Planit:Calculating and Entering Contribution Pension Plans Exercise Answer Key

From Planipedia

This case study is specific to financial planning in Canada, so has fixed values rather than indices by country. For a similar case study applicable to other countries, please see Planit:UK Contribution Pension Plans Exercise or Planit:Entering Other Revenues Exercise.

Question One:

Harold Woodhaven has a contribution pension where he works, invested in various cash products. The LIF account for the pension has a total balance of $20,000, of which $16,000 has been invested capital.

As a banker, Harold earns $60,000 and 5% of this salary goes toward his pension. His employer contributes an additional 6% of his salary. He saves $2,000 into his RRSP, $3,000 into his open investments, and earns $1,500 in investment income.

Answer:

On the Assets and Liabilities screen you will add the account for Harold’s contribution pension.

1. Click New Account above the existing assets.
2. Enter a Description and set the Ownership to 100% for Harold Woodhaven.
3. The Account Type should be Registered, and the Regulatory Type should be LIF.
4. Click Save
5. Click on the “+” sign beside the new account to expand its contents.
6. Click on New Asset under the account
7. Use the Add Custom button to add a generic cash product.
8. Enter a description, and the Market Value as $20,000.
9. Set the ACB to $16,000 as indicated.
10. On the right, set the Allocation Breakdown to 100 for Cash and 0 for all other asset classes.
11. Click Save

Use the drop-down menu to enter your data for the Cash Flow Management screen.

1. Enter Harold’s $60,000 salary in the Client’s Personal Income field.
2. Harold’s $1,500 investment income can be entered in Client’s Investment Income
3. For the Client’s Registered Savings field, enter the combined value of Harold’s $2,000 RRSP savings + the 5% contribution pension savings ($60,000 x 5% = $3,000). $2,000 + $3,000 = $5,000. Enter $5,000 as the total Registered Savings
4. Click the Calculate button to save your work and calculate the current lifestyle and income taxes.
5. Use the drop-down menu to continue to the Savings screen

In the Savings screen you will add the employer contributions to the LIF pension. Click Edit beside Harold’s Registered Savings stream.

1. Set the Matching Amount to $3,600 since the employer is contributing an additional 6% of Harold’s salary. (6% of $60,000 = $3,600)
2. Click Save