow each year by the rate of inflation.

Most provinces automatically index these amounts each year. We assume brackets are indexed for provinces who don't automatically index because they eventually update them, and it would not be realistic to have a model using fixed brackets in 20 or 30 years.

Note that for RRSP limits and YMPE increase in line with the average wage.


Thursday, September 8, 2016

Spending Projections in Retirement


Question:

When doing long term income projections, is it possible to drop spending by say 25% at age 75 and then continue adjusting that revised spending by inflation rather than having spending continue along the same rate?

Answer:

Yes, go to the 'Forecast' page and on the 'Retirement Income Target' tab, and click 'Advanced'.

You can increase or decrease retirement income at three points during retirement and income continues to be adjusted with inflation throughout.

You can also add one-time or recurring special expenses in your retirement income goals (such as car purchase every few years, trips, weddings, etc.).

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