Planning for Wealth, Retirement and the Great Beyond - Case Study Example

Case Study: Planning For Wealth, Retirement and the Great Beyond and Case Study: Planning For Wealth, Retirement and the Great Beyond Introduction Financial planning and investment management is a compulsory activity that is recommended to all individuals. This paper will clearly explain a 10 year plan of the case presented in line with managing the investment portfolio that includes transitioning from peak earning years to near retirement. The plan will be inclusive of the stages involved in planning and the minimum level needed for funding after the retirement. It also includes rebalancing of the portfolio. The paper will also include the budgeting needed for retirement. This will cover the expenses and income after retirement and the plans after retirement. The last part of the paper will involve setting up a will for the owners of the real estate. The case presented represents the family of a mature family. The priorities and needs of such a family have changed. This is evidenced by maturity of the children where two of them are in their twenties and have already been employed and the last one is in adolescent, due to Finish University in three years. The issue of guardian ship is not there. This stage is also marked by peak earnings years and accumulation of many considerable assets (Gray& budd 2002). This part requires assessing of the financial status, the personal and life goals and needs and also assessing the priorities of life now. This stage also involves reassessment of the professional advisors. This should be done regularly. This is recommended because of the great accumulation of wealth, mostly the real estate that sometimes become complex to handle (Roseman 2002).The professional advisors may range from investment advisor, lawyers, professional accountant trustee of the company or a financial planner. The plan also consists of evaluating the performance of the investments that one owns. The investments range from the registered retirement savings plan (RRSP), to the real estate and the non real estate. For instance in this case scenario, the non-real investment of the family is estimated to have a net value of one million, two hundred thousand (1.2 million) dollars. This as specified in the case study of the family is inclusive of the registered retirement savings plan of 650,000 dollars as well as the 150,000 dollars that are unused in the registered retirement savings plan. The market value of the home is estimated to be 900,000 dollars .the value is considered to inflate in the future (Roseman 2002). The investment advisor is expected to help in working out a realistic plan that will enable achievement of the goals pertaining to the long term investments. The realization now is that it will be hard to rely on the Old Age Security or the Canada Pension Plan or the employers Pension Plan to meet the expenses that emerge after the retirement. With that in mind, the time to build an investment portfolio that will help manage and support the life after retirement would be now. Having a trust company is a benefit especially when the company is the executor or the trustee (Currie, Chambers, and Brown 2001). When determining the personal asset, a variety of assets may be considered. For instance in the case presented, the family owns a home that is valued at 900,000dollars that is expected to inflate, they also own investments ranging from the real to non real that are worth a lot of money. The spouse also has an investment that will pay later. The expense that incurred includes the 90,000 dollars annual expenses and the mortgage that will be paid for the next eight years. The investment totals to 2.205 million dollars (Currie, Chambers, and Brown 2001). Having acquired the investment portfolio required, the projections for future income can hence be formulated. For instance, the sources of income after the retirement include the pension plan from the employer. Out of the salary paid, the contribution to the pension plan will be 6 percent of the salary. The employer on the other hand will be contributing 12 percent.tis will be a source of income after having served the company. Another source of income is the non real estate investments. The net value as projected is 1.2 million dollars. 650,000 dollars of these 1.2 million dollars were in invested on the registered retirement savings plan while the remaining 150,000 dollars were unused registered retirement savings plan (Currie, Chambers, and Brown 2001). Another source of income is the defined benefit plan belonging to the spouse. The plan is due to pay her 24/80 of 35000 dollars at the age of 65 progressively. This amounts to 10,500 dollars. The guaranteed income supplement which is a monthly benefit paid to all the Canada residents that receive a partial OAS pension or have little income. It is not subject to tax however, as compared to other pension plans. The expenses will include the annual three week overseas holiday that is part of the plan after retirement. There is also a plan to purchase a recreational property in the Gulf Islands.th part time charity work will also consume savings plan (Roseman 2002). RETIREMENT BUDGET FORECAST Sources of Income Current Retirement Family income 120,000 0 Pension from employer 0 78,000 RRSP 0 650,000 Unused RRSP 0 150,000 Insurance benefit plan 0 10500 OAS/OAP 0 56,000 RRIF 0 120,000 Property investment 900,000 1,500,000 Total Income 1,020,000 2,564,500 Expenses Acquisition of Recreational property 0 1,250,366 Mortgage 120,000 0 Property taxes 270,000 450,000 Basic necessities 50,000 42,000 Transport 20,000 5000 Travel and vacations 25,000 35000 Charitable contributions 2500 1500 Other taxes (30%) 220,000 350,659 Total Expenses 707,500 2,134,525 Savings (Estimated) 312,500 429,975 According to the Canadian laws, old age pension (OAP) is paid to all the persons who had a pension plan and have attained the age of 71. The amount assumed to be offered is 56,000 dollars. This is also the case in the RRSP savings. The Canadian tax law advocated for people converting the RRSP to RRIF, that is, the registered retirement income fund as a way of deferring the tax imposed on the registered retirement savings plan. The minimum amount to be withdrawn is 12,000 dollars. A tax rate of 30% was assumed to be in the law until infinity. The decision to convert the entire amount in the RRSP saving to the RRIF is due to the tax to be charged. This strategy allows flexibility in the amount withdrawn and avoids overspending hence reducing the tax expense. The other taxes category includes taxes on pension and other investments and transactions (Currie, Chambers, and Brown 2001). The assumptions made are there will be no fees or expenses spent on the medical examination. This is however not expected since old age comes with complications and old age diseases. There fore in the savings plan, a trust fund was set up to ensure the medical examination fees were saved. The tax assumed to be paid throughout the period amounted to 800,659 dollars. This is the total amount of tax that includes tax paid on the recreational property to be bought as well as the tax paid on the benefits and the real estates. The assumption here is that the tax rate will remain constant through out the period. Assumption also was made on the mortality of the owners of the real estate.th assumption made was that they would live for a very long time even after retirement (Currie, Chambers, and Brown 2001). Formulation of the will From the experienced gained, life on earth is not guaranteed. Therefore, once one has died, there is the need for the estate to be managed and the property taken care of. This is the sole purpose of the will. The checklist needed in ascertaining a will includes preparation and signing of the power of attorney for the financial affairs and running of the real estate. According to Gray& budd (2002) one needs to ascertain whether the will and the power of attorney are up to date. One needs to take steps to ensure protection of the assets bought in the relationship. The will also entails naming the beneficiaries and the alternate beneficiaries of the registered retirement savings pan, the life insurance policies, the pension plans and RRIFs. These should always be up to date. The will also entails the backup executor and the back up power of attorney. All the dependants should be well provided for. This is the last will of me, Pearson Flemings, of the country of Canada. Revocation I revoke all the former wills and other testimonials I had made earlier. Executors I hereby appoint my daughter, Princess Doe, (to be called princess hereinafter) to be the Executor and the trustee of my will. Incase she survives me but dies, I appoint my son Kevin Cole to execute the will, estate and all property am entitled to. Legacy I give the following as legacies to the people named: a) My brother, Peter Nathan a free of tax amount of 20,000 dollars b) I give the Speak out Children’s Home (25845) a sum of 100,000 dollars free of tax. Property to Trustees I give all my property including that which I have the power to appoint to my trustee. This will be done as follows: Household and personal effects: shall be maintained by my wife but if she doesn’t survive me, by my son, John Caress. Debts and Taxes My trustee will pay all the debts owed by me and all charges that may be imposed on the capital assets as well as catering for all the funeral arrangements and legal expenses. Payments and Holdings to Minors If any person should become an inheritor of my share before attaining the age of the majority, that share shall be guarded and invested by my trustees until the minor attains the age of the majority. My trustee shall also make payments for any person that may be under legal disability to a parent or guardian in their own discretion. Power to Sell and Hold My trustees are authorized to use their own knowledge to govern and manage the real estate. This includes realizing it through selling or converting it into cash. The trustees shall have the power to retain the investment s or assets in the existing forms at their own discretion. Real estate I authorize my trustees to sell or dispose or exchange the whole or part of the real property as they find it advisable to do. I give the trustees the power to deliver the deeds and the mortgages or leases as it may be necessary in order to affect the sale or disposal of the property. Settlement of Claims I authorize my trustees to settle any claims owing to my estate or which the estate may have against all other parties. The Power of Attorney (Property) 1………………………………………..revoke any previous continuing power of attorney for my property an appoint…………………………..to be the attorney for my property. Date of Effectiveness This continuing power of attorney shall come into effect once signed and witnessed. Signature………………………. Date………………………….. List of Property My house which is valued at 1,000,000 dollars, recreational property in the Gulf Island valued at 600,000 dollars, cash at bank valued at 2,000,000 dollars, (Gray& budd 2002). Bibliography Douglas Gray and John Budd 2002. The Canadian Guide to Will & Estate Planning. McGraw Hill Ryerson Limited: Canada. Elliot J. Currie, Thomas F. Chambers and Kathleen H. Brown 2001. Personal Finance for Canadians. Prentice Hall: Canada. Ellen Roseman 2002. Money 101: Every Canadians Guide to Personal Finance. John Wiley and Sons Canada ltd: Canada. Read More