Planit:Planning Assumptions
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Planning Assumptions Screen
On this screen you can identify the various different assumptions for future planning like unused RSP contributions, CPP/QPP eligibility, and OAS benefits are just some of the assumptions you can capture here.
This screen is NEW to version 5.2 and most of this information found on this new screen was previously captured on the Personal Information screen. We have added this new screen to centralize ALL the assumptions used. In the past there were some assumptions scattered in several other screens. These are all now nicely in one place.
Please note: What you actually see within this screen will depend on your jurisdiction so don’t be concerned if you don’t see all of the same things on your deployment.
General Assumptions
- Enter in the Planning Jurisdiction and Planning Province this will default to what you have set on your own advisor profile.
- Inflation - The impact of inflation is felt in all aspects of planning for the future. Set an inflation rate that reflects a reasonable level for long term planning. We default this field to 3% based on the historical long-term rate of inflation in Canada over the past 61 years and based on current economic conditions.
- Discount Rate - The Discount Rate is used to calculate all present values throughout Planit. The Discount Rate is set by identifying an adjustment that is added to inflation. Our default it to set the adjustment factor to 2%. Thus the discount rate will be Inflation + 2%. You have the option of changing the adjustent factor to ultimately use a higher or lower discount rate.
- Risk Free Rate - The Risk Free Rate is the theoretical rate of return of an investment with zero risk, including default risk. The risk free rate represents the interest that an investor would expect from an absolutely risk free investment over a given period of time. The default is the rate of return for Cash for any jurisdiction but can be changed if desired. This Risk Free Rate is used only in one place in PlanPlus Planit. This is in the Stock Option Report where an analysis is done of a client's stock options.
- Prime Rate - This is the prime lending rate rate used by banks. The default that appears is unique for each country. This rate is used in the Debt Consolidation calculator. When you have variable rate loans, they are often "Prime +" loans meaning the rate is tied to the prime lending rate PLUS a specified premium, such as 1%. Thus in the Debt Consolidation calculator your variable rate loans can be tied to the prime rate plus the negotiated premium the client is paying on their loan, such as Prime + 1%.
- Allocation Method - A powerful feature is that you can now choose the asset allocation method to be used for classifying your client’s holdings on a client by client basis. In past versions we used the "Balanced" asset allocation method. What this meant was that we identified the asset allocation of any products based on their Fund Type. For example a Canadian Equity fund would be classified as 100% Canadian Equity. If that fund had 2% Cash or 8% US Equities, those small weightings would not be recognized in the allocation for that product. Previously only funds flagged as Balanced identified the granular asset allocation breakdown, since that’s typically why you use such funds . . . for their diversification across a variety of asset classes.
Allocation Method field where you can decide for yourself which method you want to use for each client. You can also set a default on your user profile screen so any new clients will default to your method of choice. For any existing client’s in the database, the setting will be Summary since this is the method used prior. You’ll only be changed to the Detailed method if you make a decision to do so.
To help you understand the impact of what you might notice on your clients, we have create a couple of scenarios for you to review please Click Here to read more on this impact.
To read more on Allocation Method Click Here
Retirement & Mortality Assumptions
- Enter in the Retire By and the Mortality age or you can leave the default.
Government Benefit Assumptions
- You now have the ability to identify your client’s eligibility for CPP/QPP benefits using 3 different methods. You can use by “Percentage” which you enter in a percent eligible and the software will calculate it for you. You can use the “Calculate Percentage” which by entering in income and start age the software will calculate the percentage you are eligible for. Or alternatively you can to enter the CPP benefit by amount. This option is good when you already know what the benefit is that they will be receiving, like for example, with a retired client.
Calculate % Based on Income and Contributory Period: If you know your client’s Income and have information about their Contributory Period or working history, this is the most accurate method you can choose. By entering these two pieces of information let the system identify the client’s eligibility for benefits.
Set Percentage Manually: If you are not comfortable that your information about the client’s income and contributory period is reasonably accurate but the client indicates perhaps that they are eligible for full benefits or perhaps 75% of the full benefit. You can merely enter the percentage eligibility using this method.
Set Amount Manually: If you have the client’s CPP/QPP statement that identifies their benefit eligibility, you can select this method and merely enter the actual benefit amount expected in today’s dollars. This is also a useful option if your client is already receiving benefits and you know the exact amount.
Mix and Match Methods for your Client and Spouse:In the past you only had two methods from which to choose from, so giving you a third option provides more flexibility, but you now also can select a different method for the client and the spouse. For example, you may know the exact amount of the benefit for the client, but want to estimate the percentage using the spouse’s income and contributory period. You now can do this, which is valuable since you don’t always have the same information available for the client and spouse.
- The next field is with regards to Old Age Security benefits. Eligibility for OAS benefits is a bit more straightforward than CPP eligibility since it’s based primarily on residency. All you have to do is select from this drop down list the number of years of residency your client will have in Canada by the time they reach age 65.
Tax Assumptions
The field “Super Lifetime Capital Gains Exemption” would only be necessary for clients who have a qualifying business that would be eligible for the $750,000 capital gains exception in Canada. It also would apply for family farms. In cases where this is applicable you can record the remaining exemption available for the client and the spouse.
The “Unused RRSP Contributions” field. This allows you to identify any cumulative unused contribution room the client and spouse currently have. You only need to enter this information if your client is currently contributing more than the normal RRSP limits and thus utilizing the unused contribution room.
Lastly you now have a field for the “Unused TSFA” field.
Estate Assumptions
Here are some Estate Assumptions where you get provide the system some information when doing an estate plan like the Integrated Financial Plan.
Once you have completed all the data entry on the Planning Assumptions screen, you should click save, to save the data, then you may click on the “Next” icon to proceed. This will take you to the Assets and Liabilities screen.
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