Course name: FPSC Approved Capstone Course

Submitted by: Akash Rana

Student number: 300913931

Assignment 1: Initial Submission-Financial Plan

Submitted to: Professor Elles Kyriacos

TABLE OF CONTENT:

 Disclaimer

 Summary of Sam and Sara’s goals and needs

 Recommendation

 Personal information

 Cash flow

 Net worth

 Education Plan for Aaron

 Registered Disability Savings Plan for Philip

 Report
Disclaimer-

All the figures expressed in the joined report are determined by assumption and data provided by

Sam and Sara Knight. These assumptions and data will be changed every year. A portion of the

information displayed depends on the current assessment of tax rules and legislation which might

be liable to change. Thusly, it is necessary for me to survey your financial plan related

arrangement standard to solidly guarantee that information will be refreshed continually and

address current needs appropriately. All the more vitally, it is also necessary to look at some

different scenarios to get an idea of the impact of various assumptions on planning objectives.

All data gave in the attached report is general in nature and should NOT be translated as giving

lawful, bookkeeping and tax counsel. In the event that you have a particular enquiries and issues,

please counsel your lawful, tax and bookkeeping counsellor.

 Financial Goal’s for Sam and Sara are :-

 The vital goals are to pay all the debts before taking a retirement

 Sam needs to be without mortgage ten years from today.

 They need to spare adequate cash for paying Aaron's educational cost charges of four-

year college program and some different costs like acquiring books and cost of occupant

if Aaron decide to study far from home.

 They need to save sufficient cash for paying expense for another child, Philip for going to

a school or exchange school for a two year since Philip has disable issue, every year cost

generally $7,500. At that point, on account of disability issue so they need to guarantee

that Philip can go to post-secondary school when he achieves 18.

Their Needs: -

 Sam and Sara essential need is to get the guarantee regarding the disable kid name Philip

to be financially secure throughout his life

 Philip needs to utilize ASD intervention services and treatments outside schools that cost

add up to $1,200 with money related help from Ministry of Children and Family

improvement (MCFD) up to $500 and his parent is paying the difference of $700 month

to month.

 They realize that Philip will not be able to get the job or employment with low pay after

graduated post-secondary school; thereupon, they need to set aside supports around

$15,000 every year from now until the point when they retired.
 Recommendation

There are three positive procedures for Sam and Sara to do now

 1)The main technique is to diminish some discretionary spending that are not clearly

fundamental, for example vacations, restaurant, entertainment and club membership.

 2)The second path is to make a spending that can be powerful to control cash and it

might be helpful for the couple to deal with events of surprising issues.

 3) Sam and Sara needs to maintain maximum RRSP and TFSA in order for lessor tax

liability.

 Both couple should get retire after 65 age in order to get debt free.
Personal information and financial assumptions

Personal Information

Personal

First Name Sam Sara

Last Name Knight Knight

Birthdate January 4th January 4th

Age 46 44

Marital Status Married Married

Sin number

Employer Crane Demolition Law Firm

Service Ltd

Occupation Mechanical engineer Lawyer

Address Know your client

Street 639 Gerrard Street Investment knowledge Minimum

City Toronto Risk Tolerance Minimum

Province Ontario
Postcode M4M 1Y2

Country Canada

Contact information

Phone contact 647-968-8589 416-462-1359

Email Sknight@gmail.com Sknight@yahoo.com

Dependents

First name Last name Birthdate

Philip Knight 15

Aaron Knight 5 and half

Wills Sam Sara

Do you have a will Yes Yes

 Sam has a house which esteemed at $700,000 and he has changed the single ownership of

the house to joint name with Sara.

 Sam has a perfect health condition and his gross pay $127,000 yearly. Sam's employer

offers Sam full medical and dental coverage for Sam's family and incapacity protection.

Consistently, Sam contributes $700 to the organization's as defined contribution plan and

his employer has to contribute same amount to his CPP

 Sara has no cash or different resources; she has a child named Philip with her ex and he is

15 years of age and Philip is having disable issues which influences his individual's social

connections, correspondence, interests and conduct.

 Sara's gross salary of $100,000 every year. The organization just offers her about full

medical and dental scope, vacations and sick days however no other advantages.

 $1,000 has been placed in a joint account of Sam and Sara which they use to store their

salary and pay bills. Sara has collected about $25,000 in CSBs which will be utilized as a

emergency.

 There is an unsecured credit extension at a rate of 7% every year which they use to cover

costs as required. A year ago, the balance was $5,000, the present balance is $14,259.

They are disappointed as they need to pay down the credit extension. Every month, they

figure out how to make installment of about $85 to cover the interest charge.

 Sara has an exceptional balance of $24,000 as student loan that she has obtained from the

credit association before she met Sam. Consistently Sara needs to pay $480 with

financing cost of 7.5% every year and the credit that Sara is hoping to pay off in five

years.

 Sam and Sara is having a Visa balance of $7,225 with yearly loan fee of 18.5% and the

minimum installment is $185 month to month.

 An RRSP loan of $15,000 amortized over $6,600 is the present balance amount and Sara

is paying $300 month to month, with two years remaining and 7% of advance on yearly

loan rate.
 The couple has two leases autos containing a BMW and a Lexus, the previous expenses

$750 every month and last expenses $750 month to month. Presently the two leases are

terminating; subsequently, they are planning to lease as opposed to purchase since they

can change another auto persistently without worrying over the issue of keeping up an

aging vehicle. All things considered, purchase leasing two cars at the same time, with the

goal that it costs them a ton of cash on cost. In addition, the couple is intending to

purchase new furniture and a huge screen HDTV with the adjust of $6.850 is expected in

6 month.

 Both Sam and Sara have RRSP accounts while Sam's RRSP has an estimation of

$89,500. Because of having no understanding and information of investment;

consequently, Sam simply just put money into low risk Canadian bond funds. The yearly

average rate of return for his RRSP holdings has been 3.5% over the past five years and

Sam contributes $300 month to month on his arrangement

 Sara has RRSP esteemed at $57,750 which is invested into three commodities. She is

clearly learned about commodities since she has been following a few commodities firms

for quite a while. Besides, she has a portfolio with arrived at the average rate of return of

1% every year finished the previous five years. In any case, a pension benefits design has

not been offered to Sara; accordingly, she contributes $350 month to month to her RRSP.

 Both Sam and Sara have named each other as beneficiary on their RRSPs. Their investor

likewise profile for the couple has been resolved to be balance including 5% cash, 40%

fixed income and 55% equities

  Last December, Sam had met all requirements for a yearly CPP retirement benefit of

$4,980 and Sara had qualified for a yearly CPP retirement benefit of $2,050.

 Sam Sara

YMPE 55,300 55,300

YBE 3,500 3,500

CPP contribution rate 4.95% 4.95%

Maximum CPP 5,128.20 5,128.20

contribution

CPP contribution annually 3,132 3,132

% of contribution 61% 61%

Retirement pension (age 65) 8,165.73 8,165.73

Retirement age 67 65

Number of months exceed 48

65

Additionl benefit 2,744

Expected retirement 10,909 8,166

pension in today’s dollars

 Pension in retirement's 16,534 12,377

dollars

Working note:

Maximum CPP contribution: [(55,300-3,500) x 4.95%] x 2 = 5,128.20

Percentage of contribution: 3,132/5,128.20 = 61%

Retirement pension at age 65: (1114.17 x 12 months) x 61% = 8155.73

Additional benefit: [100% + (48 x 7%)]*8,165.73 = 2,744

Expected retirement pension in today’s dollars: 2,744 + 8,165.73 = 10,909 (Sam)

Expected retirement pension in today’s dollars: 8,165.63 (Sara)

Pension in retirement’s dollars: I/Y = 2%, PV = 10,909, N = 21, PMT = 0  CPT FV = 16,534
(Sam)

Pension in retirement’s dollars: I/Y = 2%, PV = 8,165.63, N = 21, PMT = 0  CPT FV =

12,377(Sara)

( All the calculations made above are made by keeping in mind that they will retire after 65 years
of age as they want to live a debt free life after retirement )
Financial Management

Plan Summary

Net Worth Cash Flow

Total asset 1,001,250 Family income 114,900

(after tax)

Liabilities (305,019) Total expenses 99,840

Net Worth 696,231 Net Cash Flow 15,060

Total Debt Payments 62,350

Total Saving 16,800

Current surplus/deficit (9805)

Cash Flow Summary

Family income (before tax) 227,500 100%

Taxable income 16,800 7.38%

Family income (after tax) 210,700 92.62%

Expenses

Household expenses, 14,400 21.2%

insurance and utilities

Heating oil 2,400 3.54%

Property taxes 4,800 7.1%

House maintenance 3,600 5.31%

Groceries 8,400 12.39%

Special education – Philip 8,400 12.39%

Car leases 18,000 26.55%

Car maintenance and 3,600 5.31%

insurance

Clothing 4,200 6.19%

Total non-discretionary 67,800 100%

expenses

Discretionary expenses
Vacations 6,000 18.73%

Club membership 1,080 3.37%

Restaurants 9,000 28.1%

Summer camp 6,000 18.73%

Extra-curricular activities 3,000 9.4%

Theatre subscription 960 2.99%

Entertainment 6,000 18.73%

Total Discretionary 32,040 100%

expenses

Total expenses 99,840 43.9%

 Non-Discretionary expenses
5% 6%

21%
27% 4%

12% 13% 7%
5%

Household expenses, insurance and utilities Heating oil

Property taxes House maintenance
Groceries Special education – Philip
Car leases Car maintenance and insurance
Clothing

Both has spent $67,800 for non-discretionary costs, for example household, insurance, heating

oil, groceries, and special expenses of education for their oldest child Philip. Based on data, the

couple spend expansive sum on basic needs like grocery and household expenses costs which are

27% and 21% individually

DISCRETIONARY EXPENSES
Entertainment,
18.73% Vacations, 18.73%
theatre Club membership,
Subscription, 2.99% 3.37%

Extra-Curricular
activities , 9.40%

Restaurants,
Summer Camp, 28.10%
18.73%

As per the pie chart of Discretionary couple has spent around $32,040 on vacations, club

membership, restaurants, summer camp, theatre and entertainment. The couple has spent huge
amount on vacations (18.73%), summer camp (18.73%), restaurants (28.1%), and entertainment

(18.73%) which is big concern and can be reduce easily. Instead of spending huge amount on

vacations and summer camp, they can save the money and start investing on RESPs and RDSPs

which will be give the benefit on their financial planning. Assume that they can reduce

discretionary expenses from $32,040 to $15,000; therefore, they can save $17,040 annually.

Working note:

PV = 17,040, I/Y = 2%, N = 17, CPT FV $280,782.74

As per assumption mentioned above, if the couple can save $17,040 per year up to they retire at

63, they can accumulate total $280,782.74. They can invest that amount on their kids planning

for the better lifestyle.

Education Plan for Aaron – Registered Education Savings Plan

(Commission, 2017) Cited that Registered Education Savings Plan (RESP) is known as a

contract between the subscriber and the promoter. Under the contract, the subscriber will make

contribution (educational assistance payment-EAPs) annually for beneficiaries’ education in the

future. The beneficiaries are not only available for children, it is also acceptable for

grandchildren, nephews, nieces, or family friends. RESPs is one of the most popular savings

plans for many families and the reason for using this saving plan because it can help subscriber’s

beneficiaries can access post-secondary school after the subscribers retire; thus, they do not need

to worry that their beneficiaries have not sufficient fund for study.

Sam and Sara are planning to save sufficient money for Aaron when he got 18 years old. The

tuition fees and books are expectedly estimated $10,000 yearly and it takes four years to
complete the program; therefore, the couple is trying to save $40,000 in total for Aaron’s

education. Nevertheless, the inflation rate (7%) is one of the problem that the couple is

concerning because they cannot save accurate $40,000 and pay that amount in the future. Thus,

in order to know the proper amount that the couple has to save, they need to do the following

steps. Generally, there are four steps to calculate future value that the couple has to pay for

Aaron’ education tuition fees when he got 18 years old.

Working note:

Step 1: PV = $10,000 PMT = 0, inflation rate = 7%, N = 12.5  CPT FV = $23,296.85

$23,296.85 is the amount that the couple has to pay in one year for Aaron’s education.

$13296.85 is the difference between $10,000 and 23,296.85 due to inflation.

Step 2: expected rate of return = 3%, inflation rate = 7% so that rate will be 3.73% computed by

(3%-7%)/ (1+7%)

3.73% is the new rate that calculated by using expected rate of return and inflation rate which

will be used to compute future value of Aaron’s education tuition fees for total four years.

Step 3: FV= 0, PMT = -23296.85, I/Y = 3.73%, N = 4  CPT PV = 88,280.45

$40,000 is the initial amount that the couple has expected to save; notwithstanding, the amount is

increasing to $88,280.45 due to inflation rate. $48,280.46 is the difference that the couple has to

pay more.

Step 4: FV = 88280.45, PMT = 0, I/Y = 3%, N = 12.5  CPT PV = 61,009.7

In order to accumulate $88280.45, the couple has to have present value 61,009.7.
Financial security plan for Philip

 Registered Disability Savings Plan (RDSP) is known as a new savings program that

created by the Federal Government to motivate and support Canadian disable people and

their families to save for long term financial needs in a tax deferred environment. To

open an RDSP, people must be disable who is of the age of majority and has the legal

capacity to manage their finances. Philip is only 15 years, so that Sam and Sara will be

eligible for an RDSP holder.

 The RDSP is saving plan which individuals can add to after tax, with profit and

development gathering tax-deferred. A major advance of the RDSP is that the assets can

be supplemented with Canada Disability Savings Grants (CDSGs) and Canada Disability

Savings Bonds (CDSBs) for recipients who are under 50 years of age.

 Sam and Sara are worrying that after Philip completed post-secondary education, he will

face difficulties in finding job, or doing a job with very low income; thence, the couple

wants to set aside funds for Philip yearly until they retire. They expect to accumulate an

amount that will provide at least $15,000 annually. Assume that when Sam and Sara have

retired, and their expectation is that Philip can get $15,000 annually. There are three steps

to calculate payment that the couple has to pay from now until they retire, in order to let

Philip, receive $15,000 every year.

Working note:

Step 1: Assume that I/Y = 5%, N = 25 (90-65) and PMT = $15,000, so that present value will be

$203,255.
Step 2: expected rate of return = 3%, inflation rate = 7% so that the rate will be computed as

(3%-7%)/ (1+7%) = 3.73%.

Step 3: I/Y= 3.73%, PV = $203,255, N = 17  CPT PMT = $15,771

From now, the couple has to accumulate $15,771 annually with the assumption 5%

of interest rate, the present value of $15,000 will be $203,255.

(Institution, 2017) Stated that Registered Disability Savings Plan has a lot of benefits for

Knight’s family because the income that the couple earn on savings in an RDSP is tax deferred.

The only tax that they need to pay is when they make withdrawals, they do not need to pay tax

on the money that they have contributed. Furthermore, anyone can make contributions to RDSP,

either Sam or Sara can put money on RDSP without worrying the restriction of the plan. If either

one prematurely die, the survivor spouse can continue to contribute for their kids. More

importantly, opening RDSP that will not affect other disability benefits like Canada Pension

Plan, Disability Benefits, Old Age Security and Guaranteed Income Supplement.

Plan for the remainder of the Report

After calculating CPP, RESPs and RDSPs, the couple also need to concern about the tax

planning, retirement planning, risk management, and estate planning.

 For tax planning, to know the current and projected marginal tax rates over working and

retirement years.

 For retirement planning, to know the client’s expectation toward income in retirement,

desired retirement age, and expectation of lifestyle expenses.

  For risk management, to know the couple’s life expectancy, projected income and

expenses in the event of one spouse dies prematurely, or in the event of disability.

 For estate planning, to know that the will of the couple to transfer the house to their kids,

or how they can pay off mortgage earlier than they expected.

Reference;

Commission, O. S. (2017). How RESPs work. Retrieved from Ontario Securities Commission:
https://www.getsmarteraboutmoney.ca/invest/savings-plans/resps/how-resps-work/
Institution, R. P. (2017). About the Registered Disability Savings Plan. Retrieved from RDSP
Plan Institution: http://www.rdsp.com/what-is-it/