Sample Plan For Illustrative Purposes Only

Transcription

1 Your Retirement Plan RETIREMENT ANALYSIS This section of the plan provides an illustration of your retirement situation based on the Surplus Cash Flow Assumption discussed on page 13 and the various recommended strategies listed on pages 31 and 32. These graphs show how your resources will support your retirement expenses. The top graph illustrates your income, expenses (which also includes savings) and taxes over your lifetime and includes all related transactions. Your projected Total Net Worth (in dark green) over your lifetime is illustrated in the bottom graph. John Pre-Retired Retired Deceased Mary Pre-Retired Retired 1.4M Expenses (Except Taxes) Total Funds Received 1.2M 1.0M Total Tax 0.8M 0.6M 0.4M 0.2M 0.0M M 18M 16M 14M 12M 10M 8M 6M 4M 2M Total Net Worth Lifestyle Assets 0M The top graph illustrates how you are spending your income from year to year and indicates any year where your expenses exceed your available income (look for any year where the combined expense and tax amount is greater than the total income line). The bottom graph represents your Total Net Worth (in dark green), it monitors the growth (and in some cases depletion) of your assets over time. The optimal situation occurs when your after-tax income is equal to your total expenses and annual savings each year and your net worth is growing (or at least not fully depleted prior to your death). The peak in the top graph in the year 2005 represents the receipt of the proceeds of the sale of John s business and the subsequent investment of $700,000 of the proceeds, while the peak in 2010 represents the receipt of John s inheritance and subsequent investment of $175,000 of the proceeds. (this investment is included in total cash disbursements referred to as Expenses ). Your projected income from savings and pensions is sufficient to provide for your anticipated needs throughout your retirement. Compass Financial Plan for John and Mary Smith 30

2 Your Retirement Plan PROJECTED RETIREMENT CASH FLOW Investment Income Interest & Foreign Dividends 52,122 53,309 52,453 Dividends 28,109 28,778 29,464 Capital Gains 55,691 57,835 59,616 Total 135, , ,532 Pension Income Defined Benefit Pension 61,800 63,654 65,564 Total Income 197, , ,096 Total Tax 35,295 39,579 39,751 Income after Tax 162, , ,345 Received Capital to Purchase Car 46,495 Lifestyle Expenses Regular 119, , ,677 Car Purchase 0 61,494 0 Total 119, , ,677 Miscellaneous Expenses Medical 7,463 7,687 7,917 Charitable Donations 11,941 12,299 12,668 Total 19,403 19,985 20,585 Investment Purchases and Life Insurance Reinvestment of Investment Income 10, ,058 Life Insurance Premiums Total 11, ,458 Investment Expenses Liability Interest-Deductible 5,625 5,625 5,625 Pension Contributions RRSP Contributions - Self 6, Total Expenses 162, , ,345 Current Surplus/(Deficit) Previous Surplus/(Deficit) Ending Surplus/(Deficit) Compass Financial Plan for John and Mary Smith 31

3 Your Retirement Plan We have analyzed your objectives and the projected impact of your current financial plan over time. As a result, we recommend that you implement the following strategies to achieve your retirement objectives: SAVINGS STRATEGIES Please note that some of the strategies listed below were already part of your current financial plan. These are included to allow you to view the complete set of recommended strategies that comprise your new retirement plan. Regular Savings Strategies Asset Name Applicable Amount Spousal RRSP Balanced Portfolio (Mary) While Working $13,500/Year This section of the report shows the savings that can be made regularly in order to implement a disciplined savings plan. A regular savings plan will help you reach your goals. We recommend that you pay yourself first by establishing a regular savings program. The savings required to fund your retirement can be reduced by taking advantage of tax assisted savings. We recommend you do so by directing savings towards your RRSP contributions from now until retirement, within the limits allowed under the Income Tax Act. One of the goals of retirement planning is the accumulation of relatively equal amounts of retirement assets for each spouse, for income splitting and tax minimization purposes. We recommend the use of spousal RRSPs in order to accumulate more retirement assets in the name of the lower income earning spouse. Lump Sum Savings Strategies (Investment from Sale of Business, Inheritance and Retirement Allowance) Asset Name Applicable Amount RRSP Balanced Portfolio (Mary) Upon Retirement $40,000 Balanced Portfolio (John) 2005 $700,000 Balanced Portfolio (John) 2010 $175,000 Lump sum savings represent planned savings that occur on a one time basis. Any lump sum savings planned for future years that are indexed by inflation will be increased accordingly - refer to your Action Plan in the appropriate years for the estimated savings amounts that will be required. Lump Sum Asset Redemption Strategies Asset Name Applicable Amount Business Interest (John) 2005 $869,456 Lump sum redemptions represent redemptions of your assets that occur on a one time basis. Any redemptions planned for future years that are indexed by inflation will be increased accordingly - refer to the Action Plan in the appropriate years for the estimated amounts that will be required. Compass Financial Plan for John and Mary Smith 32

4 Your Retirement Plan Complete Regular Redemption Strategies Asset Name Applicable Frequency Account "In Trust" (Maggie) 2000 to 2003 Monthly A complete regular redemption plan projects the results of completely redeeming assets over a specified period of time. This plan determines the redemptions that must be made each year based on the frequency of the redemptions (annual or monthly) and whether the redemptions are to be indexed. This plan also projects the income that you can expect from an asset over a period of time based on assumed rates of return. Note that any other redemptions associated with the asset (including deficit coverage redemptions) may exhaust the asset before the end of the specified period of time. RRSP Maximizer Savings Strategies Asset Name Applicable Constrained by Cash Flow Spousal RRSP Balanced Portfolio (Mary) Until Age 69 No RRSP Balanced Portfolio (Mary) Until Age 69 No The maximum allowable RRSP contribution for a particular taxpayer in a particular year depends on factors such as earned income for the prior year, pension adjustments and any RRSP carryforward room that the taxpayer has available. Even with the regular RRSP contributions under your regular savings strategy, there is room for additional contributions. We recommend that you maximize the tax deferral opportunities available to you by making an additional lump sum RRSP contribution, in order to use your available contribution room. The RRSP maximizer strategies listed above will project the maximum contributions you can make on an annual basis, based on the assumptions in this plan. If the constrained by cash flow option is YES then the recommended contributions will take into consideration whether your available cash flow in each year is sufficient to fund the maximum contributions you are allowed to make. Your Action Plan will provide the contributions that you can make on an annual basis. Surplus Savings Strategies (Regular Cash Flow) Asset Name Applicable % of Surplus Balanced Portfolio (Joint) While Working and Retired % You may still have surplus cash available for investment, after having established a regular savings program and/or maximized your RRSP contributions. Surplus savings strategies specify how unallocated surplus cash is to be invested each year. Unallocated surplus cash may change from year to year based on changes in your incomes and expenses. Your Action Plan will provide the estimated savings on a yearly basis for these savings strategies. The surplus savings strategies assume that you will invest surplus cash and not spend it on current needs or desires. Be sure to review your plan annually with your financial advisor to determine if these investments are occurring according to plan. If not, your plan should be revised and new projections should be prepared to reflect a realistic savings strategy. Compass Financial Plan for John and Mary Smith 33

5 Your Retirement Plan MEDICAL EXPENSES IN RETIREMENT While working you may receive full or partial medical and dental coverage from your employer. Upon retirement, some pension plans will offer an extension to these benefits but many people find themselves having to purchase individual coverage. There are a number of options available to retirees as many companies offering coverage are expanding their products to fill the needs of the growing retired population. For a basic plan, you can expect to spend approximately $600-$1,000 per year for individual coverage and $1,200-$2,000 per year for family coverage. These costs depend on the deductible and extent of coverage. Many plans will cover dispensing fees, eyeglasses, hearing aids, out-of-province and out-of-canada emergency coverage, dental work and various final expense benefits. Given the growing retired population and constant concerns relating to our health care system, it is wise to consider these costs when budgeting your retirement expenses. LONG TERM CARE There is a point in time where many people will require home or facility care. This can cause financial hardship, as the costs can be substantial and last for a lengthy period. When long term care is needed, assets are usually depleted at an accelerated pace leaving a surviving spouse with a potential reduction in lifestyle. Long Term Care insurance is available to subsidize the cost of home or facility care on a per diem basis. This can be used for many reasons including peace of mind, preserving your estate and ensuring your partner s retirement lifestyle. You can speak with The Advisor for more information regarding Long Term Care needs. Compass Financial Plan for John and Mary Smith 34

6 Your Retirement Plan It appears that the previously outlined strategies will ensure sufficient retirement resources to support your retirement objectives. If you would feel more comfortable with a larger retirement surplus, you might also consider the following: You could consider retiring at a later date than you had originally intended. You could consider reducing your retirement lifestyle, thus requiring less capital to fund your retirement years. Finally, you could consider saving additional funds each year, thus reducing your current lifestyle in order to attain your desired retirement lifestyle. This analysis of Your Retirement Plan is a long term projection and therefore will be impacted by changes to any of the applied assumptions. You can be assured that over time these assumptions will change and that the changes will impact your savings requirements. To ensure you remain on track to achieve your retirement objectives, we suggest you revisit your investments and savings strategies each year. Compass Financial Plan for John and Mary Smith 35

7 The Impact of Increased Inflation In preparing your plan, we have based the projections upon a number of key assumptions, such as the rate of inflation. With inherent volatility in the economy, inflation will increase and decrease over time. As a result we are often asked what if inflation increases, will I be able to meet my long-term needs? Due to the frequency of this query and the importance of the rate of inflation upon your plan, we provide another series of graphs depicting an increase in inflation to 4% annually. This differs from the 3% that is the basis of the projections in the remainder of your plan (as discussed on page 5 of this plan). These projections are based upon the same assumptions in Your Retirement Plan, with the exception that the rate of inflation has been increased to 4%. These graphs show how your resources will support your retirement expenses. The top graph illustrates your income, expenses (which also includes savings) and taxes over your lifetime and includes all related transactions. Your projected Total Net Worth (in dark green) over your lifetime is illustrated in the bottom graph. John Pre-Retired Retired Deceased Mary Pre-Retired Retired 1.4M 1.2M Expenses (Except Taxes) Total Tax Total Funds Received 1.0M 0.8M 0.6M 0.4M 0.2M 0.0M 20M 18M 16M 14M 12M 10M 8M 6M 4M 2M 0M Total Net Worth Lifestyle Assets With an increase in the rate of inflation, your net worth is impacted over the longterm. However, since your net worth is still increasing in the graph (upward sloping to the right), the projections indicate that you should still be able to meet your longterm goals. Compass Financial Plan for John and Mary Smith 36

8 Your Estate Plan A sound financial plan should consider the effective transfer of your estate to your intended beneficiaries. Ignoring this aspect of your financial plan could result in additional costs and complexity and may result in undue hardship for your heirs. The purpose of this section of your Compass plan is to address the various components of your estate plan including: an illustration of your family s financial situation if you were to die today; an evaluation of the insurance coverage Mary and you require; and general comments on Will planning and the use of a Power of Attorney. COMMON ELEMENTS OF AN ESTATE PLAN When most people hear the term estate planning, they typically think of their Will. While a valid Will is a fundamental component of any estate plan there are several other elements that must be considered. Ultimately, the issues addressed in the Will are a reflection of all elements of the estate plan. Elements that must be considered include: Appropriate Ownership structure (e.g. use of Joint tenancy agreement) Valid, current Wills for all adults in the family Various types of Power of Attorney documents for all adults in the family Evaluation of insurance coverage (i.e. do you have sufficient coverage?) METHODS OF TRANSFERRING YOUR ESTATE There are four methods of asset transfer (illustrated below) that should be considered when creating or refining your estate plan. Each of these methods has advantages and disadvantages. Your Will represents the most common means of estate asset transfer, but all methods should be considered. Use of these alternative methods must occur in conjunction with a valid Will. Without a Will the dissolution of the estate will be complicated by provincial intestancy rules. Methods of Transferring Assets Your Assets Your Will (Probatable assets) Non-probatable Assets (Joint Gift Assets before Death Living/Family Trust Outright Distribution Testamentary Trust Your Beneficiaries - family, friends, charities Compass Financial Plan for John and Mary Smith 37

9 Your Estate Plan NON-PROBATABLE ASSETS (JOINT OWNERSHIP) One of the simplest forms of transferring assets without them being considered part of your estate is through the registration of assets in joint ownership. There are two methods of holding legal title to an asset with another individual -- joint tenancy with right of survivorship and tenancy-in-common. Joint Tenancy with Right of Survivorship This form of ownership allows two or more people to own an asset together. All persons listed as joint tenants share ownership and control of the asset, and upon the death of one of the persons (i.e. tenant), the ownership automatically passes to the surviving tenants. By passing directly to the surviving tenants, the asset does not form part of the estate and thus is not subject to provincial probate taxes (discussed later). While this method of ownership can be effective in avoiding probate taxes, there are a number of complications that may result from its use. The following list outlines some of the potential problems with the use of joint tenancy: The other persons (tenants) have equal access to the asset. Creditors of each tenant may also have access to the share. Changing ownership of an asset can have tax implications. A change in ownership to joint tenancy is treated as if you have actually sold a portion of the asset to the other tenants. This may trigger a tax liability if a capital gain is recognized on the artificial sale. The deemed disposition requirement does not apply if the joint tenancy is formed between spouses (i.e. no tax liability is triggered). Frequently this ownership method is implemented in an effort to reduce probate taxes charged to the estate. It is important that the other tenant(s) added in joint tenancy are also the intended beneficiaries. Otherwise the asset will pass to an unintended heir upon death. Funds from an inheritance may lose exempt status in a divorce and form part of Net Family Property If you are considering, or have already implemented the use of joint tenancy with rights of survivorship, we recommend that you consider all potential pitfalls of this strategy and consult with your legal advisor to determine its appropriateness. Tenancy-in-Common Unlike a joint tenancy agreement, tenants-in-common can own equal or unequal interests in an asset. When tenants-in-common is used and a tenant dies, his/her percentage ownership passes to the deceased s beneficiaries under his or her will (or intestacy) and does not automatically pass to the surviving tenant or tenants in common. Unlike joint tenancy with right of survivorship, the assets held under a tenants-in-common agreement will be subject to probate taxes. GIFTING ASSETS BEFORE DEATH Without question the easiest method of transferring assets is to gift them to your heirs prior to death. Gifting is frequently used without the motivation of its estate planning merits, but simply to assist children and family members with activities such as a home purchase or business financing. Compass Financial Plan for John and Mary Smith 38

10 Your Estate Plan Gifting of assets can have potential tax benefits if the asset is given to a registered charity or if the asset was income producing, resulting in less taxable income (see the section titled Charitable Donations later in your plan). Be careful when gifting income producing assets such as stocks or bonds. Your altruistic act may trigger an unexpected tax liability for you. Generally, gifting an asset to someone other than a spouse is treated as a sale at market value thus triggering any unrecognized capital gain on the asset. Also, the income attribution rules will be applied if the gift is to your spouse or a minor child. Under these rules, the income earned on gifts to either of these persons will still be taxable in your hands (except for capital gains received by a minor child). Another drawback to gifting is that you relinquish all control over the asset, which may not be an acceptable outcome. Finally, while gifting assets represents a simple method of transferring the estate as well as reducing probate taxes, like most things, it should be done in moderation. Before a gift is made you should ensure that by making the gift you do not jeopardize your own lifestyle over the long-term. LIVING/FAMILY TRUSTS The use of a trust in estate planning represents a slightly more complex method of estate transfer. A living trust, also known as a family or inter vivos trust, is a relationship between the property, trustee and the beneficiary. Unlike a corporation, a trust is neither an entity nor a separate legal person. A trust relationship is basically between the trustee and the beneficiary. The trustee has legal ownership of the assets, which they hold for the benefit of the beneficiaries. The control that the settlor has over the trust is derived from the trust deed (document). It is in the drafting of the document that the settlor can state their wishes as to how the trust property is to be distributed to the beneficiaries. In simple terms, a trust provides an intermediary between yourself and your intended heirs. Based on our understanding of your estate objectives and your current financial status there appears to be little benefit in the creation of a living trust. WILLS (PROBATABLE ASSETS) As was previously indicated, the Will represents the fundamental element of all estate plans. The Will serves two basic purposes: to document how and when your assets are to be distributed to your beneficiaries; and to appoint an executor to administer your estate. You indicated that neither you nor Mary has updated your Will in the past three years. Therefore, it may need to be revised. We strongly urge that you review your Wills within the context of the comments and analysis provided within your Compass plan. If it is apparent that your Wills are inadequate to meet your current situation, we encourage you and Mary to develop a Will plan in the near future and execute new Wills. The following comments represent important factors that you should consider as you develop your Will plan. If you require additional assistance in the development of your Will plan contact The Advisor and ask for a copy of the RBC Dominion Securities publication called Wills and Will Planning. ISSUES TO CONSIDER WHEN PLANNING OR REVIEWING YOUR WILL A Will is a very flexible legal document that can achieve a wide range of estate objectives, if properly constructed. The following discussion highlights the primary elements that should be considered within your Wills. Compass Financial Plan for John and Mary Smith 39

11 Your Estate Plan Executors Your choice of executors should be based on the assets that they will have to administer and the way in which you wish your estate to be managed. If you have complex business affairs which will need to be unwound or wish to have assets managed in trust for an extended period of time, your spouse alone may not be the appropriate choice. In these circumstances, you may wish to include younger family members or trusted advisors or friends. If there is family friction, you may wish to name independent executors, such as a trust company and/or professional advisor. You should always name one or more alternates to any primary executor appointed in case such executor is unable or unwilling to act at the time of your death or subsequently before all of your estate is administered. Legacies to Individuals and/or Charities You should consider whether there are any individuals or organizations which you would like to benefit with a specific cash payment from your estate. Perhaps you would like legacies to be paid to your children or grandchildren or to a church, university or cultural organization. Your Wills may contain as many legacies as you desire as these represent an outright distribution from your Will. Any stated legacies are paid first, after the payment of the estate s liabilities, with the balance treated as the residue of the estate. Personal Effects (Specific Bequests) You may have specific items of jewellery, artwork, antiques, family heirlooms or other personal use property which you would like to go to named individuals. These specific items of personal property are commonly referred to as bequests. If you wish these items to be the subject of a legally binding obligation to transfer them as you have instructed, you should include them in the Will. A memorandum, which must be signed prior to your Will and referenced in the Will, may also be used to achieve this objective. Charitable Contributions As a result of ongoing changes to program funding, ordinary Canadians are increasing their support to many charitable organizations. This support can come in various forms including the donation of cash, securities, other goods and time. Only some of these forms of support provide tax incentives to the donors. Donations of Cash The simplest form of donation is a gift of cash. You may wish to refer back to the first page of the Tax Planning section for our discussion regarding general issues relating to cash donations. In addition to our earlier comments, please note that instead of limiting donations you can claim to 75% of net income, the limit is 100% of net income in the year of death and the immediately preceding year, via a carry back mechanism. Compass Financial Plan for John and Mary Smith 40

12 Your Estate Plan Donations of Securities One of the most efficient ways of making a charitable donation is by making a gift of publicly traded securities. Recent Federal Budgets contained a number of temporary changes in the form of tax incentives to encourage charitable giving, but these changes are only available for gifts made by December 31, The tax incentives involve lowering the capital gains inclusion rate to half of the regular inclusion rate. Further, you are entitled to an immediate tax receipt for the full fair market value of the securities donated. Although donating shares does not put more cash in the individual donor s hands, it does allow more funds to be received by the charity and not be paid to the government in taxes. Charitable Remainder Trusts If you are considering gifting a large sum of money, generally over $200,000, an innovative method of making the donation is to transfer the gift to an irrevocable inter-vivos charitable remainder trust. The process involves setting up a formal trust to hold the assets. You can be named as an income beneficiary and you will be entitled to the income generated for the rest of your life. The charity will be named as the capital beneficiary and be entitled to the remaining capital of the trust upon your death. The advantage of using this method is that you get an immediate discounted tax receipt for the donation. As well, the assets do not need to be probated because they would not be part of your will. This means the donation would be private and could avoid challenges from beneficiaries of your will. A major disadvantage of this method is that if the gift to the trust is a security that has appreciated in value, a capital gain may be realized at the time of the transfer. However, a special designation may be made to reduce the amount of the capital gain and the amount of the donation tax receipt. As the security is being transferred to a trust and not directly to a charity, it will not qualify for the reduced one-half capital gains inclusion rate discussed earlier. Also, since the immediate donation tax credit is discounted based on life expectancy tables, younger donors would have a much lower donation tax receipt than those donors who are older. Gifts in Kind A gift in kind means a donation of tangible property instead of cash. Property of little value such as used clothing does not qualify for a tax credit. Nor does the donation of personal services. Special rules apply when artists and writers donate their works. In addition, there are special rules for the donation of certified cultural property and ecologically sensitive land. Business Interests As you have indicated that you own a business, you may require special provisions in your Will to deal with how the business should be managed or disposed of following your death. Such provisions will be unique to each individual's situation and require careful consideration and professional advice when planning your Will. Distribution of Residue The estate remaining after specific bequests and the payment of your debts, testamentary expenses, taxes, and legacies represents the residue of your estate. You may wish to establish a testamentary trust with some or all of the residue for the benefit of your spouse and/or for the benefit of children or grandchildren. You may consider that it is more appropriate to leave your estate outright to your spouse or to adult children and/or grandchildren. You may also wish to provide that some portion of the residue of your estate will go to other family members, to friends or to specifically named charities. Compass Financial Plan for John and Mary Smith 41

13 Your Estate Plan Common Disaster Provisions You may wish to name alternate beneficiaries to receive the residue of your estate in the event that you and your immediate family members all die in an automobile accident or other common disaster. Often this is the most difficult aspect of planning your Will but as the situation will actually only occur very rarely, it should not prevent you from proceeding with preparation of a Will to govern the much more likely scenario in which some of your immediate family members survive. Investment Powers Depending on the terms of your Will, it may be necessary for the executor and/or trustee to invest money held in the estate or a trust. If the Will does not confer additional powers for the investment of estate or trust assets then the executor will be bound by the investment restrictions of provincial trustee legislation, often referred to as the Trustee Act. While the qualifying investments will be of high quality, the return yielded may be unacceptably low. You may therefore, wish to give your executor a broader range of acceptable investments. Testamentary Trusts In addition to a direct or outright distribution of estate assets to beneficiaries, assets can be left to a testamentary trust for the benefit of your beneficiaries. A testamentary trust can only take effect at death. The creation of the trust is documented within the text of the Will. Generally a testamentary trust allows you to pass specific assets to beneficiaries without allowing them to gain control. The assets held in the trust are invested and managed by the trustee of the trust with income and capital distributed to the beneficiaries in accordance with your wishes as stated in the Will. Often the trustee is also the executor of the estate although you may wish to consider a separate person to act in this capacity. Potential situations where you might consider using a testamentary trust include: Spousal trusts - a trust established for the benefit of the surviving spouse for their lifetime. Commonly, remaining assets pass to the children on the spouse s death. This is an effective income splitting opportunity since the income in the trust is taxed at its own marginal tax rate separate from the surviving spouse. By creating a spousal trust, the income earned on the estate s assets can be split between the trust and the surviving spouse. Generally, this will result in greater after-tax income for the surviving spouse, in comparison to situations where all assets are left directly to the spouse. Trusts for adult children - used to protect an inheritance from potential creditors or divorce settlement. This can also provide income splitting benefits since income in the trust will be taxed at the trust s marginal tax rate. We suggest that you consider the use of a testamentary trust within the context of your Will plan. The appropriateness of the testamentary trust should be reviewed with your legal advisor. You should remember that while a testamentary trust is only created upon death, if it is not part of your Will when you die then it cannot be created by your estate. Compass Financial Plan for John and Mary Smith 42

14 Your Estate Plan A SNAPSHOT OF JOHN S ESTATE This section of the estate plan provides an illustration of your estate situation assuming John was to die at the end of the year. This will provide an indication of the potential deficiencies that exist within your existing estate plan. How these deficiencies might be offset will be addressed later in the analysis. In preparing this illustration we have assumed that the strategies currently implemented in the retirement analysis are also applied to this analysis. The situation graphs presented below show how your resources will support your surviving family s expenses. John Re Deceased Mary Pre-Retired Retired 28M 25M 23M Accumulated Surplus/ Deficit Current Surplus/ Deficit 20M 18M 15M 13M 10M 8M 5M 3M 0M -3M M 25M Total Net Worth Lifestyle Assets 20M 15M 10M 5M 0M If John were to die this year a total of $700,000 would be paid out in existing insurance benefits. The top graph illustrates years when your family is projected to have unallocated cashflow (i.e. after-tax dollars that are not accounted for as an expense or savings) based on the information you provided. These amounts are represented by the Current Surplus/Deficit bars. The bottom graph, the Net Worth graph (in dark green), monitors the growth (and in some cases depletion) of your family s assets over time. This information has been adjusted for any changes in survivor expense levels stated in your Compass questionnaire. The optimal situation occurs when your after-tax income is equal to your total expenses and annual savings each year (i.e. no unallocated cashflow) and your net worth is growing (or at least not fully depleted prior to Mary s death). You will note a large Current Surplus bar in the year of the surviving spouse s death, this illustrates the liquidation of the estate. Our analysis indicates that John s current life insurance coverage and financial resources are sufficient to provide for Mary s needs in the event of John s untimely death. Additional coverage may be required to address your estate preservation needs (see page 48) or if your estate objectives should change in the future. Compass Financial Plan for John and Mary Smith 43