FP Solutions. User Manual

Transcription

1 FP Solutions User Manual

2 TABLE OF CONTENTS Module: Personal Information Data Entry Basic Data Variable Data Documentation Personal Details Page Financial Situation Page Priorities and Other Information Page Assumptions Page Module: Lifestyle Needs Data Entry Basic Data Variable Data Documentation Summary 1 Page Summary 2 Page Ledger Page Module: Employment & Other Income Data Entry Basic Data Variable Data Documentation Summary Page Ledger Page Module: Non-registered Investments Data Entry Basic Data Variable Data Documentation Summary Page Ledger Page Module: Education Savings Creating a Stand-alone Education Savings Plan Data Entry Wizard Step 1: Personal Information and Goals and Objectives Step 2: Risk Tolerance, Areas of Concern and Miscellaneous Information Step 3: Non-registered Investments and Education Savings RESP/CESG Data Entry Screen Making Changes Asset Values Data Entry Screen Asset Allocation Data Entry Screen Deposit/Withdraw Data Entry Screen FP Solutions User Manual Page 1 of 473

3 RESP/CESG Data Entry Screen Carrying Charges Data Entry Screen Using the Edit Variables Function to Enter Variable Data Accessing the Edit Variables Function Entering Data Documentation Printing the Report Summary Page Ledger Page Creating an Education Savings Plan within an Existing Financial Plan Module: Registered Investments Tax Free Savings Accounts Data Entry Basic Data Variable Data Documentation Summary Page Ledger Page Module: Registered Investments Data Entry Basic Data Variable Data Documentation Summary Page Ledger Page Module: Defined Contribution Pension Data Entry Basic Data Variable Data Documentation Summary Page Ledger Page Module: Defined Benefit Pension Data Entry Basic Data Variable Data Documentation Summary Page Ledger Page Module: Personal-use Real Estate Data Entry Basic Data Variable Data Documentation Summary Page Ledger Pages Module: Life Insurance FP Solutions User Manual Page 2 of 473

4 Data Entry Basic Data Variable Data Documentation Summary Page Ledger Pages Module: Projected Income Data Entry Basic Data Variable Data Documentation Summary Page Ledger Pages Module: Projected Cash Flow Data Entry Optimize Cash Flow Data Entry Screen RRSP/RRIF Data Entry Screen Non-registered Data Entry Screen Debts Data Entry Screen Advanced Settings Data Entry Screen Documentation Summary Page Ledger Pages Module: Projected Net Worth Data Entry Documentation Summary Pages Ledger Page Module: Retirement Capital Needs Data Entry Documentation Summary Pages Ledger Pages Module: Survivor Capital Needs Data Entry Basic Data Variable Data Documentation Summary Pages Ledger Pages Module: Estate Capital Needs Data Entry Basic Data Variable Data Documentation Summary Pages FP Solutions User Manual Page 3 of 473

5 Ledger Pages Module: Disability Capital Needs Launching a Disability Capital Needs Analysis From within an Existing Plan Creating a New Plan Data Entry Personal DI Data Entry Screen Other DI Data Entry Screen Personal CI Data Entry Screen Personal LTC Data Entry Screen Assumptions Data Entry Screens Initial One-time Expenses Ongoing Expenses Variable Data Accessing the Edit Variables Function Entering Data Additional Data Columns Documentation Printing the Report Summary Pages Ledger Pages Business Asset Modules Preparing a Financial Plan for a Business Owner Adding a Business to an Existing Client File Creating a New Plan Data Entry Screens Step 1: Corporate Structure and Assumptions Step 2: Corporate Share Structure and Values Step 3: Corporate Investments and Real Estate Step 4: Corporate Debt and Loans Step 5: Corporate Life Insurance Business Modules Overview Information Flow Launching a Business Module Printing a Business Module Report Corporate Investments Module Variable Data Documentation Ledger Page Corporate Real Estate Module Variable Data Documentation Corporate Life Insurance Module Variable Data Documentation Corporate Loans Module FP Solutions User Manual Page 4 of 473

6 Variable Data Documentation Corporate Debts Module Variable Data Documentation Corporate Values Module Variable Data Documentation Corporate Share Structure Module Variable Data Documentation Corporate Asset Values Module Variable Data Documentation Corporate Cash Flow Module Variable Data Documentation Module: FP Focus Navigating to the Executive Summary Printing the Executive Summary Changing Years Editing the Executive Summary Editing a New Report Editing an Existing Report Personal Information Summary Net Worth Statement Investment Summary Show Details Investment Ledger Cash Flow Summary Income Tax Summary Retirement Income Summary Retirement Income Ledger Survivor Income Summary Estate Summary Module: Debt Consolidation Planning Concept Launching the Debt Consolidation Planning Concept From within an Existing Plan Creating a New Plan Data Entry Open Planning Concept Data Entry Screen Consolidation Assumptions Data Entry Screen Saving the Concept Documentation Printing the Report Summary Page FP Solutions User Manual Page 5 of 473

7 Ledger 1 Page Ledger 2 Page Ledger 3 Page Disclosure Page Module: Investment Income Comparison Planning Concept Launching the Investment Income Comparison Planning Concept From within an Existing Plan Creating a New Plan Data Entry Default Assumptions Saving the Concept Documentation Printing the Report Summary Page Ledger 1 Page Ledger 2 Page Disclosure Page Module: Investment Leverage Planning Concept Running the Investment Leverage Planning Concept as a Stand-alone Plan Data Entry Personal Information, Goals and Objectives Data Entry Wizard Risk Tolerance Data Entry Wizard Investment Leverage Data Entry Wizard Launching the Investment Leverage Concept from within an Existing Plan Open Planning Concept Data Entry Screen Saving the Concept Documentation Printing the Report Summary Page Ledger 1 Page Ledger 2 Page Ledger 3 Page Ledger 4 Page Disclosure Page Module: Lost Opportunity Cost Planning Concept Launching the Lost Opportunity Cost Planning Concept From within an Existing Plan Creating a New Plan Data Entry Default Assumptions Saving the Concept Documentation Printing the Report Summary Page Ledger 1 Page Disclosure Page FP Solutions User Manual Page 6 of 473

8 Module: Investment Strategies Planning Concept Running the Investment Strategies Planning Concept as a Stand-alone Plan Data Entry Personal Information, Goals and Objectives Data Entry Wizard Risk Tolerance Data Entry Wizard Investment Strategies Data Entry Wizard Note about the Data Entry Screens Launching the Investment Strategies Concept from within an Existing Plan Open Planning Concept Data Entry Screen Saving the Concept Documentation Printing the Report Summary Page Ledger 1 Page Ledger 2 and Ledger 3 Pages Ledger 4 Page Disclosure Page Module: Potential Tax Return Planning Concept Launching the Potential Tax Return Planning Concept From within an Existing Plan Creating a New Plan Data Entry Saving the Concept Documentation Printing the Report Summary Pages Disclosure Page Module: RRSP Leverage Planning Concept Running the RRSP Leverage Planning Concept as a Stand-alone Plan Data Entry Personal Information, Goals and Objectives Data Entry Wizard Risk Tolerance Data Entry Wizard RRSP Leverage Data Entry Wizard Launching the RRSP Leverage Concept from within an Existing Plan Open Planning Concept Data Entry Screen Saving the Concept Documentation Printing the Report Summary Page Ledger 1 Page Ledger 2 Page Ledger 3 Page Ledger 4 Page Disclosure Page Module: RRSP Strategies Planning Concept Running the RRSP Strategies Planning Concept as a Stand-alone Plan FP Solutions User Manual Page 7 of 473

9 Data Entry Personal Information, Goals and Objectives Data Entry Wizard Risk Tolerance Data Entry Wizard RRSP Strategies Data Entry Wizard Launching the Retirement Strategies Planning Concept from within an Existing Plan Open Planning Concept Data Entry Screen Saving the Concept Documentation Printing the Report Summary Page Ledger 1 Page Ledger 2 and Ledger 3 Pages Ledger 4 Page Disclosure Page Module: Tax Freedom Day Planning Concept Launching the Tax Freedom Day Planning Concept Data Entry Saving the Concept Documentation Printing the Report Summary Page Disclosure Page Module: Tax Funding Alternatives (Business) Planning Concept Launching the Tax Funding Alternatives (Business) Planning Concept Data Entry Open Planning Concept Data Entry Screen Funding Assumptions Data Entry Screen Saving the Concept Documentation Printing the Report Summary Page Ledger 1 Page Ledger 2 Page Ledger 3 Page Disclosure Page Module: Tax Funding Alternatives Planning Concept Launching the Tax Funding Alternatives Planning Concept Data Entry Open Planning Concept Data Entry Screen Funding Assumptions Data Entry Screen Saving the Concept Documentation Printing the Report Summary Page Ledger 1 Page FP Solutions User Manual Page 8 of 473

10 Ledger 2 Page Ledger 3 Page Disclosure Page Module: Tax Terminal Return Planning Concept Launching the Terminal Tax Return Planning Concept Data Entry Saving the Concept Documentation Printing the Report Summary Pages Disclosure Page Module: Using the Simulation Tools Types of Simulations Monte Carlo Simulation Variance Simulation Reviewing or Modifying the Basic Return Assumptions Review the Return Assumptions Modify the Return Assumptions Running a Simulation Steps Involved in Running a Simulation Simulation Data Entry Screens Fine Tuning Simulation Settings Viewing the Simulation Results The Graphs The Simulation Data Sorting Results FP Solutions User Manual Page 9 of 473

11 Module: Personal Information This module describes how to enter data regarding your client s basic personal information, including contact information, date of birth, and family details. This module also explains the documentation that FP Solutions generates with respect to your client s personal information. Data Entry Enter basic personal information through the basic data entry screens. Enter additional notes on personal matters that are not addressed during the basic data collection process by using the Edit Variables function. Basic Data To enter your client s basic personal information: 1) From the main menu bar, click on Data. 2) From the drop-down menu, click on Client Information. 3) From the drop-down menu, click on Personal Information. This will launch the Personal Information data entry dialogue box, which consists of four data entry screens: Plan, Personal, Address, and Dependants. Plan Data Entry Screen The Plan data entry screen includes the following mandatory fields: Date of Financial Plan: Enter the date on which you completed the financial plan. You must complete this field. All values as of January 1 st : Enter the year to which the collected data applies. You must complete this field. Note: FP Solutions uses a 12-month calendar year, so that it can perform accurate tax calculations. The program assumes that all of the data entered will be as of January 1 st of the year entered in this field. If you are starting a plan in the middle of the year, keep in mind that all growth and tax calculations are based on a complete year, so you should try to enter data as of January 1 st, not as of the date that you prepare the plan. If you do start a plan in June, for example, and you must use June values, you are essentially creating a plan that runs from June until June, instead of from January until January. The Plan data entry screen also includes the following optional fields: FP Solutions User Manual Personal Information Module Page 10 of 473

12 Notes: Enter customized client notes in any or all of the four optional Notes fields. These fields are primarily for your reference. The information will appear on the Personal Details page of the Personal Information report. Cover Page Header: Enter the title that you want to appear on the front page of the financial plan that you print for your clients (e.g., Comprehensive Financial Plan or Retirement Savings Plan ). If you do not enter a title, by default the title will be Personal Financial Plan. Personal Data Entry Screen The Personal data entry screen includes the following mandatory fields: Date of Birth: Enter the date of birth in alphanumeric format (e.g. January 22, 1957), or as dd/mm/yy (e.g. 22/01/57). Repeat for client s spouse if applicable. Age at Retirement: Enter the client s proposed age of retirement. Only whole numbers will be considered. The software will automatically calculate the Date of Retirement field as the first day of the month following the client s birthday. If you wish to fine-tune this date, enter the exact date in the Date of Retirement field. Repeat for client s spouse if applicable. The Personal data entry screen also includes the following optional fields: Spouse: Check this box if the plan includes the client and his or her spouse. If you select spouse, then you must collect all relevant financial information for both the client and his or her spouse, and the software will consider their situations jointly. Title: Check this box if you want any printed documentation to refer to the client/spouse by his/her title (e.g., Mr., Ms., Mrs.). First Name: Enter the client s first (or given) name. Repeat for client s spouse if applicable. Middle Name: Enter the client s middle name (or first name if he or she uses the middle name as given name). Repeat for client s spouse if applicable. Last Name: Enter the client s surname. Repeat for client s spouse if applicable. Social Insurance Number: Enter the client s social insurance number. Repeat for the client s spouse if applicable. Occupation/job title: Enter the client s occupation. Repeat for the client s spouse if applicable. FP Solutions User Manual Personal Information Module Page 11 of 473

13 Employer/company: Enter the name of the client s employer. Repeat for the client s spouse if applicable. Address Data Entry Screen Enter the client s address information in the appropriate fields of the Address data entry screen. Entering this information is optional. However, FP Solutions uses the specified province of residence when calculating income taxes. If you do not specify a province, FP Solutions will use Ontario tax rates. The client s name and address (if entered) will appear on the front page of the printed financial plan. The software assumes that the client and his or her spouse reside at the same address, and can be contacted via the same address or web page. However, you can enter separate contact phone and fax numbers. Dependants Data Entry Screen The Dependants data entry screen allows you to enter information about the client s dependants (up to a maximum of seven dependants), and to specify whether you would like the financial plan to address education, grant or disability concerns for those dependants. To add a dependant: 1) Enter the dependant s name in the Name field, and press the enter or tab key to proceed to the next field. 2) Enter that dependant s date of birth in the DOB field, using the format mmm/dd/yy (e.g., August 1, 1995 would be Aug 01 95), and press the enter key to activate the remaining fields for that dependant. 3) Select the appropriate relationship from the Relationship drop-down menu. 4) Check the Disability box if you want the financial plan to address that dependant s disability needs. 5) Check the Education box if you want the financial plan to address that dependant s education needs. FP Solutions User Manual Personal Information Module Page 12 of 473

14 6) Check the Grant box if you want the education-planning module to factor in the Canada Education Savings Grant. 7) Repeat Steps 1 through 6 for each dependant. Variable Data If you want to make any notes about the client s personal information that is not accommodated by the basic data entry screens, enter this information using the Edit Variables function. 1) On the Personal Information dialogue box, click Edit Variables. This will open the Data Notes window. 2) Click on the first empty line in the Category column to access the Category dropdown menu, and select the appropriate category for the information. 3) Click on the corresponding empty line in the Data Notes column, and enter the desired information. 4) Click Data to return to the Personal Information data entry dialogue box, or click Main/OK to return to the Main Workspace. Documentation To access the documentation for the Personal Information module: 1. From the main menu bar, click on Goto. 2. From the drop-down menu, click on Client Information. 3. From the drop-down menu, click on Personal Information. This will launch the Personal Information report, which is suitable for distribution to your client. (Note that if you click on Personal Information on the FP Focus Main Workspace, under the Select a Document to View section, you launch the Personal Information page of the Personal Financial Plan. This is different from the Personal Information report.) The Personal Information report summarizes the important information you have collected about the client, and it is presented in a series of pages. To print the Personal Information report: 1. Make sure that the Personal Information report is on screen (access the report as described above). FP Solutions User Manual Personal Information Module Page 13 of 473

15 2. From the toolbar, click on Print Document icon. 3. Select the pages of the Personal Information report that you want to print by clicking on boxes next to the title of each desired page. 4. Click on Print. Personal Details Page The Personal Details page documents basic demographic information about your client and his or her family (names, addresses, birthdates, retirement dates, and contact information). Financial Situation Page The Financial Situation page provides a summary of your client s basic financial situation. The first section of the Financial Situation page provides a summary of assets and liabilities based on data that you entered via the Fact Finder, or via the Non-registered Investments, Registered Investments, Real Estate, or Other Assets and Debts modules. These amounts are shown both graphically and numerically. Net worth is calculated as (Total Assets Total Liabilities). The second section of the Financial Situation page shows a calculation of your client s disposable income. It summarizes the client s income from all sources, including employment, investment earnings, government benefits and withdrawals from registered plans. It also summarizes the total tax to be paid on these earnings, as calculated by FP Solutions. The excess of after-tax income over lifestyle and debt servicing expenses represents the amount of money that your client may be able to devote to meeting his or her financial objectives. The third section of the Financial Situation page documents your client s retirement objectives, including the expected retirement lifestyle expenses, based on data that you entered via the Step 3 of the data entry wizard, called Lifestyle, Retirement, Survivor and Estate Needs, or via the Client Information: Lifestyle Needs module. It also documents the expected duration of retirement and whether your client expects to receive CPP and OAS benefits. The final section of the Financial Situation page summarizes your client s need to provide a continuing income to his or her surviving spouse (including money for children in the care of that surviving spouse), and the age to which that income will be needed. It also summarizes your client s requirement for lump-sum funds at death to provide for final expenses or lump-sum bequests. This information comes from the data that you entered via Step 3 of the data entry wizard, called Lifestyle, Retirement, Survivor and Estate Needs, or via the Needs Analysis modules. Finally, it documents the existing life FP Solutions User Manual Personal Information Module Page 14 of 473

16 insurance on your client s life, based on information you entered in Step 11 of the data entry wizard, called Life and Disability Insurance. Priorities and Other Information Page The first section of the Priorities page documents your client s investment risk tolerance and investment knowledge, based on the data collected during Step 2 of the data entry wizard, called Risk Tolerance, Areas of Concern and Miscellaneous Information. Based on that risk tolerance, FP Solutions generates a suggested investment allocation for both registered and non-registered funds. The rest of the Priorities page documents the remainder of the information collected during Step 2 of the data entry wizard, namely your client s areas of financial concern, the names and contact numbers of your client s other advisors, and a checklist of documents that your client provided you for review. Assumptions Page Financial planning projections are based on numerous assumptions regarding rates of return, turnover rates, asset allocations, inflation, tax rates, etc. The Assumptions page documents the various assumptions used by FP Solutions for your client. Income Tax Assumptions FP Solutions generally calculates current and future tax liabilities based on current T1 rates, indexed for inflation, as stated at the top of the Assumptions page. However, this page also notes two exceptions to this rule: Tax on income triggered upon the second spouse s death will be taxed at the top marginal rate, which varies by province. The estate tax rate shown on the Assumptions page reflects your client s province of residence as entered in Step 1 of the data entry wizard, called Personal Information, Goals and Objectives. The growth in non-sheltered investments is compounded on an after-tax basis. The marginal tax rate used for this purpose is shown on the Assumptions page, and it is based on data you entered via the Non-Registered Investments module. Index Assumptions The inflation rate and basic rate of return assumptions are specified in the Defaults file that you select when you first create a new client file. However, you can change these assumptions for an existing client file: 1) From the main menu bar, click on Data. FP Solutions User Manual Personal Information Module Page 15 of 473

17 2) From the drop-down menu, click on Assumptions. This will launch the Assumptions data entry dialogue box. Portfolio Turnover Appreciation on a non-registered capital asset is only taxable when that asset is sold or otherwise deemed to have been disposed. If there is no portfolio turnover, then there will generally be no realized capital gains (unless an investment like a mutual fund allocates its realized capital gains). This section of the Assumptions page documents the portfolio turnover that you specified in the Non-registered Investments module. Investment Savings/Investment Withdrawals When performing any sort of time value of money projections, the payment frequency and timing of those payments are two important parts of the calculation. The final section of the Assumptions page documents the frequency and timing of deposits and withdrawals for both registered and non-registered accounts, as entered via Steps 5 and 6 of the data entry wizard, called Non-registered Investments, and RRSPs and RRIFs, respectively. FP Solutions User Manual Personal Information Module Page 16 of 473

18 Module: Lifestyle Needs This module describes how to enter data regarding your clients lifestyle expenses, including shelter, basic household expenses, discretionary expenses, travel and transportation. You can enter these expenses for up to three distinct life stages. You must enter lifestyle needs on a family basis, not an individual basis. This module also explains the documentation that FP Solutions generates with respect to your clients lifestyle needs. Data Entry Enter basic lifestyles needs information, including all consistent lifestyle expenses, through the basic data entry screens. Enter additional information on lifestyle needs that are not addressed during the basic data collection process, including variable or one-time expenses, by using the Edit Variables function. Basic Data To enter information about your clients basic lifestyle needs: 4) From the main menu bar, click on Data. 5) From the drop-down menu, click on Client Information. 6) From the drop-down menu, click on Lifestyle Needs. This will launch the Lifestyle Needs data entry dialogue box, which consists of six data entry screens: Lifestyle, Shelter, Basic, Discretionary, Travel and Transportation. Lifestyle Data Entry Screen The Lifestyle data entry screen sets the framework for the rest of the lifestyle data that you will enter. Monthly or Annual Amounts: Choose to enter lifestyle expenses as either monthly or annual amounts, by checking either the Monthly or the Annual box. If you later switch from annual to monthly amounts (or vice versa) on the Lifestyle data entry screen, the software will not make corresponding changes to the amounts entered in any of the Lifestyle screens. Example: Suppose that you selected Annual Amounts on the Lifestyle data entry screen, and that you entered lifestyle needs of $40,000. If you subsequently change the Lifestyle FP Solutions User Manual Lifestyle Needs Module Page 17 of 473

19 data entry screen to indicate monthly amounts, the Lifestyle Needs field will still be $40,000, but the software will now assume that this is $40,000 monthly. Your choice of monthly or annual amounts on the Lifestyle data entry screen applies to all of the amounts that you enter on the other five data entry screens (Shelter, Basic, Discretionary, Travel and Transportation). Detailed Lifestyle Needs: If you want to provide a detailed breakdown of your clients lifestyle expenses, check the Detailed Lifestyle Needs box. This will activate the five other lifestyle data entry screens. Lifestyle Needs #1: Alternatively, you can enter a total amount of lifestyle expenses, by unchecking the Detailed Lifestyle Needs box, which will deactivate the other lifestyle data entry screens and activate the fields underneath the Detailed Lifestyle Needs box. You then have two options: enter a specific lump sum that you or your clients have estimated; or use the Auto Calculate feature. To specify a lump-sum amount, make sure that the Auto Calculate box is unchecked. Enter the amount for Lifestyle Needs #1, using either a monthly or an annual amount, depending on what you selected earlier. FP Solutions User Manual Lifestyle Needs Module Page 18 of 473

20 To use the Auto Calculate feature, check the Auto Calculate box. This will disable the Lifestyle Needs #1 field, and FP Solutions will automatically calculate the current lifestyle needs as the amount that makes your clients cash flow zero (i.e., so that there is no surplus or shortfall). The Auto Calculate feature is discussed in more detail shortly. Index at +/- Inflation: FP Solutions automatically indexes your clients lifestyle needs to the inflation rate that is specified in your Defaults file. You can change the rate at which lifestyle expenses are indexed by entering a number in the Index at +/- Inflation field. To decrease the indexation rate, enter a negative number. Be sure to enter the increase or decrease as a percentage point, not a decimal. Note that you can set separate indexation adjustments for both Lifestyle Needs #1 and Lifestyle Needs #2. Example: Bill and Mary have specified lifestyle expenses of $40,000, and the default assumption for the inflation rate is 3%. They believe that their lifestyle expenses will only increase by 0.5% per year. To make the necessary adjustment, you should enter -2.5 in the Index at +/- inflation field. FP Solutions will now index their lifestyle expenses by 0.5% each year, calculated as (3% - 2.5%). Lifestyle Needs #2: FP Solutions allows you to specify different lifestyle needs for three distinct phases of your clients planning horizon. For the second phase, you have two options. You can enter a specific amount, by unchecking the % of Lifestyle Needs #1 box, and entering the desired amount directly into the Lifestyle Needs #2 field. Enter this amount in current dollars; FP Solutions will then index this amount to calculate the amount needed at retirement. Alternatively, you can specify that the Lifestyle Needs #2 be calculated as a percentage of Lifestyle Needs #1, by checking the % of Lifestyle Needs #1 box and entering the desired percentage. Example: Suppose that Bill and Mary had Lifestyle Needs #1 of $79,197 for the year prior to retirement, that you entered 90% in the Lifestyle Needs #2 field, and that you had specified indexation of 2% in excess of the inflation rate of 3%. Bill and Mary s Lifestyle Needs #2 in the first year of retirement would be $74,841, calculated as ($79,197 (100% + 3% + 2%) 90%). FP Solutions User Manual Lifestyle Needs Module Page 19 of 473

21 Lifestyle #2 age: You can specify the age at which your clients lifestyle needs change by using one of two methods. You can check the Use Retirement Age box, in which case FP Solutions will use the retirement age that you entered via the Personal Information data entry screen. Alternatively, you can uncheck the Use Retirement Age box, and enter the desired age in the Lifestyle #2 age field. Lifestyle #3 age: For some clients, you may wish to specify a second change in lifestyle needs. For example, some clients feel that their needs will drop once they are too old to travel. Enter the age at which you assume this change will take place in the Lifestyle #3 age field. Lifestyle #3 reduction in needs: Enter the expected rate of decrease in lifestyle expenses at this age in the Lifestyle #3 reduction in needs field. Example: Suppose Bill and Mary had Lifestyle Needs #2 of $241,371 for the year prior to age 80, and suppose that you entered 30% in the Lifestyle #3 reduction in needs field, and that you had specified indexation of 2% in excess of the inflation rate of 3%. Bill and Mary s Lifestyle Needs #3 at age 80 would be $177,408, calculated as ($241,371 (100% + 3% + 2%) (100% - 30%)). Auto Calculate Feature To use the Auto Calculate feature, make sure that the Auto Calculate box is checked. This will disable the Lifestyle Needs #1 field. The Auto Calculate feature determines the lifestyle expenses that your client could sustain for the current year, without creating a surplus or shortfall in cash flow. FP FP Solutions User Manual Lifestyle Needs Module Page 20 of 473

22 Solutions starts with your clients income, then subtracts taxes payable, and then subtracts any set expenses that you have entered outside of the Lifestyle Needs area, including: planned savings (both registered and non-registered) insurance premiums mortgage and other debt payments employment expenses cash flow adjustments to assets (e.g., buying or selling assets like cars or real estate) FP Solutions does not display the calculated value in the Lifestyle Needs #1 field; instead, it enters it as the first year lifestyle expenses in the program s spreadsheet. To view this calculated amount: 1) From the main menu bar, click on Goto. 2) From the drop-down menu, click on Client Information. 3) From the drop-down menu, click on Lifestyle Needs. This will launch the Lifestyle Needs report. 4) Click on Ledger 1 to access the main ledger. The amount that FP Solutions calculated for lifestyle needs is entered under the Lifestyle Needs column for Year 1. Amounts shown for later years are based on this amount, indexed for inflation, plus or minus any adjustment that you entered in the Index at +/- Inflation field. When using the Auto Calculate feature, you will probably want to check the % of Lifestyle Needs #1 box to determine Lifestyle Need #2, unless you have independently estimate your clients lifestyle expenses for this second stage. Note that when the Auto Calculate feature is turned on, any changes that you subsequently make to the income or expenses listed above will result in changes to the auto-calculated lifestyle needs. Depending on what you are trying to accomplish, you may want to turn the Auto Calculate feature on to determine an initial target Lifestyle Needs amount, view the Ledger as described above to view that amount, and then turn the Auto Calculate feature off and manually enter the calculated amount in the Lifestyle Needs #1 field. By doing this, any subsequent changes that you make to your clients income or expenses will not change the Lifestyle Needs amount. Shelter Data Entry Screen Use the Shelter data entry screen to record information about your clients housing expenses. Note that mortgage payments (principal and interest) are not recorded in this area, because mortgage principal is a capital expense. Mortgage information is collected in the Personal Use Real Estate module. FP Solutions User Manual Lifestyle Needs Module Page 21 of 473

23 You can enter different shelter expenses for both Lifestyle #1 and Lifestyle #2. Enter both amounts in current dollars. FP Solutions will index the Lifestyle #2 expenses and use this indexed amount for the first year of retirement. Annual or Monthly Amounts: Be sure to record data on this screen in either monthly or annual amounts, depending on whether you checked the Annual or Monthly box on the Lifestyle data entry screen. The title in the top left corner will remind you which option you have chosen, because it will say either Lifestyle Needs (Monthly) or Lifestyle Needs (Annual). The Shelter data entry screen includes the following fields: Index at +/- Inflation: FP Solutions automatically indexes your clients shelter expenses to the inflation rate that is specified in your Defaults file. You can change the rate at which shelter expenses are indexed by entering a number in the Index at +/- Inflation field. To decrease the indexation rate, enter a negative number. Be sure to enter the increase or decrease as a percentage point, not a decimal. Rent: Enter the amount of rent that your clients pay for rental accommodations. If your clients own their own home, rent will be zero, and you should record the mortgage principal and interest payments in the Real Estate module. Property Taxes: If your clients are homeowners, enter the amount of property taxes on that property. Renters normally do not pay property tax. Property Insurance: Enter the amount that your clients pay for homeowners or tenants insurance. FP Solutions User Manual Lifestyle Needs Module Page 22 of 473

24 Maintenance & Improvements: Enter only those expenses that occur on a regular periodic basis (e.g., fees for snow removal, waste collection, lawn care services, etc.). Use the Edit Variables function to record one-time expenses, such as the cost of replacing a roof or furnace. Utilities: Enter the total amount that your clients pay for utilities, including heat, electricity, water, telephone, internet, cable or satellite, unless some or all of these expenses are included in the rent recorded elsewhere on this screen. Misc. Shelter: Use these fields to enter regularly recurring shelter expenses that are not included in the above (e.g., condo fees). You can change the names of these fields to ones of your choosing. Basic Data Entry Screen Use the Basic data entry screen to record data about your clients regular recurring household expenses. You can enter different basic expenses for both Lifestyle #1 and Lifestyle #2. Enter both amounts in current dollars. FP Solutions will index the Lifestyle #2 expenses and use this indexed amount for the first year of retirement. Annual or Monthly Amounts: Be sure to record data on this screen in either monthly or annual amounts, depending on whether you checked the Annual or Monthly box on the Lifestyle data entry screen. The title in the top left corner will remind you which option you have chosen, because it will say either Lifestyle Needs (Monthly) or Lifestyle Needs (Annual). The Basic data entry screen includes the following fields: FP Solutions User Manual Lifestyle Needs Module Page 23 of 473

25 Index at +/- Inflation: FP Solutions automatically indexes your clients basic lifestyle expenses to the inflation rate that is specified in your Defaults file. You can change the rate at which basic lifestyle expenses are indexed by entering a number in the Index at +/- Inflation field. To decrease the indexation rate, enter a negative number. Be sure to enter the increase or decrease as a percentage point, not a decimal. Food: Enter the amount that your clients spend on food that is prepared and consumed at home (dining out is included on the Discretionary data entry screen). Clothing: Enter the amount that your clients spend on purchasing and maintaining clothing (including alterations and dry cleaning). Personal Care: Enter the amount that your clients spend on toiletries and health and beauty services, such as hair care. Medical & Dental: Enter the amount of medical and dental expenses that are not reimbursed by insurance, including over-the-counter medications, massage or chiropractic services, etc. You should also include the cost of any medical or dental insurance premiums payable by your clients, unless these have already been deducted in the calculation of employment income. Life & Disability: Enter the amount of life insurance and disability insurance premiums payable by your clients, unless these have already been deducted in the calculation of employment income. Note that if you are completing the Life Insurance module, in most cases you should enter the life insurance premiums in that module instead of the Lifestyle Needs module. You should only enter the premiums in the Lifestyle Needs module if you are not completing the Life Insurance module, or if the premium is going to be indexed and it will continue for the entire lifestyle period. Cleaning and Supplies: Enter the cost of regular household cleaning and minor maintenance supplies, such as household cleaners, laundry and dish washing detergents, light bulbs, toilet tissue, paper towels, etc. You could also enter the cost of maid services in this field; alternatively, you could add it as a miscellaneous expense on either the Shelter or Discretionary data entry screens. Misc. Personal: Enter any other regular, recurring personal expenses in this field. You can change the name of this field to one of your choosing. Discretionary Data Entry Screen Use the Discretionary data entry screen to record data about your clients regular recurring expenses that are discretionary in nature. You can enter different discretionary expenses for both Lifestyle #1 and Lifestyle #2. Enter both amounts in current dollars. FP Solutions will index the Lifestyle #2 expenses and use this indexed amount for the first year of retirement. FP Solutions User Manual Lifestyle Needs Module Page 24 of 473

26 Annual or Monthly Amounts: Be sure to record data on this screen in either monthly or annual amounts, depending on whether you checked the Annual or Monthly box on the Lifestyle data entry screen. The title in the top left corner will remind you which option you have chosen, because it will say either Lifestyle Needs (Monthly) or Lifestyle Needs (Annual). The Discretionary data entry screen includes the following fields: Index at +/- Inflation: FP Solutions automatically indexes your clients basic lifestyle expenses to the inflation rate that is specified in your Defaults file. You can change the rate at which discretionary lifestyle expenses are indexed by entering a number in the Index at +/- Inflation field. To decrease the indexation rate, enter a negative number. Be sure to enter the increase or decrease as a percentage point, not a decimal. Entertainment & Restaurants: Enter the amount that your clients spend on dining out, and going to movies, plays or concerts. Self Improvements: Enter the amount that your clients spend on recurring selfimprovement programs, such as weight loss programs, personal trainers or therapists. Clubs and Memberships: Enter the amount that your clients pay for clubs and memberships (e.g., country clubs, fitness clubs). Hobbies: Enter the amount that your clients pay for hobbies (other than for clubs or memberships). This could include supplies, registration fees, tuition for craft courses, etc. FP Solutions User Manual Lifestyle Needs Module Page 25 of 473

27 Gifts: Enter the amount that your clients pay for gifts throughout the year. Charitable Contributions: Enter the pre-tax amount that your clients contribute to charity each year. This field s title cannot be changed and is grayed out because of the tax consequences that arise when a charitable contribution is made, by graying out the title it ensures that only charitable contributions are entered in this area. Misc. Discretionary: Enter any other regular, recurring discretionary expenses in this field. You can change the name of this field to one of your choosing. Travel Data Entry Screen Use the Travel data entry screen to record data about your clients regular recurring travel expenses (excluding regular transportation, which is recorded on the Transportation data entry screen).you can enter different travel expenses for both Lifestyle #1 and Lifestyle #2. Enter both amounts in current dollars. FP Solutions will index the Lifestyle #2 expenses and use this indexed amount for the first year of retirement. Annual or Monthly Amounts: Be sure to record data on this screen in either monthly or annual amounts, depending on whether you checked the Annual or Monthly box on the Lifestyle data entry screen. The title in the top left corner will remind you which option you have chosen, because it will say either Lifestyle Needs (Monthly) or Lifestyle Needs (Annual). The Travel data entry screen includes the following fields: FP Solutions User Manual Lifestyle Needs Module Page 26 of 473

28 Index at +/- Inflation: FP Solutions automatically indexes your clients basic lifestyle expenses to the inflation rate that is specified in your Defaults file. You can change the rate at which travel expenses are indexed by entering a number in the Index at +/- Inflation field. To decrease the indexation rate, enter a negative number. Be sure to enter the increase or decrease as a percentage point, not a decimal. Travel & Vacation: Enter the amount that your clients regularly spends on vacations or travel, including flights, hotel or accommodation rentals, car rentals and food expenses while traveling on holiday. If your clients do not travel regularly, enter the cost of infrequent trips or holidays using the Edit Variables function instead of the Travel data entry screen. Travel Insurance: If your clients need to purchase separate travel insurance, record the premiums in this field. RV Depreciation & Payments: If your clients own a recreational vehicle, such as a camper trailer, enter the regular purchase or lease payments. RV Insurance & Maintenance: If your clients own a recreational vehicle, enter the amounts they pay for insurance and vehicle operation and maintenance, including fuel. Taxes & Insurance: If your clients own a vacation property, such as a cottage, enter the property taxes and property insurance for that property. Utilities & Maintenance: If your clients own a vacation property, enter the cost of utilities (heat, electricity, water, phone, cable or satellite) for that property. Misc. Travel: Enter any other regular, recurring travel expenses in this field. You can change the name of this field to one of your choosing. Transportation Data Entry Screen Use the Transportation data entry screen to record data about your clients regular recurring transportation expenses. You can enter different travel expenses for both Lifestyle #1 and Lifestyle #2. Enter both amounts in current dollars. FP Solutions will index the Lifestyle #2 expenses and use this indexed amount for the first year of retirement. Annual or Monthly Amounts: Be sure to record data on this screen in either monthly or annual amounts, depending on whether you checked the Annual or Monthly box on the Lifestyle data entry screen. The title in the top left corner will remind you which option you have chosen, because it will say either Lifestyle Needs (Monthly) or Lifestyle Needs (Annual). FP Solutions User Manual Lifestyle Needs Module Page 27 of 473

29 The Transportation data entry screen includes the following fields: Index at +/- Inflation: FP Solutions automatically indexes your clients basic lifestyle expenses to the inflation rate that is specified in your Defaults file. You can change the rate at which transportation expenses are indexed by entering a number in the Index at +/- Inflation field. To decrease the indexation rate, enter a negative number. Be sure to enter the increase or decrease as a percentage point, not a decimal. Depreciation & Payments: If your clients own one or more vehicles that they use for regular transportation, enter the regular purchase or lease payments. Auto Insurance: Enter the cost of automobile insurance premiums. Maintenance: Enter the cost of performing regular vehicle maintenance. Record onetime, non-recurring automobile expenses using the Edit Variables function. Fuel and Oil: Enter the amount that your clients pay for gasoline and oil. Misc. Transportation: Enter any other regular, recurring transportation expenses in these fields, such as public transit costs or highway toll charges. You can change the name of these fields to ones of your choosing. Variable Data If your clients have lifestyle expenses that are non-recurring or variable in nature, enter this information using the Edit Variables function. FP Solutions User Manual Lifestyle Needs Module Page 28 of 473

30 Example: Bill and Mary believe that they will need to replace their furnace in a few years, at a cost of $3,000. Because this is a one-time expense, you should record it using the Edit Variables function, under the Shelter column of the Lifestyle Needs Variables data entry screen. From any of the Lifestyle Needs data entry screens, click on Edit Variables. This will open the Lifestyle Needs Variables data entry screen, where you can enter the additional information on a year-by-year basis. There are several buttons of note on the top left side of this screen. Click on Data to return to the Lifestyle Needs data entry dialogue box. Click on CALC to recalculate the spreadsheet values. Click on Main/OK to return to the data entry screen that you were in before you clicked on Edit Variables.. However, you should first recalculate the spreadsheet values. From the drop-down menu, click on Shelter, Basic, Discretionary, Travel or Transportation to quickly navigate to various sections of the data entry screen. You can only enter annual amounts on the Lifestyle Needs Variables data entry screen, regardless of whether you specified monthly or annual amounts on the Lifestyle Needs data entry screen. Manual Data Entry: You can choose to enter information on the Lifestyle Needs Variables data entry screen manually, simply by navigating to the appropriate cell and inputting the desired numbers. Automatic Data Entry: You can also fill in the columns of the Lifestyle Needs Variables data entry screen using the Custom Trend feature. FP Solutions User Manual Lifestyle Needs Module Page 29 of 473

31 To apply a custom trend to one of the Lifestyle Needs columns: 1. Click on Annual $ at the top of the column. This will launch the Custom Trend dialogue box for that column. 2. Specify the time over which the custom trend will be applied by either: a. Checking the Use ages box, and then choosing the appropriates ages from the From age and To age drop-down menus; or b. Unchecking the Use ages box, and then choosing the appropriate years from the From year and To year drop-down menus. 3. Specify the first annual amount in the Set value at field. 4. Specify the annual indexation rate, if any, in the Indexed at field. 5. Specify how often the expense will be incurred by selecting an option from the Frequency drop-down menu. 6. Click on Apply, and the column will be filled with the specified trend. To clear out any manually or automatically entered data on the variables page use the Clear All button in the Custom Trend dialogue. When clicked this button removes all of the data in the selected column, to remove data from a specific age or year range use the steps above and enter zero in the Set value at field and the Indexed at field. FP Solutions User Manual Lifestyle Needs Module Page 30 of 473

32 Documentation To access the documentation for the Lifestyle Needs module: 4. From the main menu bar, click on Goto. 5. From the drop-down menu, click on Client Information. 6. From the drop-down menu, click on Lifestyle Needs. This will launch the Lifestyle Needs report, which is suitable for distribution to your client. The Lifestyle Needs report summarizes your clients lifestyle needs, based on the data that you collected, and it is presented in a series of pages. To print the Lifestyle Needs report: 5. Make sure that the Lifestyle Needs report is on screen (access the report as described above). 6. From the main menu bar, click on File. 7. From the drop-down menu, click on Print Preview. This will launch the Print Preview dialogue box. 8. Select the pages of the Lifestyle Needs report that you want to print by holding the Ctrl key, and clicking on the title of each desired page. 9. Click on Print. Summary 1 Page The first part of the Summary 1 page provides a numerical and graphical summary of your clients lifestyle needs at two points in time. If the client is not yet retired, these two points in time are now (Lifestyle #1), and at retirement (Lifestyle #2). If the client is already retired, the two points in time are now, and 10 years from now. Note that FP Solutions indexes the Lifestyle #2 expenses that you entered in current dollars, so they will likely appear higher in the summary. In addition to the information that you entered via the Lifestyle data entry screens, the summary includes employment expenses and cash flow used to service debts. The employment expenses are recorded via the Employment and Other Income module. The debt service requirements are recorded via the Real Estate module and the Other Assets and Debts module. The middle chart on the Summary 1 page illustrates your clients projected lifestyle expenses on a year-by-year basis, from now until death, taking into account inflation, extra expenses that you may have entered using the Edit Variables function, and your clients anticipated change in spending priorities at retirement. You may note a distinct FP Solutions User Manual Lifestyle Needs Module Page 31 of 473

33 shift in the chart at the age of retirement, and at the age at which you specified Lifestyle #3 to come into effect. The chart on the bottom of the page illustrates the allocation of lifestyle needs across the various expense categories, as a percentage of total lifestyle needs, both now and at retirement. By expressing these amounts as a percentage of total lifestyle needs, the chart removes the impact of inflation, and graphically demonstrates how your clients spending patterns are expected to shift at retirement. Summary 2 Page The Summary 2 page summarizes your clients current and projected need for after-tax income (now and at retirement), with all values expressed in current dollars. It provides a one-page summary of the information that you entered via the Lifestyle Needs data entry screens for Lifestyle #1 and Lifestyle #2. This page will only have data displayed on it if you have completed a detailed lifestyle needs analysis. Ledger Page The Ledger page provides a numerical summary of your clients projected annual lifestyle needs. If you completed a detailed lifestyle needs analysis, this will include employment, debt servicing, shelter, personal, discretionary, travel and transportation expenses, for the duration of the planning horizon. However, if you specified a targeted lifestyle needs, the Ledger page will be simplified, You may note a distinct shift in the numbers at the age of retirement, and at the age at which you specified Lifestyle #3 to come into effect. These amounts represent the aftertax cash flow that your clients must have available if they want to achieve their desired lifestyle throughout their planning horizon. FP Solutions User Manual Lifestyle Needs Module Page 32 of 473

34 Module: Employment & Other Income This module describes how to enter data regarding your client s employment income and other non-investment sources of income, such as government pensions, spousal support, child support, etc. This information is ultimately used to calculate your client s disposable income. You must complete separate Employment modules for your client and his spouse. This module also explains the documentation that FP Solutions generates with respect to your client s projected income from employment and other non-investment sources. Data Entry Enter employment income information that stays constant from year to year (other than adjustments for inflation) and government retirement income information through the basic data entry screens. Enter information on sporadic sources of income, such as a bonus or spousal support, by using the Edit Variables function. Basic Data To enter basic data regarding your client s employment income or government retirement income: 7) From the main menu bar, click on Data. 8) From the drop-down menu, click on Client Information. 9) From the drop-down menu, click on Employment & Other Income: Client or Employment & Other Income: Spouse. This will launch the Source of Income data entry dialogue box, which consists of two data entry screens: Employment Income, and CPP/OAS. Employment Income Data Entry Screen There are six main fields on this screen: FP Solutions User Manual Employment & Other Income Module Page 33 of 473

35 Monthly or Annual Amounts: On this screen, you can enter your data as either monthly or annual amounts by checking either the Monthly or Annual box. Note that although you can enter data on a monthly basis, the reports generated by FP Solutions will display the equivalent annual amount. Employment income to retirement: Enter your client s current income. Remember to enter either an annual or monthly amount, depending on whether you checked the Monthly or Annual box earlier. This amount will start in Year 1 of the plan, and will continue until the retirement age that you specified in the Personal Information module. Index employment at +/- inflation: By default, FP Solutions assumes that your client s employment income will keep pace with the inflation rate that is specified in your Default file. To review or change this indexation rate: 1) From the main menu bar, click on Data. 2) From the drop-down menu, click on Assumptions. 3) Check the default indexation rate and enter any desired changes in the Inflation field You can specify that income will increase faster or slower than the default inflation rate by entering the appropriate percentage in the Index employment at +/- inflation field. Be sure to enter the increase or decrease as a percentage point, not a decimal. Example: Sally currently earns $50,000 per year, so you enter this amount in the Employment income to retirement field. Your default assumption for the inflation rate is 3%, but Sally believes that her income will rise at a rate of 5% per year, or 2% in excess of the inflation rate. You should enter the extra 2% in the Index employment at +/- inflation field. FP Solutions will now index her employment income by 5% each year, calculated as (3% + 2%). FP Solutions User Manual Employment & Other Income Module Page 34 of 473

36 Employment Expenses: On this screen you can also enter expenses (other than income taxes) related to employment. FP Solutions adds these expenses to your client s lifestyle needs and thus they reduce your client s disposable income. There are four categories of expenses that you can enter at this stage, and you can choose whether or not these amounts are indexed to keep pace with the inflation rate set in your Default file by checking the Index box beside each entry. The four categories are: Health care: Enter the amount of health care premiums (group medical, dental or disability premiums, or provincial health care premiums) that are deducted from your client s employment earnings, as recorded on his or her T4 or payroll stub. Benefits: Enter any amounts that are deducted from your client s employment earnings for contributions to the employer s registered pension plan or group RRSP, or for group life insurance premiums. Professional/Union Dues: Enter the amount that is deducted from your client s employment earnings, or that your client must pay out of pocket, for union dues or fees required to maintain a professional designation. Other deductible expenses: Enter any other expenses that your client pays for from their employment income and that create a tax deduction, such as the expenses that a tradesperson has for tools needed on the job. Amounts entered here will also create a tax deduction in the Projected Income module. Do not include CPP and EI premiums, because those are automatically calculated by the program. Remember to enter either annual or monthly amounts, depending on whether you checked the Monthly or Annual box earlier. CPP/OAS Data Entry Screen To enter information about the benefits that your client may receive from the Canada Pension Plan or the Old Age Security program, click on the CPP/OAS tab. FP Solutions User Manual Employment & Other Income Module Page 35 of 473

37 Monthly or Annual Amounts: On this screen, you can enter your data as either monthly or annual amounts by checking either the Monthly or Annual box. Note that although you can enter data on a monthly basis, the reports generated by FP Solutions will display the equivalent annual amount. Include CPP Benefits: Depending on your view (or your client s view) on the sustainability of the Canada Pension Plan, you must decide whether to include CPP benefits in your income projections. If you wish to include CPP benefits, check the Include CPP Benefits box. Include OAS Benefits: Depending on your views (or your client s view) on the sustainability of the Old Age Security Program, or the likelihood that it will be clawed back, you must decide whether or not to include OAS benefits in your income projections. If you wish to include OAS benefits, check the Include OAS Benefits box. FP Solutions will automatically calculate the clawback of OAS benefits if required. Remember to enter either annual or monthly amounts, depending on whether you checked the Monthly or Annual box earlier. Benefits begin at age: While the normal age to begin receiving CPP benefits is 65, your client can opt to begin receiving benefits as early as age 60 or as late as age 70. If you specify an age for CPP benefits other than age 65, you must adjust the benefits received accordingly (decrease by 0.5% for each month commenced prior to age 65, and increase by 0.5% for each month commenced after age 65). OAS benefits cannot commence prior to age 65 and thus are not subject to an age adjustment. Set current benefits to: If your client is already receiving CPP or OAS benefits, you can enter the current amounts here by checking the Set current benefits at box, and entering the appropriate amounts. Remember to enter either annual or monthly amounts, depending on whether you checked the Monthly or Annual box earlier. FP Solutions automatically indexes these benefit amounts according to the inflation rate specified in your Default file. FP Solutions User Manual Employment & Other Income Module Page 36 of 473

38 Benefits % of maximum: If your client is not receiving CPP or OAS benefits, you should uncheck the Set current benefits at box, and enter the percentage of the maximum CPP benefit that your client can expect to receive, based on the age at which benefits will commence, as well as the client s CPP contribution history. While you do not have to make an age-related adjustment to the OAS benefit, if your client is an immigrant to Canada, you may have to adjust the amount received based on eligibility requirements. Split CPP benefits with spouse: The Canada Pension Plan allows spouses to assign a portion of their CPP benefits to each other, which can provide income splitting opportunities if their CPP benefits are significantly different. If you want FP Solutions to share CPP benefits, check the Split CPP benefits with spouse box, and enter the amount of the benefit to split. Variable Data If your client has other sources of non-investment income, or sporadic or one-time income sources, you can enter that information through the Edit Variables function. From either the Employment Income data entry screen or the CPP/OAS data entry screen, click on the Edit Variables button. You will be transferred to the Employment & Other Income Variables data entry screen, where you can enter additional information on a year-by-year basis. There are several buttons of note on the top left of this spreadsheet: Click on Main/OK to return to the data entry screen that you were in before you clicked on Edit Variables. However, you should first recalculate the spreadsheet values. Click on the CALC button to recalculate the spreadsheet values. Use the dropdown menu under the CALC button to quickly navigate to various sections of the spreadsheet. Click on the Name button to switch to the spouse s variable spreadsheet. Click on the Data button to quickly access the Employment Income and CPP/OAS data entry screens. You can only enter annual amounts on the Employment & Other Income Variables data entry screen, regardless of whether you specified monthly or annual amounts on the Employment Income data entry screen. FP Solutions User Manual Employment & Other Income Module Page 37 of 473

39 Manual Data Entry: You can choose to enter information on the Employment & Other Income Variables data entry screen manually, simply by navigating to the appropriate cell and inputting the desired numbers. Automatic Data Entry: You can also fill in the columns of the Employment & Other Income Variables data entry screen using the Custom Trend feature. To apply a custom trend to one of the Employment & Other Income Variables columns: 7. Click on Annual $ at the top of the column. This will launch the Custom Trend dialogue box for that column. 8. Specify the time over which the custom trend will be applied by either: c. Checking the Use ages box, and then choosing the appropriates ages from the From age and To age drop-down menus; or d. Unchecking the Use ages box, and then choosing the appropriate years from the From year and To year drop-down menus. 9. Specify the first annual amount in the Set value at field. 10. Specify the annual indexation rate, if any, in the Indexed at field. 11. Specify how often the income or deduction will occur by selecting an option from the Frequency drop-down menu. FP Solutions User Manual Employment & Other Income Module Page 38 of 473

40 12. Click on Apply, and the column will be filled with the specified trend. To clear out any manually or automatically entered data on the variables page use the Clear All button in the Custom Trend dialogue. When clicked this button removes all of the data in the selected column, to remove data from a specific age or year range use the steps above and enter zero in the Set value at field and the Indexed at field. Types of Variable Employment & Other Income Some examples of the types of additional information that you may want to record using the Edit Variables function includes: other employment income (e.g., bonuses, or part-time employment income received during semi-retirement); other taxable benefits (e.g. car allowance, golf club memberships); other deductible expenses (e.g. use-of-home expense for commissioned salespersons); taxable disability benefits; income earned as a general partner in a partnership; self-employment income, including consulting income earned during semiretirement; taxable spousal support payments; non-taxable child support payments; Workers Compensation benefits; or other sources of non-taxable income, such as inheritances or planned intergenerational wealth transfers. Documentation To access the documentation for the Employment and Other Income module: 7. From the main menu bar, click on Goto. 8. From the drop-down menu, click on Client Information. 9. Click on Employment & Other Income: Client or Employment & Other Income: Spouse. This will launch the Sources of Income report, which is suitable for distribution to your client. This report consists of a Summary page and a Ledger page. FP Solutions User Manual Employment & Other Income Module Page 39 of 473

41 To print the Sources of Income report: 10. Make sure that the Sources of Income report is on screen (access the report as described above). 11. From the main menu bar, click on File. 12. From the drop-down menu, click on Print Preview. This will launch the Print Preview Dialogue box. 13. Select the pages of the Personal Information report that you want to print by holding the Ctrl key, and clicking on the title of each desired page. 14. Click on Print. Summary Page When you first launch the Sources of Income report, the Summary report will appear on top. The Summary page includes a bar chart that depicts the client s (or the client s spouse s) projected stream of non-investment sources of income, along with a written explanation of the types of income that are included. The bar chart provides a visual breakdown of each stream of non-investment income, including employment income, CPP/OAS income and other income. Note that these numbers are gross, before-tax figures. Employment expenses have not been deducted in this chart; instead, they are added to your client s lifestyle needs and thus reduce your client s disposable income. Employment expenses are shown graphically in the Lifestyle Needs report. Ledger Page The Ledger page provides a numerical summary of your client s projected annual employment income, government income and other non-investment sources of income, for the duration of the planning horizon. Note that these numbers are gross, before-tax figures. Employment expenses are also shown in this Ledger page, although they are not deducted from the employment income shown in the chart that is included in the Summary page. Instead, they are added to your client s lifestyle needs, and thus reduce your client s disposable income. FP Solutions User Manual Employment & Other Income Module Page 40 of 473

42 Module: Non-registered Investments This module describes how to enter data regarding your client s existing non-registered investments, as well as his plans to add to or withdraw from his investments. You must complete separate Non-registered Investment modules for your client and his spouse. You can also complete a third module for jointly-owned assets. This module also explains the documentation that FP Solutions generates with respect to your client s non-registered investments. Data Entry Enter basic investment information, including existing investment values and adjusted cost bases, as well as regular, recurring deposits and withdrawals, through the basic data entry screens. Enter additional information that is not addressed during the basic data collection process, such as lump-sum deposits or withdrawals, by using the Edit Variables function. Basic Data To enter regular, recurring information about a client s non-registered investments: 10) From the main menu bar, click on Data. 11) From the drop-down menu, click on Non-registered Investments. 12) From the drop-down menu, click on Non-registered: Client. (You can launch a similar module for your client s spouse, by clicking on Non-registered: Spouse, and a module for jointly owned assets, by clicking on Non-registered: Joint Owned). This will launch the Non-registered Investments: Client data entry dialogue box, which consists of five data entry screens: Asset Values, Asset Allocation, Deposit/Withdrawal, Taxation and Carrying Charges. Asset Values Data Entry Screen Use the Asset Values data entry screen to enter the current values and adjusted cost bases (ACBs) of your clients existing investment portfolios. You can use one of two methods. You can enter the current value of each asset class in the Amount Column; and the corresponding ACB column will automatically be filled in with the same amount. However, if you know the adjusted cost base, you can enter the real ACB manually. FP FP Solutions User Manual Non-registered Investments Module Page 41 of 473

43 Solutions automatically calculates the percentage of the portfolio that is allocated to each asset class, and displays this allocation between the Amount column and the ACB column. Alternatively, you can use the Allocator function to specify the desired allocation: 1. Click on Allocator. This will launch the Allocator data entry screen. 2. Enter the total value of your client s investment portfolio in the Amount to be Allocate field. 3. Choose your client s risk tolerance by clicking on Conservative, Moderate, Moderate Growth, Moderate Aggressive or Aggressive; each one will result in a different allocation as shown in the % field for each asset class. You can also enter the allocations manually. 4. Click on OK. The Allocator data entry screen will close and you will be returned to the Asset Values data screen, with the portfolio allocated according to your choice. By default, the ACB of each asset class will be set to the allocated value when you use the Allocator, but you can adjust these amounts manually. FP Solutions User Manual Non-registered Investments Module Page 42 of 473

44 Asset Allocation Data Entry Screen Use the Asset Allocation data entry screen to specify new target asset allocations to be implemented as your client gets older. FP Solutions allows you to specify changes as often as every year during the planning horizon. The first column of numbers shows the existing asset allocation, based on the asset values that you recorded on the Asset Values data entry screen. To enter a new target asset allocation in the second column: 1. From the drop-down Age menu, choose the age at which you want to change your client s target asset allocation. 2. Enter the target allocation for each asset category for that age. FP Solutions will rebalance the portfolio to the new allocation at that age, after which time the portfolio will be permitted to evolve without further rebalancing until the next age for which you specified a new allocation. 3. Repeat for the last column. 4. Click on OK. This will enter the asset allocations for the two ages listed on the screen into the Non-registered Investment Variables page. 5. To enter allocation changes at other ages, simply return to the Asset Allocation data entry screen and repeat Steps 1 through 4 for the additional ages. You can repeat this for every year in the planning horizon, or you can use the Edit Variables function to enter all of the allocation/age sets directly into the Nonregistered Investment Variables page. This is discussed further in the section called Variable Data. FP Solutions User Manual Non-registered Investments Module Page 43 of 473

45 Once you enter an asset allocation for a specific age, FP Solutions remembers that allocation and denotes this by placing an asterisk beside that age in the New allocation at age drop-down menu. (e.g., 60*). Example: Suppose that you entered only two asset allocation changes, one at age 50 and one at age 60. FP Solutions will implement the first change at age 50. The portfolio will then be allowed to grow as the market dictates, and as a result, the asset allocation will evolve continuously. At age 60, the portfolio will be rebalanced to the allocation that you specified for that age. Deposit/Withdraw Data Entry Screen Use the Deposit/Withdraw data entry screen to record your client s planned deposits or withdrawals from his non-registered account. You can specify two different deposit rates, with changes to take place when the client reaches a specified age. Similarly, you can specify two different withdrawal rates, based on age. The Deposits and Withdrawals sections each include the following fields: Annual or Monthly: In the Deposits section, click on either Annual or Monthly to specify whether your client will be making deposits annually or monthly. Repeat for the Withdrawals section. Beginning of period: In the Deposits section, check the Beginning of period box if your client will be making deposits at the beginning of each compounding period, and clear the box if your client will be making deposits at the end of each period. Repeat for the Withdrawals section. Most clients tend to make their deposits at the end of the period, because it gives them the time necessary to accumulate the necessary funds to make their FP Solutions User Manual Non-registered Investments Module Page 44 of 473

46 deposits. However, you can show them the advantages of paying themselves first by providing a comparison of the results using both options. Withdrawals are generally made at the beginning of the period, because clients need to have the funds in hand before they can spend those funds during the period. However, you can choose whichever method best suits your client s needs. Amount: In the Deposits section, enter the amount that your client plans to deposit each period for the first age bracket, and repeat for the second age bracket. In the Withdrawals section, enter the amount that your client plans to withdraw each period for the first age bracket, and repeat for the second age bracket. From age: In the Deposits section, enter the age at which your client will start making the specified deposit. In the Withdrawals section, enter the age at which your client will start making the specified withdrawal. To age: In the Deposits section, enter the age after which your client will cease making the specified deposits. In the Withdrawals section, enter the age after which your client will cease making the specified withdrawals. Example: In the screen capture above, the client will make deposits of $300 at the end of each month (indexed at 5%), beginning with January of the year in which he turns 40 years, and ending with December of the year in which he turns 44. In January of the year in which he turns 45, the deposits will increase to $500 at the end of each month (indexed at 5%), up to and including December of the year in which he turns 54. Similarly, the client will commence making withdrawals of $1,000 at the beginning of each month (indexed at 2%), starting with January of the year in which he turns 55, and continuing up to and including December of the year in which he turns 64. In January of the year in which he turns 65, his withdrawals will decrease to $500 per month (indexed at 2%), and continue up to and including December of the year in which he turns 90. FP Solutions User Manual Non-registered Investments Module Page 45 of 473

47 Caution: Be careful about how you define the age brackets on this screen in terms of when the deposits stop and the withdrawals start. This is best illustrated with an example: Example: The screen capture above indicates that the client will make deposits of $300 at the end of each month from January of the year in which he turns 40, to December of the year in which he turns 44. He will then make deposits of $500 monthly from January of the year he turns 45 to December of the year in which he turns 55. Withdrawals will commence in January of the year in which he turns 55. Based on the information entered, FP Solutions assumes that the client will be making deposits of $500 at the end of each month starting in January of the year in which he turns 55, as well as withdrawals of $1,000 per month at the beginning of each month during the same year. Index: In the Deposits section, enter the annual rate at which deposits are expected to increase, for each age bracket. In the Withdrawals section, enter the annual rate at which withdrawals are expected to increase, for each age bracket. If deposits or withdrawals are expected to decrease over time, enter the rate as a negative number. Note that each amount is only indexed until the end of the specified age bracket. At the beginning of the second age bracket, the new amount, without indexation, serves as the starting point. In other words, the amounts that you enter into the Amount fields are future dollars, not current dollars. Example: In an earlier example, the client deposited $300 per month (or $3,600 per year) from age 40 to 44, indexed at 5%. This increased to $500 per month (or $6,000 per year) from age 45 to age 54, indexed at 5%. He commenced withdrawals of $1,000 per month ($12,000 per year) at age 55, indexed at 2%, and reduced that to $500 per month ($6,000 FP Solutions User Manual Non-registered Investments Module Page 46 of 473

48 per year) at age 65, indexed at 2%. The resulting pattern of deposits and withdrawals is shown below. Reset: If you later want to adjust the deposits and withdrawals, and you return to the Deposit/Withdraw data entry screen, you will note that the fields are blank and disabled. To make the changes on the Deposit/Withdraw data entry screen, you must first click Reset to reactivate the fields, and then you will have to complete the entire data entry screen, using the same method as discussed above. However, all entries on the Deposit/Withdraw data entry screen are automatically written into the Portfolio columns of the Non-registered Investment Variables page. So, you can also make the desired adjustments directly on the Variables page by using the Edit Variables function. Taxation Data Entry Screen Use the Taxation data entry screen to enter a variety of parameters that will affect the growth and taxation of your client s non-registered investment portfolio. Distribution Section: The rate at which an investment portfolio grows depends in part on the extent to which investment returns are reinvested, instead of being paid out to the investor in cash. The Distribution section of the Taxation data entry screen allows you to specify when and how much investment income is distributed to your client in cash. FP Solutions assumes that any amounts that are not distributed will be reinvested in the same asset class. FP Solutions User Manual Non-registered Investments Module Page 47 of 473

49 For the purpose of this data entry screen, FP Solutions classifies all non-registered investments in one of three categories: Cash & Equivalents, Bonds and Equities. If all investment income is to be reinvested, make sure that all three checkboxes are clear. If the client will receive some or all of the investment income from a particular asset category in cash: 1. Check the appropriate box (Cash & Equivalents, Bonds or Equities). 2. Enter the percentage of investment income from that asset class that will be distributed to the client in the % in cash field. 3. Specify the age at which the cash distributions are to commence by selecting the appropriate age from the Starting at age drop-down menu. Note that once these distributions start, FP Solutions assumes that they will continue for the duration of your client s planning horizon. Taxation Section: The taxation of investment income varies with the type of income and when it is recognized. For example: interest income is generally fully taxable annually, even if it is not distributed; dividends paid by a Canadian taxable corporation are eligible for a dividend tax credit; and capital appreciation is generally only taxable upon disposition of the capital asset, and then only 50% of the capital gain is included in income. FP Solutions estimates the investment return that your client s investment portfolio is likely to generate, based upon the return assumptions included in your Defaults file and the asset allocations that you specified on the Asset Values and Asset Allocation data entry screens. However, to determine the income tax effects of this investment return, you need to complete the following fields: FP Solutions User Manual Non-registered Investments Module Page 48 of 473

50 Annual portfolio turnover: Enter the percentage of the non-registered portfolio that your client will turnover each year. Capital gains are only realized for tax purposes upon disposition of an appreciated capital asset. If your client uses a buy-and-hold strategy, realized capital gains will be minimal, but as his portfolio turnover increases, so will his potential for realized capital gains. Fund income tax from growth: If your client will use a portion of his non-registered investment income to pay the income tax liability resulting from that investment income, then check this box. If your client will use funds from other sources, such as employment income, to pay these taxes, then clear the checkbox. Carry forward losses: Enter the amount of any unused capital losses that your client has carried forward from previous years. These can be used to offset taxable capital gains. Marginal tax rate: Enter your client s average marginal tax rate for the planning period. This rate is used for determining the potential taxes generated from the investment portfolio. Carrying Charges Data Entry Screen Use the Carrying Charges data entry screen to describe the fees associated with your client s non-registered investment account, and the source of funds used to pay those fees. FP Solutions User Manual Non-registered Investments Module Page 49 of 473

51 New deposit sales charge: Enter the average front-end charge that your client will pay on new investments. FP Solutions assumes that these sales charges will be deducted from the investment account. Annual administration/trustee fee: Enter any flat annual fees associated with your client s non-registered investment account. Enter this as a dollar amount (e.g., $100). Managed/Wrap Account expense: Enter any percentage fees associated with your client s non-registered investment account. Enter this as a percentage of total assets (e.g. 2%). Pay account charges outside of investment until age: If your client will use other sources of funds (e.g., employment income) to pay the annual administration fee or the percentage management fee, check this box. Then choose the age at which your client will start paying these fees from the investment account by selecting the appropriate age from the drop-down menu. To always pay the account charges with outside funds, select the age that corresponds to the end of your client s planning horizon. If your client wants to pay the account charges from the investment income, clear the checkbox. Variable Data If your client plans to make deposits or withdrawals to his non-registered investment account that are non-recurring or variable in nature, enter this information using the Edit Variables function. You can also use the Edit Variables function to enter variable information about portfolio turnover, trustee fees and changes in asset allocation. From any of the Non-registered Investment data entry screens, click on Edit Variables. This will open the Non-registered Investment Variables data entry screen, where you can FP Solutions User Manual Non-registered Investments Module Page 50 of 473

52 enter additional information on a year-by-year basis. There are several buttons of note on the top left of this screen. Click on Data to return to the Non-registered Investment data entry dialogue box. Click on CALC to recalculate the spreadsheet values. Click on Main/OK to return to the data entry screen that you were in before you clicked on Edit Variables. However, you should first recalculate the spreadsheet values. Click on the Client s Name to switch to the Edit Variables screen for the client s spouse. From the drop-down menu, click on Turnover, Trustee Fee, Allocation, Deposits or Withdrawals to navigate quickly to various sections of the data entry screen. Note that at the top of each amount column of the Non-registered Investment Variables data entry screen, it specifies whether the amounts that you enter should be annual or monthly amounts. Manual Data Entry: You can choose to enter information on the Non-registered Investments Variables data entry screen manually, simply by navigating to the appropriate cell and inputting the desired numbers. Automatic Data Entry: You can also fill in some of the columns of the Non-registered Investments Variables data entry screen using the Custom Trend feature. FP Solutions User Manual Non-registered Investments Module Page 51 of 473

53 To apply a custom trend to one of the Non-registered Investments Variables columns: 13. Click on Annual $ or Monthly $ at the top of the column. This will launch the Custom Trend dialogue box for that column. 14. Specify the time over which the custom trend will be applied by either: e. Checking the Use ages box, and then choosing the appropriates ages from the From age and To age drop-down menus; or f. Unchecking the Use ages box, and then choosing the appropriate years from the From year and To year drop-down menus. 15. Specify the first annual amount in the Set value at field. 16. Specify the annual indexation rate, if any, in the Indexed at field. 17. Specify how often the deposit or withdrawal will occur by selecting an option from the Frequency drop-down menu. 18. Click on Apply, and the column will be filled with the specified trend. FP Solutions User Manual Non-registered Investments Module Page 52 of 473

54 To clear out any manually or automatically entered data on the variables page use the Clear All button in the Custom Trend dialogue. When clicked this button removes all of the data in the selected column, to remove data from a specific age or year range use the steps above and enter zero in the Set value at field and the Indexed at field. Documentation To access the documentation for the Non-registered Investments module: 10. From the main menu bar, click on Goto. 11. From the drop-down menu, click on Non-registered Investments. 12. From the drop-down menu, click on Non-registered Investments: Client. This will launch the Non-registered Investments report, which is suitable for distribution to your client. This report is based on the data that you collected, and it is presented in a series of pages. To print the Non-registered Investments report: 15. Make sure that the Non-registered Investments report is on screen (access the report as described above). 16. From the main menu bar, click on File. 17. From the drop-down menu, click on Print Preview. This will launch the Print Preview dialogue box. 18. Select the pages of the Non-registered Investments report that you want to print by holding the Ctrl key, and clicking on the title of each desired page. 19. Click on Print. Summary Page The first part of the Summary page provides a numerical and graphical summary of your client s existing non-registered investment portfolio, based on the information that you recorded on the Asset Values data entry screen. The assets are classified in three simple categories (cash, bonds and equities). The middle chart illustrates your client s planned deposits and withdrawals to his nonregistered investment account, based on the information that you recorded on the Deposit/Withdrawal data entry screen. The final chart on the Summary page illustrates the projected balance of your client s non-registered investment account, based on his initial balance, planned deposits and withdrawals, tax parameters, existing and future asset allocations, and your return assumptions for the various asset classes as specified in your Defaults file. FP Solutions User Manual Non-registered Investments Module Page 53 of 473

55 Ledger Page The Ledger page provides a numerical summary of the projected changes in your client s non-registered investment portfolio on a year-by-year basis. Annual Deposit: This is the sum of your client s annual deposits to his non-registered investment account, including indexing. Annual Withdrawal: This is the sum of: your client s withdrawals from his non-registered investment account; any sales charges, based on the information that you entered on the Carrying Charges data entry screen; any trustee or management fees, if you specified them on the Carrying Charges data entry screen and specified that they are to be paid from the investment account; and any cash distributions of investment income, if you specified that some or all of the investment income is to be distributed on the Taxation data entry screen. Annual Growth: This is the portion of the increase in the Year End Balance that can be attributed to the investment return, net of fees and taxes, but excluding deposits. Weighted Return: This is the projected annual return on the portfolio as a whole, based on the asset allocation that you specified in the Asset Value and Asset Allocation data entry screens and the return assumptions contained in your Defaults file. Allowance for Tax: If you checked the Fund income tax from growth box on the Taxation data entry screen, this column will document the estimated income taxes that your client will have to pay on the projected investment income. Year End Balance: This is the projected balance of your client s non-registered investment account at the end of the year, after accounting for new deposits or withdrawals, investment returns, fees and taxes. Deferred Tax: This is the projected additional income tax that your client would owe if he liquidated his entire non-registered portfolio at the end of the year, thereby triggering capital gains. The deferred tax is calculated based on the difference between the portfolio s current value, its adjusted cost base, the capital gains inclusion rate of 50%, and the top marginal tax rate for the province of residence. FP Solutions User Manual Non-registered Investments Module Page 54 of 473

56 Module: Education Savings This module describes how to develop an education savings plan as a stand-alone plan. You can also develop an education savings plan within the context of a broader financial plan, which is discussed briefly at the end of this module. This module also explains the Education Savings report that FP Solutions generates when you develop an education savings plan. Creating a Stand-alone Education Savings Plan To create an education savings plan for a new client: 1. Click on File in the main menu bar. 2. Click on New in the drop-down menu. This will launch the FP Solutions Start-up dialogue box. 3. Click on Single Needs. 4. Click on Education Savings in the drop-down menu. 5. Click on Next. This will launch the Default Presets screen, which allows you to choose a default scheme of rates of return for each asset class. FP Solutions User Manual - Education Savings Module Page 55 of 473

57 6. Click on your desired default scheme in the drop-down menu. 7. Click on Finish. This will launch a blank education savings plan and the Education Savings data entry wizard. 8. Complete the data entry wizard as described in the next section. 9. Click on Finish. This will launch the Education Savings report. Data Entry Wizard When you launch a new education savings plan, FP Solutions starts a data entry wizard that collects information in three steps: Step 1: Personal Information and Goals and Objectives Step 2: Risk Tolerance, Areas of Concern and Miscellaneous Information Step 3: Non-registered Investments and Education Savings Step 1: Personal Information and Goals and Objectives Step 1 of the data entry wizard includes three main data entry screens: Plan Information Personal Information, which includes 3 sub-screens Goals and Objectives Plan Information Data Entry Screen The Plan Information data entry screen includes the following mandatory fields: Date of Financial Plan: Enter the date on which you completed the financial plan. You must complete this field. All values as of January 1 st : Enter the year to which the collected data applies. You must complete this field. FP Solutions User Manual - Education Savings Module Page 56 of 473

58 Note: FP Solutions uses a 12-month calendar year, so that it can perform accurate tax calculations. The program assumes that all of the data entered will be as of January 1 st of the year entered in this field. If you are starting a plan in the middle of the year, keep in mind that all growth and tax calculations are based on a complete year, so you should try to enter data as of January 1 st, not as of the date that you prepare the plan. If you do start a plan in June, for example, and you must use June values, you are essentially creating a plan that runs from June until June, instead of from January until January. The Plan Information data entry screen also includes the following optional fields: Notes: Enter customized client notes in any or all of the four optional Notes fields. These fields are primarily for your reference. The information will appear on the Personal Details page of the Personal Information report. Personal Data Entry Screen The Personal data entry screen includes three sub-screens: Name and Date of Birth Address Dependents Name and Date of Birth Date Entry Sub-screen This screen includes the following mandatory fields: Date of Birth: Enter the date of birth in alphanumeric format (e.g. January 22, 1957), or as dd/mm/yy (e.g. 22/01/57). Repeat for client s spouse if applicable. Age at Retirement: Enter the client s proposed age of retirement. Only whole numbers will be considered. The software will automatically calculate the Date of Retirement field as the first day of the month following the client s birthday. If you wish to fine-tune this date, enter the exact date in the Date of Retirement field. Repeat for client s spouse if applicable. Note: If you do not enter a retirement age, FP Solutions defaults to age 60 for the client, and it assumes the spouse retires as of the same date, irrespective of the spouse s age. Spouse: Check this box if the plan includes the client and his or her spouse or common-law partner. If you select Spouse, then you must collect all relevant financial information for both the client and his or her spouse, and FP Solutions considers their situations jointly. The remaining fields on this data entry screen are optional fields; however if you do not complete these fields, the Education Savings report will not appear customized for your client. FP Solutions User Manual - Education Savings Module Page 57 of 473

59 Address Data Entry Sub-screen Enter the client s address information in the appropriate fields of the Address data entry screen. Entering this information is optional. However, FP Solutions uses the specified province of residence when calculating income taxes. If you do not specify a province, FP Solutions will use Ontario tax rates. The client s name and address (if entered) will appear on the front page of the printed financial plan. FP Solutions assumes that the client and his or her spouse reside at the same address, and can be contacted via the same address. However, you can enter separate contact phone and fax numbers. Dependants Data Entry Sub-screen The Dependants data entry screen allows you to enter information on up to a maximum of seven of the client s dependants, and to specify whether you would like the financial plan to address education, grant or disability concerns for those dependants. If you are preparing a stand-alone education savings plan, you are particularly concerned with the education and grant features. To add a dependant: 8) Enter the dependant s name in the Name field, and press the enter or tab key to proceed to the next field. 9) Enter the dependant s date of birth in the DOB field, using the format mmm/dd/yyyy (e.g., you would enter August 1, 1995 as Aug ), and press the enter key to activate the remaining fields for that dependant. 10) Select the appropriate relationship from the Relationship drop-down menu (optional) 11) Check the Disability box if the dependant is disabled and will need additional support beyond that required by a non-disabled dependant. 12) Check the Education box if the client plans to fund or help fund the dependant s post-secondary education needs. 13) Check the Grant box if the dependant is eligible for the Canada Education Savings Grant. FP Solutions User Manual - Education Savings Module Page 58 of 473

60 14) Repeat Steps 1 through 6 for each dependant. Goals and Objectives Data Entry Screen This screen is optional. Describe the client s goals and objectives as clearly as you can, using either point form or paragraph format. While this information does not impact the calculations performed by FP Solutions, it is included in the Executive Summary. Click on Next to proceed to Step 2. Step 2: Risk Tolerance, Areas of Concern and Miscellaneous Information When doing anything that deals with investments, including education savings planning, FP Solutions prompts you to enter information regarding your client s risk tolerance. When you develop an education savings plan, this is collected through the Risk Tolerance, Areas of Concern and Miscellaneous Information data entry wizard. This data entry wizard consists of two main data entry screens: Risk Tolerance and Areas of Concern and Miscellaneous Information. Risk Tolerance Data Entry Screen The Risk Tolerance data entry screen starts with a Risk Profile page that allows you to specify either an individual risk assessment (which then requires you to complete a detailed questionnaire on the seven additional sub-screens), or to manually enter the risk tolerance using a drop-down menu. Detailed Risk Profile To complete a detailed risk profile: 1. On the Risk Profile page, choose one of the following: o Click on Individual Assessment if your client is single or only your client will be contributing to the education savings plan. o Click on Combine Client/Spouse Assessment if your client has a spouse or common-law partner, they will both be contributing to the education savings plan, and they have the same risk tolerance levels. o Click on Separate Client/Spouse Assessment if your client has a spouse or common-law partner, they will both be contributing to the education savings plan, and they have different risk tolerance levels. 2. Complete each of the seven Risk Profile sub-screens by selecting the appropriate response to the questions from the drop-down menus. 3. Click on Next to advance to Step 3. FP Solutions User Manual - Education Savings Module Page 59 of 473

61 Manual Risk Profile To specify a risk management profile manually: 1. On the Risk Profile page, click on Manually select risk tolerance. This will activate the risk tolerance drop-down menus. 2. Choose the appropriate risk tolerance level for the client from the drop-down menu for Non-registered Investments. Repeat for the spouse if appropriate. 3. Choose the appropriate risk tolerance level for the client from the drop-down menu for Registered Investments. Repeat for the spouse if appropriate. 4. Click on Next to advance to Step 3. Areas of Concern and Miscellaneous Information Data Entry Screen The four pages of this data entry screen are optional. While the information does not impact the calculations that FP Solutions performs, it forms part of the Executive Summary and you should complete it for your own records. Step 3: Non-registered Investments and Education Savings Step 3 of the Education Savings data entry wizard includes three screens: Asset Value Deposits and Withdrawals RESP/CESG You should enter basic investment information, including existing investment values and regular, recurring deposits and withdrawals, through these data entry screens. Use the Edit Variables function, described later, to enter additional information that is not addressed during the basic data collection process, such as lump-sum deposits or withdrawals, carrying charges, or changing asset allocations. Asset Value Data Entry Screen Use the Asset Value data entry screen to enter the current values of the investments that your client has already set aside for education purposes. You can do this manually, or by using the Allocator function. Manual data entry Enter the current value of the investments in each asset class in the Amount column. FP Solutions automatically calculates and displays the percentage of the portfolio that is allocated to each asset class. FP Solutions User Manual - Education Savings Module Page 60 of 473

62 Using the Allocator Function Alternatively, you can use the Allocator function to specify the desired allocation: 5. Click on Allocator. This will launch the Allocator data entry screen. 6. Enter the total value of your client s investment portfolio in the Amount to Allocate field. 7. Choose your client s risk tolerance by clicking on Conservative, Moderate, Moderate Growth, Moderate Aggressive or Aggressive; each one results in a different allocation as shown in the % field for each asset class. You can also enter the allocations manually. 8. Click on OK. The Allocator data entry screen closes and you are returned to the Asset Values data entry screen, with the portfolio allocated according to your choice. FP Solutions User Manual - Education Savings Module Page 61 of 473

63 Deposits and Withdrawals Data Entry Screen Use the Deposits and Withdrawals data entry screen to record your client s planned deposits or withdrawals from the education savings plan. Deposits Section Annual or Monthly: Click on either Annual or Monthly to specify whether your client will be making deposits annually or monthly. Beginning of period: Check the Beginning of period box if your client will be making deposits at the beginning of each compounding period, and clear the box if your client will be making deposits at the end of each period. Most clients tend to make their deposits at the end of the period, because it gives them the time necessary to accumulate the necessary funds to make their deposits. However, you can show them the advantages of paying themselves first by providing a comparison of the results using both options. Amount: Enter the amount that your client plans to deposit each period for the first age bracket, and repeat for the second age bracket. Note: The CESG will only be paid to the extent the child has available CESG contribution room, and on maximum contributions of $5,000 per year per child. If you enter an amount in excess of $5,000 per year, FP Solutions limits the CESG for that year to the lesser of $1,000, calculated as ($5,000 20%), and 20% of the child s available CESG room. From age: Enter the age at which your client will start making the specified deposits. To age: Enter the age after which your client will cease making the specified deposits. Example: In the screen capture above, the client will make deposits of $200 at the beginning of each month (indexed at 2%), beginning in January of the year in which he FP Solutions User Manual - Education Savings Module Page 62 of 473

64 turns 38, and ending with December of the year in which he turns 44. In January of the year in which he turns 45, the deposits will increase to $400 at the beginning of each month (indexed at 2%), up to and including December of the year in which he turns 60. Index: Enter the annual rate at which deposits are expected to increase, for each age bracket. If deposits are expected to decrease over time, enter the rate as a negative number. Note: Each amount is only indexed until the end of the specified age bracket. At the beginning of the second age bracket, the new amount, without indexation, serves as the starting point. In other words, the amounts that you enter into the Amount fields are future dollars, not current dollars. Reset: If you want to adjust the deposits and you return to the Deposits and Withdrawals data entry screen later, you will note that the fields are blank and disabled. To make these changes on the Deposits and Withdrawals data entry screen, you must first click Reset to reactivate the fields, and then you will have to complete the entire data entry screen, using the same method as discussed above. However, all entries on the Deposits and Withdrawals data entry screen are automatically written into the Portfolio columns of the Education Savings Variables page, discussed later. So, you can also make any desired adjustments directly on the Variables page by using the Edit Variables function, discussed later. Withdrawals Section Annual Tuition Expense: Enter the amount, in current dollars, that your client plans to withdraw to pay for each year of one child s post-secondary tuition. FP Solutions User Manual - Education Savings Module Page 63 of 473

65 Monthly Living Expense: Enter the amount, in current dollars, that your client expects to withdraw to pay for each month of one child s post-secondary living expenses. FP Solutions assumes that this applies twelve months of the year. % Index: Enter the rate at which the annual tuition expense and monthly living expense are expected to rise over time. Age expenses begin: Enter the age at which each child will begin to need funds for post-secondary education. # of Years to fund: Enter the number of years of post-secondary education to be funded for each child. Transfer tax credits to Client/Transfer tax credits to Spouse: Education and tuition tax credits can be claimed by the student, and unused tax credits can be transferred to either parent or be shared between them. So, you can choose to check one, both or neither of these boxes. RESP/CESG Data Entry Screen Plan Contributions made by Client/Spouse: If both parents are contributing to RESPs, enter the portion of each contribution that will be made by the client and by the client s spouse. FP Solutions allocates these contributions according to the individual risk profiles that you specified for each person. FP Solutions User Manual - Education Savings Module Page 64 of 473

66 Total Contributions to date: Enter the contributions made by all parties to RESPs for dependants. Contributions to RESPs are restricted by the Income Tax Act to a lifetime limit of $50,000 per child. If the amounts that you specified on the Deposits and Withdrawals data entry screen exceed this amount, the money is assumed to accumulate in a non-registered education trust, and no grant is given on the excess amount Plan created in year: Enter the year that the RESP account was created. The Income Tax Act limits the number of years that contributions can be made to the plan, and the number of years that the plan can exist before it must be collapsed. Available Grant room: Enter the total amount of CESG grant room for all dependants. CESG grant room accumulates at a rate of $2,000 per year from the later of the year of birth and 1998, through Beginning in 2007, the grant room increases to $2,500 per year. Unused grant room is carried forward. The CESG grant is 20% on annual contributions equal to the lesser of $5,000 and the child s unused CESG room for that year. Total Grants to date: Enter the total amount of CESG grants that have been received for all dependants. The maximum CESG over a child s lifetime is $7,200, so FP Solutions limits the total grants to this amount. Making Changes If you want to make changes to the education savings plan after you have completed the Education Savings data entry wizard: 1) Click on Data in the main menu bar. 2) Click on Non-registered Investments in the drop-down menu. 3) Click on Education Savings in the drop-down menu. This will launch the Education Savings data entry dialogue box, which consists of the following five screens: Asset Values Asset Allocation Deposit/Withdraw RESP/CESG Carrying Charges Asset Values Data Entry Screen This is the same as the Asset Values data entry screen described earlier under Step 3. FP Solutions User Manual - Education Savings Module Page 65 of 473

67 Asset Allocation Data Entry Screen When you complete the Asset Values data entry screen, you specify an asset allocation either by entering the amounts of existing investments in each asset class, or by using the Allocator function. FP Solutions uses this asset allocation throughout the education savings planning period, unless you choose to modify the allocation using the Asset Allocation data entry screen, or the Edit Variables function discussed later. The Asset Allocation data entry screen shows the existing asset allocation in the left column. In the remaining columns, you can specify up to two different asset allocations to be implemented as the client ages: 1) Choose the age at which the allocation should change from the drop-down menu at the top of the column. 2) Enter the new asset allocation values in the asset fields below that age. If you do not specify a new asset allocation, FP Solutions maintains the existing asset allocation throughout the planning period. Deposit/Withdraw Data Entry Screen This is essentially the same as the Deposits and Withdrawals data entry screen described earlier under Step 3. The only difference is that it only includes one age range instead of two. To enter a new amount, first click Reset. This re-activates the data entry fields and you can enter the new data. FP Solutions User Manual - Education Savings Module Page 66 of 473

68 To change the deposits over time, use the Edit Variables function, described later. RESP/CESG Data Entry Screen This is the same as the RESP/CESG data entry screen described earlier under Step 3. Carrying Charges Data Entry Screen When you complete the Education Savings data entry wizard, FP Solutions assumes that the investments are made in no-load funds and that management fees are not charged. If this is not the case, you can factor in the investment carrying charges by completing the Carrying Charges data entry screen. New deposit sales charge: Enter the average front-end charge that your client will pay on new education savings investments. FP Solutions deducts these sales charges from the investment account. Annual administration/trustee fee: Enter any flat annual fees associated with your client s education savings investment account. Enter this as a dollar amount (e.g., $100). FP Solutions deducts these fees from the investment account. FP Solutions User Manual - Education Savings Module Page 67 of 473

69 Managed/Wrap Account expense: Enter any percentage fees associated with your client s education savings investment account. Enter this as a percentage of total assets (e.g. 2%). FP Solutions deducts these charges from the investment account. Using the Edit Variables Function to Enter Variable Data If your client plans to make deposits or withdrawals to the education savings plan that are non-recurring or variable in nature, enter this information using the Edit Variables function. You can also use the Edit Variables function to enter variable information about trustee fees, changes in asset allocation, and lump-sum plan contributions or withdrawals. Accessing the Edit Variables Function To access the Edit Variables function: 1) Click on Data in the main menu bar. 2) Click on Non-registered Investments in the drop-down menu. 3) Click on Education Savings in the drop-down menu. This will launch the Education Savings data entry dialogue box. 4) From any of the Education Savings data entry screens, click on Edit Variables. This will open the Education Savings Variables data entry screen, where you can enter additional information on a year-by-year basis. Alternatively, if you have the Education Savings module displayed, click on the Variables tab. Entering Data There are several buttons of note on the top left of the Education Savings Variables screen. Click on Data to return to the Education Savings data entry dialogue box. Click on CALC to recalculate the spreadsheet values. Click on OK /Main to return to the data entry screen that you were in before you clicked on Edit Variables. However, you should first recalculate the spreadsheet values. From the drop-down menu, click on Trustee Fee, Allocation, Contributions or Withdrawals to navigate quickly to various sections of the data entry screen. FP Solutions User Manual - Education Savings Module Page 68 of 473

70 Note that at the top of each amount column of the Education Savings Variables data entry screen, it specifies whether the amounts that you enter should be annual or monthly amounts. Manual Data Entry You can choose to enter information on the Education Savings Variables data entry screen manually, simply by navigating to the appropriate cell and inputting the desired numbers. Automatic Data Entry You can also fill in some of the columns of the Education Savings Variables data entry screen using the Custom Trend feature. FP Solutions User Manual - Education Savings Module Page 69 of 473

71 To apply a custom trend to one of the Educations Savings Variables columns: 19. Click on Annual $ or Monthly $ at the top of the column. This will launch the Custom Trend dialogue box for that column. 20. Specify the time over which the custom trend will be applied by either: g. Checking the Use ages box, and then choosing the appropriates ages from the From age and To age drop-down menus; or h. Unchecking the Use ages box, and then choosing the appropriate years from the From year and To year drop-down menus. 21. Specify the first annual amount in the Set value at field. 22. Specify the annual indexation rate, if any, in the Indexed at field. 23. Specify how often the deposit or withdrawal will occur by selecting an option from the Frequency drop-down menu. 24. Click on Apply, and the column will be filled with the specified trend. FP Solutions User Manual - Education Savings Module Page 70 of 473

72 Documentation To access the documentation for the Education Savings module: 13. Click on Goto in the main menu bar. 14. Click on Non-registered Investments in the drop-down menu. 15. Click on Education Savings in the drop-down menu. This will launch the Education Savings report, which is suitable for distribution to your client. This report is based on the data that you collected, and it is presented in a series of pages. Printing the Report To print the Education Savings report: 20. Make sure that the Education Savings report is on screen (access the report as described above). 21. Click on File in the main menu bar. 22. Click on Print Preview in the drop-down menu. This will launch the Print Preview dialogue box. 23. Select the pages of the Education Savings report that you want to print by holding the Ctrl key, and clicking on the title of each desired page. 24. Click on Print. Summary Page The Summary page of the Education Savings report includes three main sections, discussed below. Existing Portfolio The first part of the Summary page provides a numerical and graphical summary of your client s existing education savings portfolio, based on the information that you recorded on the Asset Values data entry screen. The assets are classified in three simple categories (cash, bonds and equities). FP Solutions User Manual - Education Savings Module Page 71 of 473

73 Plan Success The middle graph shows the amounts your client would like to withdraw from the education savings account,, based on the information that you recorded on the Deposits and Withdrawals data entry screen. If FP Solutions predicts a shortfall in education funds, this graph will show that shortfall as an unfunded expense. For example, in the graph above, it appears that the education savings plan will be insufficient to fund the final two years of education. Plan Balance The final graph on the Summary page shows planned deposits to your client s education savings account, along with its projected balance,, based on the initial balance, planned deposits and withdrawals, tax parameters, existing and future asset allocations, and your return assumptions for the various asset classes as specified in your Defaults file. Ledger Page The Ledger page provides a numerical summary of the projected changes in your client s education savings plan on a year-by-year basis. Annual Deposit: This is the sum of your client s annual deposits to the education savings account, including indexing. As long as contributions for the dependant do not exceed the lifetime limit of $50,000, FP Solutions assumes that this amount is deposited to an RESP. Annual Grant: This is the CESG grant that the government will pay on eligible RESP contributions. The grant of 20% will only be paid on annual contributions up to the lesser of $5,000 and the child s available CESG room. FP Solutions User Manual - Education Savings Module Page 72 of 473

74 Annual Withdrawal: This is the sum of: any sales charges, based on the information that you entered on the Carrying Charges data entry screen; any trustee or management fees, if you specified them on the Carrying Charges data entry screen; and any lump-sum cash withdrawals resulting from an amount you specified in the Transfer to RRSP column of the Education Savings Variables page. See Transferring Unused Education Balance to RRSP, below. Annual Growth: This is the portion of the increase in the Year End Balance that can be attributed to the investment return, net of fees and taxes, but excluding deposits. Education Expense, Funded: This is the portion of the client s expected education expenses that can be supported by the education savings account. Education Expense, Unfunded: This is the portion of the client s expected education expenses that cannot be supported by the education savings account. It represents a shortfall in funding, meaning that the client will not be able to meet his or her education objectives without making modifications to the education savings plan. Year End Balance: This is the projected balance of the education savings account at the end of the year, after accounting for new deposits or withdrawals, investment returns, fees and taxes. Transferring Unused Education Balance to RRSP Once the client s dependants have completed their post-secondary education, the client may be able to rollover the remaining RESP balance into an RRSP, if the client has sufficient RRSP contribution room. To determine the amount available for transfer, look at the Year End Balance on the Ledger page for the year of the last entry in the Education Expense, Funded column. In the example below, the last education payment is in Year 16, and the year-end balance is $9,326. This amount can be transferred to an RRSP, provided the client has contribution room. FP Solutions User Manual - Education Savings Module Page 73 of 473

75 You can enter this amount in the Transfer to RRSP column of the Education Savings Variables page, for the year following the last year of education funding (e.g., for Year 17 in the example above.) The program will withdraw the lesser of the amount you entered and the remaining portfolio balance, reducing the education savings plan balance to zero. Creating an Education Savings Plan within an Existing Financial Plan If you already have a financial plan for a client in FP Solutions and you want to add an education savings plan: 1. Ensure that the financial plan recognizes the client s dependants by doing the following: a. Click on Data in the main menu bar. b. Click on Client Information in the drop-down menu. c. Click on Personal Information in the drop-down menu. This will launch the Personal Information dialogue box. d. Click on Dependants to access the Dependants data entry screen. e. Enter the required information for each dependant, and make sure the Education and Grant boxes are checked. f. Click OK. 2. Click on Data in the main menu bar. 3. Click on Non-registered Investments in the drop-down menu. 4. Click on Education Savings in the drop-down menu. This will launch a confirmation dialogue box. FP Solutions User Manual - Education Savings Module Page 74 of 473

76 5. Click on Yes in response to the question The module you have selected is not present in the current plan. Would you like to add this to the current plan? This will launch the Education Savings data entry dialogue box, which consists of five screens: Asset Values Asset Allocation Deposit/Withdraw RESP/CESG Carrying Charges 6. Complete these screens as described earlier in this module under Creating a Stand-alone Education Savings Plan. FP Solutions User Manual - Education Savings Module Page 75 of 473

77 Module: Registered Investments Tax Free Savings Accounts This module describes how to enter data regarding your client s existing tax free savings registered account (TFSA) investments, as well as his plans to add to or withdraw from those investments. You must complete separate Registered Investment Tax Free Saving Account modules for your client and his spouse. This module also explains the documentation that FP Solutions generates with respect to your client s registered TFSA investments. Data Entry Enter basic investment information, including existing investment values and adjusted cost bases, as well as regular, recurring deposits and withdrawals, through the basic data entry screens. Enter additional information that is not addressed during the basic data collection process, such as lump sum deposits or withdrawals, by using the Edit Variables function. Basic Data To enter regular, recurring information about your client s registered investments: 13) From the main menu bar, click on Data. 14) From the drop-down menu, click on Registered Non-registered Investments. 15) From the drop-down menu, click on RRSP/RRIF Tax-Free Savings Account: Client. (You can launch a similar module for your client s spouse, by clicking on RRSP/RRIF Tax-Free Savings Account: Spouse). This will launch the RRSP/RRIF Tax-Free Savings Account: Client data entry dialogue box, which consists of seven four data entry screens: Asset Values, Asset Allocation, Deposit, and Withdraw /, Taxation, Carrying Charges. and Miscellaneous. Asset Values Data Entry Screen Use the Asset Values data entry screen to enter the current values and book values of your client s existing investments in both personal and spousal registered tax-free savings plans (RRSPs and RRIFs). You can use one of two methods. FP Solutions User Manual - Registered Investments Tax Free Savings Accounts Module Page 76 of 473

78 First Method: You can enter the current value of each asset class in the Personal Amount and Spousal columns. The corresponding Book Value column will automatically be filled in or as the total of the Personal and Spousal amounts for that asset class. Note that for the purpose of this screen, Spousal refers to registered assets that your client holds in a spousal RRSP or a spousal RRIF (i.e., assets in a plan that your client s spouse contributed to on behalf of your client, such that he is the annuitant). It does not refer to the registered assets owned by the client s spouse, or assets that your client contributed to a spousal RRSP. If you know the book value, you can enter it manually, but now that the foreign content limit has been abolished, you do not absolutely need this data. FP Solutions automatically calculates the percentage of the portfolio that is allocated to each asset class, and displays this allocation between the Spousal Amount column and the Book Value column. FP Solutions User Manual - Registered Investments Tax Free Savings Accounts Module Page 77 of 473

79 Second Method: Alternatively, you can use the Allocator function to specify the desired allocation: 9. At the bottom of the Personal Amount column, click on Allocator. This will launch the Allocator data entry screen for your client s personal registered taxfree savings assets. 10. Enter the total value of your client s personal registered portfolio in the Amount to Allocate field. 11. Choose your client s risk tolerance for his personal registered tax-free savings assets by clicking on Conservative, Moderate, Moderate Growth, Moderate FP Solutions User Manual - Registered Investments Tax Free Savings Accounts Module Page 78 of 473

80 Aggressive or Aggressive; each one will result in a different allocation as shown in the % field for each asset class. You can also enter the allocations manually. 12. Click on OK. The Allocator data entry screen will close and you will be returned to the Asset Values data screen, with the personal registered tax-free savings portfolio allocated according to your choice. 13. Repeat Steps 1 through 4 for your client s spousal registered assets. 14. By default, the Book Value of each asset class will be set to the sum of the same amount automatically entered in the Amount column allocated values for the personal and spousal registered assets, but you can adjust these amounts manually. Asset Allocation Data Entry Screen Use the Asset Allocation data entry screen to specify new target asset allocations to be implemented as your client gets older. FP Solutions allows you to specify changes every year during the planning horizon. These new allocations will apply to both your client s personal and spousal registered assets. The first column of numbers shows the existing asset allocation, based on the asset values that you recorded on the Asset Values data entry screen. To enter a new target asset allocation in the second column: 6. From the drop-down Age menu, choose the age at which you want to change your client s target asset allocation. 7. Enter the target allocation for each asset category for that age. FP Solutions will rebalance the portfolio to the new allocation at that age, after which time the FP Solutions User Manual - Registered Investments Tax Free Savings Accounts Module Page 79 of 473

81 portfolio will be permitted to evolve without further rebalancing until the next age for which you specified a new asset allocation. 8. Repeat for the last column. 9. Click on OK. This will enter the asset allocations for the two ages listed on the screen into the RRSP/RRIF spreadsheet Tax-Free Savings Account Variables page. 10. To enter allocation changes at other ages, simply return to the Asset Allocation data entry screen and repeat Steps 1 through 4 for the additional ages. You can repeat this for every year in the planning horizon, or you can use the Edit Variables function to enter all of the allocation/age sets directly into the Tax-Free Savings Account Variables page RRSP/RRIF spreadsheet. This is discussed further in the section called Variable Data. FP Solutions User Manual - Registered Investments Tax Free Savings Accounts Module Page 80 of 473

82 Once you enter an asset allocation for a specific age, FP Solutions remembers that allocation and denotes this by placing an asterisk beside that age in the New allocation at age drop-down menu. (e.g., 60*). Example: Suppose that you entered only two asset allocation changes, one at age 50 and one at age 60. FP Solutions will rebalance the portfolio to the specified allocation at age 50. The portfolio will then be allowed to grow as the market dictates, and as a result, the asset allocation will evolve continuously. At age 60, the portfolio will be rebalanced to the allocation that you specified for that age. Deposit Data Entry Screen Use the Deposit data entry screen to record your client s total planned deposits to registered investment savings, including personal and spousal plans. Annual or Monthly: Click on either Annual or Monthly to specify whether your client will be making deposits annually or monthly. Beginning of period: Check the Beginning of period box if your client will be making deposits at the beginning of each compounding period, and clear the box if your client will be making deposits at the end of each period. You can use one of two methods to specify how your client will make deposits to his registered investment tax-free savings accounts. First Method Deposit Maximum: The Income Tax Act Federal government restricts the amount that a taxpayer Canadian resident over the age of 18 can contribute to registered a tax-free savings account plans., based on his past earnings history and his participation in a registered pension plan, group RRSP or deferred profit sharing plan. If your client plans to make the maximum contribution to his registered tax-free savings account, you can use the first method: 1. Check the Deposit Maximum until age box. This will deactivate the bottom portion of the Deposit data entry screen. 2. Specify the portion of each deposit that should be deposited to your client s personal registered investment account by entering the appropriate percentage in the Personal field. If you enter less than 100%, FP Solutions will automatically enter the remainder (i.e., 100% - personal amount) in the Spousal field, which refers to the amount that your client will contribute to an RRSP for which his spouse is the annuitant Select the age that the maximum contributions will be deposited into the tax free savings account from the drop down window. Contributions can be made after the selected age but these contributions have to be manually entered on the Variables page. FP Solutions User Manual - Registered Investments Tax Free Savings Accounts Module Page 81 of 473

83 Second method Deposit other than maximum: If your client plans to deposit less than the maximum amount to a registered tax free saving plans, you should use the second method. Note that if you specify deposits that are in excess of the maximum permitted by the Income Tax Act, FP Solutions will reduce the planned deposit to the maximum amount. You can specify two different deposit rates, with the changes to take place when your client reaches a specified age. For each age bracket, you can specify a different allocation between your client s personal and spousal registered investment accounts, as well as a different indexation rate to enter deposits other than the maximum:. FP Solutions User Manual - Registered Investments Tax Free Savings Accounts Module Page 82 of 473

84 1. Clear the Deposit Maximum until age box. This will disable the top-left portion of the Deposit Maximum section of the data entry screen and enable the Deposits other than maximum section. 2. Enter an amount in the Personal and/or Spousal fields for the first age bracket. 3. Enter the age at which your client will start making the specified deposits in the From age field. 4. Enter the age after which your client will cease making the specified deposit in the To age field. 5. Enter the annual rate at which your client will increase his deposits during the specified age bracket. If the deposits will decrease over time, enter a negative number. 6. Repeat steps 2 through 5 for the second age bracket. FP Solutions User Manual - Registered Investments Tax Free Savings Accounts Module Page 83 of 473

85 Example: In the screen capture above, the client will make deposits of $ at the beginning of each month to his personal RRSPTFSA, and $100 at the beginning of each month to a spousal RRSP, beginning in January of the year in which he turns 40 and continuing until the December of the year in which he turns 44. In January of the year in which he turns 45, the deposits will increase to $600 per month to his personal RRSP and $300 per month to a spousal RRSP, and these will continue until December of the year in which he turns 55.from his age of 46 until the end of the year that he turns 65. These deposits will also increase each year by 3%. Note also that each amount is only indexed until the end of the specified age bracket. At the beginning of the second age bracket, the new amount, without indexation, serves as the starting point. In other words, the amounts that you enter into the Amount fields are future dollars, not current dollars. FP Solutions User Manual - Registered Investments Tax Free Savings Accounts Module Page 84 of 473

86 Resetting the Deposits: If you want to adjust the deposits later, and you return to the Deposit data entry screen, you will note that the fields are blank and disabled. To make the changes on the Deposit data entry screen, you must first click on Reset to enable the fields, and then you will have to complete the bottom portion of the data entry screen, using the same method as discussed above. However, all entries on the Deposit data entry screen are automatically written into the Personal or Spousal columns of the Registered Investments Tax Free Savings Account Variables page. So, you can also make the desired adjustments directly on the Variables page by using the Edit Variables function button. FP Solutions User Manual - Registered Investments Tax Free Savings Accounts Module Page 85 of 473

87 Withdrawal / Carrying Charges Data Entry Screen Use the Withdrawal/ Carrying Charges data entry screen to record your client s planned withdrawals from his registered funds tax free savings account, and to describe the fees associated with your client s tax free investment accounts, and the source of funds used to pay those fees. which include his personal RRSPs/RRIFs, as well as any spousal plan for which he is the annuitant (i.e., accounts that his spouse contributed to). Annual or Monthly: Click on either Annual or Monthly to specify whether your client will be making withdrawals annually or monthly. Beginning of period: Check the Beginning of period box if your client will be making withdrawals at the beginning of each compounding period, and clear the box if your client will be making withdrawals at the end of each period. You can use one of two methods to specify the RRSP/RRIF withdrawals. First Method: If your client plans to make only the minimum withdrawal, you can use the first method. Begin RRIF at age: Enter the age at which your client will convert his RRSP into a RRIF. The maximum age at which a taxpayer can convert an RRSP to a RRIF is age 69. Note that withdrawals from a RRIF do not have to commence until the year after the year that the RRIF is established, and FP Solutions assumes that this is the case even if your client elects to establish a RRIF earlier than age 69. Example: Suppose that Bill converts his RRSP to a RRIF at age 67. FP Solutions assumes that the minimum withdrawals will begin at age 68. While most people choose not to RRIF their RRSPs until age 69, some people choose to do so earlier to create income that is eligible for the pension tax credit. Split % of RRSP/RRIF income starting at age: FP Solutions allows the income being withdrawn from a RRSP or RRIF to be split between the spouses to help them minimize their taxes payable. To split the income check the Split box and then enter the percent of the income that is being split to the spouse, this percentage can be a maximum of 50%. Finally, select an age at which the splitting of the income will begin from the drop down provided. FP Solutions User Manual - Registered Investments Tax Free Savings Accounts Module Page 86 of 473

88 Base RRIF minimum on Spouse s age: The Income Tax Act prescribes the minimum required withdrawals from a RRIF, based on age. If your client s spouse is younger than your client is, then the RRIF should be based on the spouse s age, because it reduces the minimum withdrawal required by the Income Tax Act and maximizes the tax deferral opportunities while maintaining flexibility of withdrawals. Second Method: If your client plans to withdraw more than the minimum required amount, you should use the second method, which involves filling in the Withdrawals other than minimum section. Note that if the withdrawals that you specify in this portion of the data entry screen are less than the required minimum withdrawal under the Income Tax Act, then FP Solutions will override your selection and use the required minimum withdrawal from his tax free savings account use the following steps:. You can specify two different withdrawal rates, with the changes to take place when your client reaches a specified age. For each age bracket, you can also specify a different indexation rate. FP Solutions User Manual - Registered Investments Tax Free Savings Accounts Module Page 87 of 473

89 1. Enter the desired withdrawal in the Amount field for the first age bracket. 2. Enter the age at which your client will start making the specified withdrawal in the From age field. 3. Enter the age after which your client will cease making the specified withdrawal in the To age field. 4. Enter the annual rate at which your client will increase his withdrawals during the specified age bracket. If the withdrawals will decrease over time, enter a negative number. 5. Repeat steps 1 through 4 for the second age bracket. FP Solutions User Manual - Registered Investments Tax Free Savings Accounts Module Page 88 of 473

90 Example: Suppose that you specified monthly withdrawals of $5,000 from age 60 to age 64, and withdrawals of $4,000 monthly from age 65 to age 90. FP Solutions assumes that the $5,000 monthly withdrawals (indexed) will start in January of the year in which your client turns 60 and continue until the December of the year in which he turns 64. This will decrease to $4,000 per month (indexed) in January of the year in which your client turns 65 and continue at this amount until the December of the year in which he turns 90. Caution : Be careful of the potential for an overlap between the age brackets that you specify on the Deposit and Withdrawal data entry screens. Example: Suppose that on the Deposit data entry screen, you specified deposits of $400 per month from age 50 to age 60, and that on the Withdrawal/Carrying Charges data entry screen you specified withdrawals of $1,000 per month from age 60 to 65. FP Solutions will assume that the deposits of $400 per month start in January of the year in which your client turns 50 and go until December of the year in which he turns 60, but that the withdrawals of $1,000 per month will start in January of the year in which he turns 60. So, for each month of the year in which the client turns 60, FP Solutions will assume deposits of $400 and withdrawals of $1,000 at the same time. Resetting the Withdrawals: If you want to adjust the withdrawals later, and you return to the Withdrawal data entry screen, you will note that the fields are blank and disabled. To make the changes on the Withdrawal data entry screen, you must first click on Reset to enable the fields, and then you will have to complete the bottom withdrawal portion of the data entry screen, using the same method as discussed above. FP Solutions User Manual - Registered Investments Tax Free Savings Accounts Module Page 89 of 473

91 However, all entries on the Withdrawal data entry screen are automatically written into the Withdrawal columns of the Registered Tax Free Savings Account Investments Variables page. So, you can also make the desired adjustments directly on the Variables page by using the Edit Variables function. Taxation Data Entry Screen Use the Taxation data entry screen to enter a variety of parameters that will affect the growth and taxation of your client s registered investment portfolio. Annual portfolio turnover: Enter the rate at which your client is likely to turn over the Canadian content of his registered portfolio in the Canadian content field. Enter the rate FP Solutions User Manual - Registered Investments Tax Free Savings Accounts Module Page 90 of 473

92 at which your client is likely to turnover the foreign content of his registered portfolio in the Foreign content field.. In an unregistered investment account, portfolio turnover can result in realized taxable capital gains, but this is not an issue with a registered account because it is tax sheltered. When assets within a registered account are sold, it resets the cost base of the portfolio, and this was particularly important when the foreign content of registered plans was limited. FP Solutions used the portfolio turnover rates to ensure that the registered portfolio did not violate the foreign content limit. Although the foreign content limit has been eliminated and thus the turnover rate within a registered portfolio does not have tax implications, it is still important from the point of view of specifying the extent to which your client subscribes to a buy and hold strategy. It also has implications for the brokerage or trading fees incurred by your client. Unused contribution amount: If your client has unused RRSP contribution room, enter this amount in the Unused contribution amount field. In addition to RRSP contribution room carried forward from a previous year, on January 1 st of each year, your client will receive new RRSP contribution room, based on his employment earnings and pension plan participation in the previous year. Normally this new room is calculated by FP Solutions based on information that you entered elsewhere regarding your client s employment income and pension participation. If this is the case, do not include the new RRSP room in the amount that you enter into the Unused contribution amount field, and leave the Includes 1 st year maximum box unchecked. Includes 1 st year maximum: If you are running the RRSP module as a stand-alone module, you will not have entered information regarding your client s employment income and pension plan participation. If this is the case, the amount that you enter in the Unused contribution amount field should include the new RRSP contribution room that arises on January 1 st (you will have to calculate this amount manually), plus the carried forward amount, and you should check the Includes 1 st year maximum box. Note: if you are basing the unused room on the client s Notice of Assessment, you should check this box because Canada Revenue Agency has already included the first year maximum in his available contribution room. Set maximum contribution limit at: FP Solutions automatically calculates your client s RRSP contribution limit based on information that you entered elsewhere regarding his employment income and pension plan participation. However, if you are running the RRSP module as a stand-alone module, you will not have entered this information, and FP Solutions will calculate the RRSP contribution room to be zero. If this is the case, you can override the automatic calculation by checking the Set maximum contribution limit at box, and entering an amount in the corresponding field. The amount that you entered will automatically be indexed at the default inflation rate until your client reaches retirement. FP Solutions User Manual - Registered Investments Tax Free Savings Accounts Module Page 91 of 473

93 Unclaimed contribution amount: If your client has made RRSP contributions in previous years for which he has yet to claim a deduction, enter the unclaimed amount. FP Solutions will deduct this unclaimed amount to reduce your client s taxable income in the first year, unless you specify a taxable income threshold (see below). Taxable income threshold: If your client has an unclaimed RRSP contribution, FP Solutions will automatically deduct this amount when calculating your client s taxable income for the first year. However, you can override this automatic deduction by checking the Taxable income threshold box and entering an amount in the corresponding field. If you do this, FP Solutions will only claim the unused deduction in a year when your client s taxable income exceeds the specified threshold. You can use this feature to optimize use of the deduction, by delaying the deduction to a time when your client s marginal tax rate is higher. Carrying Charges Data Entry Screen Use the Carrying Charges data entry screen to describe the fees associated with your client s registered investment accounts, and the source of funds used to pay those fees. New deposit sales charge: Enter the average front-end charge that your client will pay on new investments. FP Solutions assumes that these sales charges will be deducted from the investment account. Annual administration/trustee fee: Enter any flat annual fees associated with your client s registered investment account. Enter this as a dollar amount (e.g., $100). Managed/Wrap Account expense: Enter any percentage fees associated with your client s registered investment account. Enter this as a percentage of total assets (e.g. 2%). Pay account charges outside of investment until age: If your client will use other sources of funds (e.g., employment income) to pay the annual administration fee or the percentage management fee, check this box. Then choose the age at which your client will start paying these fees from the registered tax free investment account by selecting FP Solutions User Manual - Registered Investments Tax Free Savings Accounts Module Page 92 of 473

94 the appropriate age from the drop-down menu. To always pay the account charges with outside funds, select the age that corresponds to the end of your client s planning horizon. If your client wants to pay the account charges from the investment income, clear the checkbox. Miscellaneous Data Entry Screen Use the Miscellaneous data entry screen to enter information regarding your client s use of the RRSP Lifelong Learning Plan, Home Buyers Plan, or RRSP rollovers. Lifelong Learning Plan: Under the Lifelong Learning Plan, your client can withdraw up to $10,000 per year from his RRSP tax-free (to a maximum of $20,000 over no more than 4 years), to assist with the cost of attending a qualifying educational institution. The funds must be repaid in installments over a maximum of 10 years, beginning in the 5 th year after the year of the first withdrawal, or the year after the last year during which the taxpayer was a full-time student, whichever is earlier. FP Solutions assumes that the repayments will start in the 5 th year after the year of the first withdrawal. Prior withdrawals: Enter any withdrawals that your client has made from his RRSP under the Lifelong Learning Plan. Year of 1 st withdrawal: Enter the first year that your client made an RRSP withdrawal under the Lifelong Learning Plan. This will be used to determine when payments must commence. Annual repayment: Enter the amount of each remaining payment. While the minimum annual repayment is normally equal to (withdrawal 10), your client can choose to repay it faster by making larger installments. If your client chooses to repay it at a slower rate, the shortfall (the difference between the minimum payment and the actual payment) will be included in his taxable income for the year. If you leave this field blank, FP Solutions will automatically add the minimum payment to your client s income each year. Future annual withdrawals: If your client plans to make use of the Lifelong Learning Plan in the future, enter the expected annual withdrawals (FP Solutions assumes that all future withdrawals will be of equal amounts). Year withdrawals begin: Enter the year that your client expects to make an RRSP withdrawal under the Lifelong Learning Plan. FP Solutions User Manual - Registered Investments Tax Free Savings Accounts Module Page 93 of 473

95 Number of withdrawals: Enter the number of future annual RRSP withdrawals that your client expects to make under the Lifelong Learning Plan. Home Buyers Plan: Under the Home Buyers Plan, your client can withdraw up to $20,000 from his RRSP tax-free, if he qualifies as a first time homebuyer, to assist with the purchase of a qualifying home. The withdrawn amount must be repaid in installments over a maximum of 15 years, starting in the second year after the withdrawal is made. Loan amount: Enter the amount that your client has withdrawn (or plans to withdraw) from his RRSP under the Home Buyers Plan (maximum of $20,000). Year of withdrawal: Enter the year that your client withdrew (or plans to withdraw) funds from his RRSP under the Home Buyers Plan. Annual payment: While the minimum annual repayment is normally equal to (withdrawal 15), your client can choose to repay it faster by making larger installments. If your client chooses to repay it at a slower rate, the shortfall (the difference between the minimum payment and the actual payment) will be included in his taxable income for the year. If you leave this field blank, FP Solutions will automatically add the minimum payment to your client s income each year. RRSP Rollovers: Sometimes a taxpayer will receive a lump-sum payment that he is allowed to rollover into his RRSP. This could include a retiring or severance allowance in respect of service prior to 1996, a commutation payment from a pension plan, or funds from a spouse s registered plan because of that spouse s death. FP Solutions allows you to enter two such payments via the RRSP Rollover portion of the Miscellaneous data entry screen. If your client expects to receive such a payment: 1. Enter the amount in the Rollover amount field. 2. Select the age at which your client expects to receive the payment from the corresponding drop down menu. 3. Repeat Steps 1 and 2 for a second payment if required. FP Solutions User Manual - Registered Investments Tax Free Savings Accounts Module Page 94 of 473

96 Tax Document: From a tax perspective, a rollover is tax neutral. In some cases, it may be necessary to record it as taxable income, but then an offsetting deduction can be claimed, so no tax liability arises. If you would like the rollover to show up on both the Projected Income and Projected Cash Flow modules, check the Tax Document box. When you select this option, FP Solutions records the rollover as taxable income and then records a tax deduction equal to the amount being rolled over. On the Cash Flow page, the rolled over amount is shown as being received as income, but then it is also shown as being invested, which results in a net zero effect on cash flow. Variable Data If your client plans to make non-recurring or variable deposits or withdrawals to his registered tax free savings investment account, enter this information using the Edit Variables function. You can also use the Edit Variables function to enter variable information about portfolio turnover, trustee fees and changes in asset allocation. From any of the RRSP/RRIF Tax Free Savings Account data entry screens, click on Edit Variables. This will open the Tax Free Savings Account RRSP/RRIF Variables data entry screen, where you can enter additional information on a year-by-year basis. There are several buttons of note on the top left of this screen. Click on Data to return to the Tax Free Savings Account RRSP/RRIF data entry dialogue box. Click on CALC to recalculate the spreadsheet values. Click on OK/Main/OK to return to the data entry screen that you were in before you clicked on Edit Variables. However, you should first recalculate the spreadsheet values. Click on the Client s Name to switch to the Edit Variables screen for the client s spouse. From the drop-down menu, click on Turnover, Trustee Fee, Allocation, Deposits or Withdrawals to navigate quickly to various sections of the data entry screen. FP Solutions User Manual - Registered Investments Tax Free Savings Accounts Module Page 95 of 473

97 Note that at the top of each amount column of the Tax Free Savings Account RRSP/RRIF Variables data entry screen, it specifies whether the amounts that you enter should be annual or monthly amounts. Manual Data Entry: You can choose to enter information on the Tax Free Savings Account Registered Investments Variables data entry screen manually, simply by navigating to the appropriate cell and inputting the desired numbers. Automatic Data Entry: You can also fill in some of the columns of the Tax Free Savings Account Registered Investments Variables data entry screen using the Custom Trend feature. FP Solutions User Manual - Registered Investments Tax Free Savings Accounts Module Page 96 of 473

98 FP Solutions User Manual - Registered Investments Tax Free Savings Accounts Module Page 97 of 473

99 To apply a custom trend to one of the Tax Free Savings Account Registered Investments Variables columns: 25. Click on Annual $ or Monthly $ at the top of the column. This will launch the Custom Trend dialogue box for that column. 26. Specify the time over which the custom trend will be applied by either: i. Checking the Use ages box, and then choosing the appropriates ages from the From age and To age drop-down menus; or j. Unchecking the Use ages box, and then choosing the appropriate years from the From year and To year drop-down menus. 27. Specify the first annual amount in the Set value at field. 28. Specify the annual indexation rate, if any, in the Indexed at field. 29. Specify how often the deposit or withdrawal will occur by selecting an option from the Frequency drop-down menu. 30. Click on Apply, and the column will be filled with the specified trend. To clear out any manually or automatically entered data on the variables page use the Clear All button in the Custom Trend dialogue. When clicked this button removes all of the data in the selected column, to remove data from a specific age or year range use the steps above and enter zero in the Set value at field and the Indexed at field. Documentation To access the documentation for the Tax Free Savings Account Registered Investments module: 16. From the main menu bar, click on Goto. 17. From the drop-down menu, click on Non-Registered Investments. 18. From the drop-down menu, click on Registered Investments Tax Free Savings Account: Client. This will launch the Tax Free Savings Account RRSP/RRIF report, which is suitable for distribution to your client. This report is based on the data that you collected, and it is presented in a series of pages. To print the Tax Free Savings Account RRSP/RRIF report: 25. Make sure that the Tax Free Savings Account RRSP/RRIF report is on screen (access the report as described above). 26. From the main menu bar, click on File. FP Solutions User Manual - Registered Investments Tax Free Savings Accounts Module Page 98 of 473

100 27. From the drop-down menu, click on Print Preview. This will launch the Print Preview dialogue box. 28. Select the pages of the Tax Free Savings Account RRSP/RRIF report that you want to print by holding the Ctrl key, and clicking on the title of each desired page. 29. Click on Print. Summary Page The first part of the Summary page provides a numerical and graphical summary of your client s existing registered tax free savings account investment portfolio, based on the information that you recorded on the Asset Values data entry screen. The assets are classified in three simple categories (cash, bonds and equities). The middle chart illustrates your client s planned deposits to his personal registered tax free savings account investment account, based on the information that you recorded on the Deposit data entry screen, as well as any deposits that your client s spouse made to a spousal RRSP that you recorded via the RRSP/RRIF: Spouse module. Your client s deposits to a spousal RRSP, if any, are shown on the spouse s RRSP/RRIF report. The middle chart also shows your client s planned withdrawals from his registered tax free savings accounts, including his personal RRSP or RRIF, as well as any spousal plans of which he is the annuitant. Finally, the middle chart also shows the minimum amount that your client must withdraw each year, based on the minimum withdrawal requirements imposed by the Income Tax Act. The final chart on the Summary page illustrates the projected balance of your client s registered investment accounts Tax free savings account investments, including his personal RRSP or RRIF, as well as any spousal plans of which he is the annuitant. This is based on his initial balance, his planned deposits (as well as any deposits made by his spouse to a spousal RRSP for which he is the annuitant) and withdrawals, existing and future asset allocations, and your return assumptions for the various asset classes as specified in your Defaults file. This chart also shows the deferred taxes that are sheltered as a result from the tax-sheltered growth within the registered tax free savings plans. Ledger Page The Ledger page provides a numerical summary of the projected changes in your client s registered investment tax free savings accounts account investments on a year-by-year basis. Annual Deposit: These are the annual deposits to your client s registered investment accounts. The annual amounts may include: his RRSP deposits to his own RRSP, with indexing if specified; FP Solutions User Manual - Registered Investments Tax Free Savings Accounts Module Page 99 of 473

101 any deposits that his spouse has made to a spousal RRSP of which he is the annuitant, with indexing if specified; repayments under the Home Buyers Plan; repayments under the Lifelong Learning Plan; and rollovers (retiring allowances, commuted pension plan values, rollovers on the death of a spouse, etc.). Where necessary, FP Solutions may restrict the annual deposits to amounts less than the maximums amounts that you specified in the data entry screens, so that the deposits do not exceed the RRSP tax free savings account contribution limit. Annual Maximum: This column displays the annual amount that can be deposited to a tax free savings account. These amounts can be used as a reference to show your client if their contribution is matching the annual maximum allowed. Annual Withdrawal: This is the sum of the annual withdrawals from your client s personal registered plans tax free savings accounts. The annual amounts may include: the annual withdrawals that you specified on the Withdrawals data entry screen, with indexing if specified; any withdrawals under the Home Buyers Plan; any withdrawals under the Lifelong Learning Plan; any sales charges, based on the information that you entered on the Carrying Charges data entry screen; and any trustee or management fees, if you specified them on the Carrying Charges data entry screen and specified that they are to be paid from the investment account. Where necessary, FP Solutions may increase the withdrawals from your client s RRIF to an amount greater than the maximum amount you specified, to comply with the minimum withdrawal rules imposed on RRIFs by the Income Tax Act. Withdrawals that your client s spouse may make from a spousal plan that was established by your client will be documented on that spouse s RRSP/RRIF report. Annual Growth: This is the portion of the increase in the Year End Balance that can be attributed to the investment return, net of fees and taxes, but excluding deposits. Weighted Return: This is the projected annual return on the portfolio as a whole, based on the asset allocation that you specified in the Asset Value and Asset Allocation data entry screens and the return assumptions contained in your Defaults file. FP Solutions User Manual - Registered Investments Tax Free Savings Accounts Module Page 100 of 473

102 Year End Balance: This is the projected balance of your client s registered tax free savings account investment accounts at the end of the year, after accounting for new deposits or withdrawals, investment returns and fees. Deferred Tax Sheltered: This is the projected additional income tax that your client would owe if the entire balance of his registered tax free savings accounts became fully taxable at once (e.g., upon death if the assets did not roll over to a surviving spouse or eligible child) FP Solutions User Manual - Registered Investments Tax Free Savings Accounts Module Page 101 of 473

103 Module: Registered Investments This module describes how to enter data regarding your client s existing registered investments, as well as his plans to add to or withdraw from those investments. You must complete separate Registered Investment modules for your client and his spouse. This module also explains the documentation that FP Solutions generates with respect to your client s registered investments. Data Entry Enter basic investment information, including existing investment values and adjusted cost bases, as well as regular, recurring deposits and withdrawals, through the basic data entry screens. Enter additional information that is not addressed during the basic data collection process, such as lump sum deposits or withdrawals, by using the Edit Variables function. Basic Data To enter regular, recurring information about your client s registered investments: 16) From the main menu bar, click on Data. 17) From the drop-down menu, click on Registered Investments. 18) From the drop-down menu, click on RRSP/RRIF: Client. (You can launch a similar module for your client s spouse, by clicking on RRSP/RRIF: Spouse). This will launch the RRSP/RRIF: Client data entry dialogue box, which consists of seven data entry screens: Asset Values, Asset Allocation, Deposit, Withdraw, Taxation, Carrying Charges and Miscellaneous. Asset Values Data Entry Screen Use the Asset Values data entry screen to enter the current values and book values of your client s existing investments in both personal and spousal registered plans (RRSPs and RRIFs). You can use one of two methods. First Method: You can enter the current value of each asset class in the Personal and Spousal columns. The corresponding Book Value column will automatically be filled in as the total of the Personal and Spousal amounts for that asset class. Note that for the purpose of this screen, Spousal refers to registered assets that your client holds in a FP Solutions User Manual - Registered Investments Module Page 102 of 473

104 spousal RRSP or a spousal RRIF (i.e., assets in a plan that your client s spouse contributed to on behalf of your client, such that he is the annuitant). It does not refer to the registered assets owned by the client s spouse, or assets that your client contributed to a spousal RRSP. If you know the book value, you can enter it manually, but now that the foreign content limit has been abolished, you do not absolutely need this data. FP Solutions automatically calculates the percentage of the portfolio that is allocated to each asset class, and displays this allocation between the Spousal column and the Book Value column. Second Method: Alternatively, you can use the Allocator function to specify the desired allocation: 15. At the bottom of the Personal column, click on Allocator. This will launch the Allocator data entry screen for your client s personal registered assets. 16. Enter the total value of your client s personal registered portfolio in the Amount to Allocate field. 17. Choose your client s risk tolerance for his personal registered assets by clicking on Conservative, Moderate, Moderate Growth, Moderate Aggressive or Aggressive; each one will result in a different allocation as shown in the % field for each asset class. You can also enter the allocations manually. 18. Click on OK. The Allocator data entry screen will close and you will be returned to the Asset Values data screen, with the personal registered portfolio allocated according to your choice. 19. Repeat Steps 1 through 4 for your client s spousal registered assets. FP Solutions User Manual - Registered Investments Module Page 103 of 473

105 20. By default, the Book Value of each asset class will be set to the sum of the allocated values for the personal and spousal registered assets, but you can adjust these amounts manually. Asset Allocation Data Entry Screen Use the Asset Allocation data entry screen to specify new target asset allocations to be implemented as your client gets older. FP Solutions allows you to specify changes every year during the planning horizon. These new allocations will apply to both your client s personal and spousal registered assets. The first column of numbers shows the existing asset allocation, based on the asset values that you recorded on the Asset Values data entry screen. To enter a new target asset allocation in the second column: 11. From the drop-down Age menu, choose the age at which you want to change your client s target asset allocation. 12. Enter the target allocation for each asset category for that age. FP Solutions will rebalance the portfolio to the new allocation at that age, after which time the portfolio will be permitted to evolve without further rebalancing until the next age for which you specified a new asset allocation. 13. Repeat for the last column. 14. Click on OK. This will enter the asset allocations for the two ages listed on the screen into the RRSP/RRIF spreadsheet. 15. To enter allocation changes at other ages, simply return to the Asset Allocation data entry screen and repeat Steps 1 through 4 for the additional ages. You can repeat this for every year in the planning horizon, or you can use the Edit FP Solutions User Manual - Registered Investments Module Page 104 of 473

106 Variables function to enter all of the allocation/age sets directly into the RRSP/RRIF spreadsheet. This is discussed further in the section called Variable Data. Once you enter an asset allocation for a specific age, FP Solutions remembers that allocation and denotes this by placing an asterisk beside that age in the New allocation at age drop-down menu. (e.g., 60*). Example: Suppose that you entered only two asset allocation changes, one at age 50 and one at age 60. FP Solutions will rebalance the portfolio to the specified allocation at age 50. The portfolio will then be allowed to grow as the market dictates, and as a result, the asset allocation will evolve continuously. At age 60, the portfolio will be rebalanced to the allocation that you specified for that age. Deposit Data Entry Screen Use the Deposit data entry screen to record your client s total planned deposits to registered investment savings, including personal and spousal plans. Annual or Monthly: Click on either Annual or Monthly to specify whether your client will be making deposits annually or monthly. Beginning of period: Check the Beginning of period box if your client will be making deposits at the beginning of each compounding period, and clear the box if your client will be making deposits at the end of each period. You can use one of two methods to specify how your client will make deposits to his registered investment accounts. FP Solutions User Manual - Registered Investments Module Page 105 of 473

107 First Method Deposit Maximum: The Income Tax Act restricts the amount that a taxpayer can contribute to registered plans, based on his past earnings history and his participation in a registered pension plan, group RRSP or deferred profit sharing plan. If your client plans to make the maximum contribution to his registered savings, you can use the first method: 3. Check the Deposit Maximum box. This will deactivate the bottom portion of the Deposit data entry screen. 4. Specify the portion of each deposit that should be deposited to your client s personal registered investment account by entering the appropriate percentage in the Personal field. If you enter less than 100%, FP Solutions will automatically enter the remainder (i.e., 100% - personal amount) in the Spousal field, which refers to the amount that your client will contribute to an RRSP for which his spouse is the annuitant. Second method Deposit other than maximum: If your client plans to deposit less than the maximum amount to registered plans, you should use the second method. Note that if you specify deposits that are in excess of the maximum permitted by the Income Tax Act, FP Solutions will reduce the planned deposit to the maximum amount. You can specify two different deposit rates, with the changes to take place when your client reaches a specified age. For each age bracket, you can specify a different allocation between your client s personal and spousal registered investment accounts, as well as a different indexation rate. 7. Clear the Deposit Maximum box. This will disable the top-left portion of the Deposit data entry screen and enable the Deposits other than maximum section. 8. Enter an amount in the Personal and/or Spousal fields for the first age bracket. FP Solutions User Manual - Registered Investments Module Page 106 of 473

108 9. Enter the age at which your client will start making the specified deposits in the From age field. 10. Enter the age after which your client will cease making the specified deposit in the To age field. 11. Enter the annual rate at which your client will increase his deposits during the specified age bracket. If the deposits will decrease over time, enter a negative number. 12. Repeat steps 2 through 5 for the second age bracket. Example: In the screen capture above, the client will make deposits of $400 at the beginning of each month to his personal RRSP, and $100 at the beginning of each month to a spousal RRSP, beginning in January of the year in which he turns 40 and continuing until the December of the year in which he turns 44. In January of the year in which he turns 45, the deposits will increase to $600 per month to his personal RRSP and $300 per month to a spousal RRSP, and these will continue until December of the year in which he turns 55. Note also that each amount is only indexed until the end of the specified age bracket. At the beginning of the second age bracket, the new amount, without indexation, serves as the starting point. In other words, the amounts that you enter into the Amount fields are future dollars, not current dollars. Resetting the Deposits: If you want to adjust the deposits later, and you return to the Deposit data entry screen, you will note that the fields are blank and disabled. To make the changes on the Deposit data entry screen, you must first click on Reset to enable the fields, and then you will have to complete the bottom portion of the data entry screen, using the same method as discussed above. FP Solutions User Manual - Registered Investments Module Page 107 of 473

109 However, all entries on the Deposit data entry screen are automatically written into the Personal or Spousal columns of the Registered Investments Variables page. So, you can also make the desired adjustments directly on the Variables page by using the Edit Variables function. Withdrawal Data Entry Screen Use the Withdrawal data entry screen to record your client s planned withdrawals from his registered funds, which include his personal RRSPs/RRIFs, as well as any spousal plan for which he is the annuitant (i.e., accounts that his spouse contributed to). Annual or Monthly: Click on either Annual or Monthly to specify whether your client will be making withdrawals annually or monthly. Beginning of period: Check the Beginning of period box if your client will be making withdrawals at the beginning of each compounding period, and clear the box if your client will be making withdrawals at the end of each period. You can use one of two methods to specify the RRSP/RRIF withdrawals. First Method: If your client plans to make only the minimum withdrawal, you can use the first method. FP Solutions User Manual - Registered Investments Module Page 108 of 473

110 Begin RRIF at age: Enter the age at which your client will convert his RRSP into a RRIF. The maximum age at which a taxpayer can convert an RRSP to a RRIF is age 71. Note that withdrawals from a RRIF do not have to commence until the year after the year that the RRIF is established, and FP Solutions assumes that this is the case even if your client elects to establish a RRIF earlier than age 71. Example: Suppose that Bill converts his RRSP to a RRIF at age 67. FP Solutions assumes that the minimum withdrawals will begin at age 68. While most people choose not to RRIF their RRSPs until age 71, some people choose to do so earlier to create income that is eligible for the pension tax credit. Split % of RRSP/RRIF income starting at age: FP Solutions allows the income being withdrawn from a RRSP or RRIF to be split between the spouses to help them minimize their taxes payable. To split the income check the Split box and then enter the percent of the income that is being split to the spouse, this percentage can be a maximum of 50%. Finally, select an age at which the splitting of the income will begin from the drop down provided. Base RRIF minimum on Spouse s age: The Income Tax Act prescribes the minimum required withdrawals from a RRIF, based on age. If your client s spouse is younger than your client is, then the RRIF should be based on the spouse s age, because it reduces the minimum withdrawal required by the Income Tax Act and maximizes the tax deferral opportunities while maintaining flexibility of withdrawals. Second Method: If your client plans to withdraw more than the minimum required amount, you should use the second method, which involves filling in the Withdrawals other than minimum section. Note that if the withdrawals that you specify in this portion of the data entry screen are less than the required minimum withdrawal under the Income Tax Act, then FP Solutions will override your selection and use the required minimum withdrawal. You can specify two different withdrawal rates, with the changes to take place when your client reaches a specified age. For each age bracket, you can also specify a different indexation rate. FP Solutions User Manual - Registered Investments Module Page 109 of 473

111 6. Enter the desired withdrawal in the Amount field for the first age bracket. 7. Enter the age at which your client will start making the specified withdrawal in the From age field. 8. Enter the age after which your client will cease making the specified withdrawal in the To age field. 9. Enter the annual rate at which your client will increase his withdrawals during the specified age bracket. If the withdrawals will decrease over time, enter a negative number. 10. Repeat steps 1 through 4 for the second age bracket. Example: Suppose that you specified monthly withdrawals of $5,000 from age 60 to age 64, and withdrawals of $4,000 monthly from age 65 to age 90. FP Solutions assumes that the $5,000 monthly withdrawals (indexed) will start in January of the year in which your client turns 60 and continue until the December of the year in which he turns 64. This will decrease to $4,000 per month (indexed) in January of the year in which your client turns 65 and continue at this amount until the December of the year in which he turns 90. Caution : Be careful of the potential for an overlap between the age brackets that you specify on the Deposit and Withdrawal data entry screens. Example: Suppose that on the Deposit data entry screen, you specified deposits of $400 per month from age 50 to age 60, and that on the Withdrawal data entry screen you specified withdrawals of $1,000 per month from age 60 to 65. FP Solutions will assume that the deposits of $400 per month start in January of the year in which your client turns 50 and go until December of the year in which he turns 60, but that the withdrawals of $1,000 per month will start in January of the year in which he turns 60. So, for each month of the year in which the client turns 60, FP Solutions will assume deposits of $400 and withdrawals of $1,000 at the same time. FP Solutions User Manual - Registered Investments Module Page 110 of 473

112 Resetting the Withdrawals: If you want to adjust the withdrawals later, and you return to the Withdrawal data entry screen, you will note that the fields are blank and disabled. To make the changes on the Withdrawal data entry screen, you must first click on Reset to enable the fields, and then you will have to complete the bottom portion of the data entry screen, using the same method as discussed above. However, all entries on the Withdrawal data entry screen are automatically written into the Withdrawal columns of the Registered Investments Variables page. So, you can also make the desired adjustments directly on the Variables page by using the Edit Variables function. Taxation Data Entry Screen Use the Taxation data entry screen to enter a variety of parameters that will affect the growth and taxation of your client s registered investment portfolio. Annual portfolio turnover: Enter the rate at which your client is likely to turn over the Canadian content of his registered portfolio in the Canadian content field. Enter the rate at which your client is likely to turnover the foreign content of his registered portfolio in the Foreign content field.. In an unregistered investment account, portfolio turnover can result in realized taxable capital gains, but this is not an issue with a registered account because it is tax sheltered. When assets within a registered account are sold, it resets the cost base of the portfolio, and this was particularly important when the foreign content of registered plans was limited. FP Solutions used the portfolio turnover rates to ensure that the registered portfolio did not violate the foreign content limit. FP Solutions User Manual - Registered Investments Module Page 111 of 473

113 Although the foreign content limit has been eliminated and thus the turnover rate within a registered portfolio does not have tax implications, it is still important from the point of view of specifying the extent to which your client subscribes to a buy and hold strategy. It also has implications for the brokerage or trading fees incurred by your client. Unused contribution amount: If your client has unused RRSP contribution room, enter this amount in the Unused contribution amount field. In addition to RRSP contribution room carried forward from a previous year, on January 1 st of each year, your client will receive new RRSP contribution room, based on his employment earnings and pension plan participation in the previous year. Normally this new room is calculated by FP Solutions based on information that you entered elsewhere regarding your client s employment income and pension participation. If this is the case, do not include the new RRSP room in the amount that you enter into the Unused contribution amount field, and leave the Includes 1 st year maximum box unchecked. Includes 1 st year maximum: If you are running the RRSP module as a stand-alone module, you will not have entered information regarding your client s employment income and pension plan participation. If this is the case, the amount that you enter in the Unused contribution amount field should include the new RRSP contribution room that arises on January 1 st (you will have to calculate this amount manually), plus the carried forward amount, and you should check the Includes 1 st year maximum box. Note: if you are basing the unused room on the client s Notice of Assessment, you should check this box because Canada Revenue Agency has already included the first year maximum in his available contribution room. Set maximum contribution limit at: FP Solutions automatically calculates your client s RRSP contribution limit based on information that you entered elsewhere regarding his employment income and pension plan participation. However, if you are running the RRSP module as a stand-alone module, you will not have entered this information, and FP Solutions will calculate the RRSP contribution room to be zero. If this is the case, you can override the automatic calculation by checking the Set maximum contribution limit at box, and entering an amount in the corresponding field. The amount that you entered will automatically be indexed at the default inflation rate until your client reaches retirement. Unclaimed contribution amount: If your client has made RRSP contributions in previous years for which he has yet to claim a deduction, enter the unclaimed amount. FP Solutions will deduct this unclaimed amount to reduce your client s taxable income in the first year, unless you specify a taxable income threshold (see below). Taxable income threshold: If your client has an unclaimed RRSP contribution, FP Solutions will automatically deduct this amount when calculating your client s taxable income for the first year. However, you can override this automatic deduction by checking the Taxable income threshold box and entering an amount in the corresponding field. If you do this, FP Solutions will only claim the unused deduction in a year when FP Solutions User Manual - Registered Investments Module Page 112 of 473

114 your client s taxable income exceeds the specified threshold. You can use this feature to optimize use of the deduction, by delaying the deduction to a time when your client s marginal tax rate is higher. Carrying Charges Data Entry Screen Use the Carrying Charges data entry screen to describe the fees associated with your client s registered investment accounts, and the source of funds used to pay those fees. New deposit sales charge: Enter the average front-end charge that your client will pay on new investments. FP Solutions assumes that these sales charges will be deducted from the investment account. Annual administration/trustee fee: Enter any flat annual fees associated with your client s registered investment account. Enter this as a dollar amount (e.g., $100). Managed/Wrap Account expense: Enter any percentage fees associated with your client s registered investment account. Enter this as a percentage of total assets (e.g. 2%). Pay account charges outside of investment until age: If your client will use other sources of funds (e.g., employment income) to pay the annual administration fee or the percentage management fee, check this box. Then choose the age at which your client will start paying these fees from the registered investment account by selecting the appropriate age from the drop-down menu. To always pay the account charges with outside funds, select the age that corresponds to the end of your client s planning horizon. If your client wants to pay the account charges from the investment income, clear the checkbox. Miscellaneous Data Entry Screen Use the Miscellaneous data entry screen to enter information regarding your client s use of the RRSP Lifelong Learning Plan, Home Buyers Plan, or RRSP rollovers. FP Solutions User Manual - Registered Investments Module Page 113 of 473

115 Lifelong Learning Plan: Under the Lifelong Learning Plan, your client can withdraw up to $10,000 per year from his RRSP tax-free (to a maximum of $20,000 over no more than 4 years), to assist with the cost of attending a qualifying educational institution. The funds must be repaid in installments over a maximum of 10 years, beginning in the 5 th year after the year of the first withdrawal, or the year after the last year during which the taxpayer was a full-time student, whichever is earlier. FP Solutions assumes that the repayments will start in the 5 th year after the year of the first withdrawal. Prior withdrawals: Enter any withdrawals that your client has made from his RRSP under the Lifelong Learning Plan. Year of 1 st withdrawal: Enter the first year that your client made an RRSP withdrawal under the Lifelong Learning Plan. This will be used to determine when payments must commence. Annual repayment: Enter the amount of each remaining payment. While the minimum annual repayment is normally equal to (withdrawal 10), your client can choose to repay it faster by making larger installments. If your client chooses to repay it at a slower rate, the shortfall (the difference between the minimum payment and the actual payment) will be included in his taxable income for the year. If you leave this field blank, FP Solutions will automatically add the minimum payment to your client s income each year. Future annual withdrawals: If your client plans to make use of the Lifelong Learning Plan in the future, enter the expected annual withdrawals (FP Solutions assumes that all future withdrawals will be of equal amounts). Year withdrawals begin: Enter the year that your client expects to make an RRSP withdrawal under the Lifelong Learning Plan. Number of withdrawals: Enter the number of future annual RRSP withdrawals that your client expects to make under the Lifelong Learning Plan. Home Buyers Plan: Under the Home Buyers Plan, your client can withdraw up to $20,000 from his RRSP tax-free, if he qualifies as a first time homebuyer, to assist with the purchase of a qualifying home. The withdrawn amount must be repaid in installments over a maximum of 15 years, starting in the second year after the withdrawal is made. FP Solutions User Manual - Registered Investments Module Page 114 of 473

116 Loan amount: Enter the amount that your client has withdrawn (or plans to withdraw) from his RRSP under the Home Buyers Plan (maximum of $20,000). Year of withdrawal: Enter the year that your client withdrew (or plans to withdraw) funds from his RRSP under the Home Buyers Plan. Annual payment: While the minimum annual repayment is normally equal to (withdrawal 15), your client can choose to repay it faster by making larger installments. If your client chooses to repay it at a slower rate, the shortfall (the difference between the minimum payment and the actual payment) will be included in his taxable income for the year. If you leave this field blank, FP Solutions will automatically add the minimum payment to your client s income each year. RRSP Rollovers: Sometimes a taxpayer will receive a lump-sum payment that he is allowed to rollover into his RRSP. This could include a retiring or severance allowance in respect of service prior to 1996, a commutation payment from a pension plan, or funds from a spouse s registered plan because of that spouse s death. FP Solutions allows you to enter two such payments via the RRSP Rollover portion of the Miscellaneous data entry screen. If your client expects to receive such a payment: 4. Enter the amount in the Rollover amount field. 5. Select the age at which your client expects to receive the payment from the corresponding drop down menu. 6. Repeat Steps 1 and 2 for a second payment if required. Tax Document: From a tax perspective, a rollover is tax neutral. In some cases, it may be necessary to record it as taxable income, but then an offsetting deduction can be claimed, so no tax liability arises. If you would like the rollover to show up on both the Projected Income and Projected Cash Flow modules, check the Tax Document box. When you FP Solutions User Manual - Registered Investments Module Page 115 of 473

117 select this option, FP Solutions records the rollover as taxable income and then records a tax deduction equal to the amount being rolled over. On the Cash Flow page, the rolled over amount is shown as being received as income, but then it is also shown as being invested, which results in a net zero effect on cash flow. Variable Data If your client plans to make non-recurring or variable deposits or withdrawals to his registered investment account, enter this information using the Edit Variables function. You can also use the Edit Variables function to enter variable information about portfolio turnover, trustee fees and changes in asset allocation. From any of the RRSP/RRIF data entry screens, click on Edit Variables. This will open the RRSP/RRIF Variables data entry screen, where you can enter additional information on a year-by-year basis. There are several buttons of note on the top left of this screen. Click on Data to return to the RRSP/RRIF data entry dialogue box. Click on CALC to recalculate the spreadsheet values. Click on OK/Main to return to the data entry screen that you were in before you clicked on Edit Variables. However, you should first recalculate the spreadsheet values. Click on the Client s Name to switch to the Edit Variables screen for the client s spouse. From the drop-down menu, click on Turnover, Trustee Fee, Allocation, Deposits or Withdrawals to navigate quickly to various sections of the data entry screen. Note that at the top of each amount column of the RRSP/RRIF Variables data entry screen, it specifies whether the amounts that you enter should be annual or monthly amounts. FP Solutions User Manual - Registered Investments Module Page 116 of 473

118 Manual Data Entry: You can choose to enter information on the Registered Investments Variables data entry screen manually, simply by navigating to the appropriate cell and inputting the desired numbers. Automatic Data Entry: You can also fill in some of the columns of the Registered Investments Variables data entry screen using the Custom Trend feature. To apply a custom trend to one of the Registered Investments Variables columns: 31. Click on Annual $ or Monthly $ at the top of the column. This will launch the Custom Trend dialogue box for that column. 32. Specify the time over which the custom trend will be applied by either: k. Checking the Use ages box, and then choosing the appropriates ages from the From age and To age drop-down menus; or l. Unchecking the Use ages box, and then choosing the appropriate years from the From year and To year drop-down menus. 33. Specify the first annual amount in the Set value at field. 34. Specify the annual indexation rate, if any, in the Indexed at field. FP Solutions User Manual - Registered Investments Module Page 117 of 473

119 35. Specify how often the deposit or withdrawal will occur by selecting an option from the Frequency drop-down menu. 36. Click on Apply, and the column will be filled with the specified trend. To clear out any manually or automatically entered data on the variables page use the Clear All button in the Custom Trend dialogue. When clicked this button removes all of the data in the selected column, to remove data from a specific age or year range use the steps above and enter zero in the Set value at field and the Indexed at field. Documentation To access the documentation for the Registered Investments module: 19. From the main menu bar, click on Goto. 20. From the drop-down menu, click on Registered Investments. 21. From the drop-down menu, click on Registered Investments: Client. This will launch the RRSP/RRIF report, which is suitable for distribution to your client. This report is based on the data that you collected, and it is presented in a series of pages. To print the RRSP/RRIF report: 30. Make sure that the RRSP/RRIF report is on screen (access the report as described above). 31. From the main menu bar, click on File. 32. From the drop-down menu, click on Print Preview. This will launch the Print Preview dialogue box. 33. Select the pages of the RRSP/RRIF report that you want to print by holding the Ctrl key, and clicking on the title of each desired page. 34. Click on Print. Summary Page The first part of the Summary page provides a numerical and graphical summary of your client s existing registered investment portfolio, based on the information that you recorded on the Asset Values data entry screen. The assets are classified in three simple categories (cash, bonds and equities). The middle chart illustrates your client s planned deposits to his personal registered investment account, based on the information that you recorded on the Deposit data entry screen, as well as any deposits that your client s spouse made to a spousal RRSP that you recorded via the RRSP/RRIF: Spouse module. Your client s deposits to a spousal RRSP, FP Solutions User Manual - Registered Investments Module Page 118 of 473

120 if any, are shown on the spouse s RRSP/RRIF report. The middle chart also shows your client s planned withdrawals from his registered accounts, including his personal RRSP or RRIF, as well as any spousal plans of which he is the annuitant. Finally, the middle chart also shows the minimum amount that your client must withdraw each year, based on the minimum withdrawal requirements imposed by the Income Tax Act. The final chart on the Summary page illustrates the projected balance of your client s registered investment accounts, including his personal RRSP or RRIF, as well as any spousal plans of which he is the annuitant. This is based on his initial balance, his planned deposits (as well as any deposits made by his spouse to a spousal RRSP for which he is the annuitant) and withdrawals, existing and future asset allocations, and your return assumptions for the various asset classes as specified in your Defaults file. This chart also shows the deferred taxes that result from the tax-sheltered growth within the registered plans. Ledger Page The Ledger page provides a numerical summary of the projected changes in your client s registered investment accounts on a year-by-year basis. Annual Deposit: These are the annual deposits to your client s registered investment accounts. The annual amounts may include: his RRSP deposits to his own RRSP, with indexing if specified; any deposits that his spouse has made to a spousal RRSP of which he is the annuitant, with indexing if specified; repayments under the Home Buyers Plan; repayments under the Lifelong Learning Plan; and rollovers (retiring allowances, commuted pension plan values, rollovers on the death of a spouse, etc.). Where necessary, FP Solutions may restrict the annual deposits to amounts less than the maximums that you specified, so that the deposits do not exceed the RRSP contribution limit. Annual Withdrawal: This is the sum of the annual withdrawals from your client s personal registered plans. The annual amounts may include: the annual withdrawals that you specified on the Withdrawals data entry screen, with indexing if specified; any withdrawals under the Home Buyers Plan; any withdrawals under the Lifelong Learning Plan; FP Solutions User Manual - Registered Investments Module Page 119 of 473

121 any sales charges, based on the information that you entered on the Carrying Charges data entry screen; and any trustee or management fees, if you specified them on the Carrying Charges data entry screen and specified that they are to be paid from the investment account. Where necessary, FP Solutions may increase the withdrawals from your client s RRIF to an amount greater than the maximum amount you specified, to comply with the minimum withdrawal rules imposed on RRIFs by the Income Tax Act. Withdrawals that your client s spouse may make from a spousal plan that was established by your client will be documented on that spouse s RRSP/RRIF report. Annual Growth: This is the portion of the increase in the Year End Balance that can be attributed to the investment return, net of fees and taxes, but excluding deposits. Weighted Return: This is the projected annual return on the portfolio as a whole, based on the asset allocation that you specified in the Asset Value and Asset Allocation data entry screens and the return assumptions contained in your Defaults file. Year End Balance: This is the projected balance of your client s registered investment accounts at the end of the year, after accounting for new deposits or withdrawals, investment returns and fees. Deferred Tax: This is the projected additional income tax that your client would owe if the entire balance of his registered accounts became taxable at once (e.g., upon death if the assets did not roll over to a surviving spouse or eligible child). FP Solutions User Manual - Registered Investments Module Page 120 of 473

122 Module: Defined Contribution Pension This module describes how to enter data regarding your client s participation in a defined contribution (DC) pension plan. You must complete separate Defined Contribution Pension modules for your client and his spouse, if they are both members of DC plans. This module also explains the documentation that FP Solutions generates with respect to your client s DC pension plan. Data Entry Enter basic pension plan information, including existing investment values and adjusted cost bases, investment allocations, as well as regular, recurring deposits and withdrawals, through the basic data entry screens. Enter additional information that is not addressed during the basic data collection process, such as lump-sum deposits or withdrawals, by using the Edit Variables function. Basic Data To enter regular, recurring information about a client s defined contribution pension plan: 19) From the main menu bar, click on Data. 20) From the drop-down menu, click on Pension Plans. 21) From the drop-down menu, click on Defined Contribution Pension: Client. (You can launch a similar module for your client s spouse, by clicking on Defined Contribution Pension: Spouse). This will launch the Locked-in RRSP: Client data entry dialogue box, which consists of seven data entry screens: Asset Values, Asset Allocation, Deposit, Withdraw, Taxation, Carrying Charges and Annuity. Asset Values Data Entry Screen Use the Asset Values data entry screen to enter the current values and adjusted cost bases (ACBs) of the existing investments in your client s DC pension plan account. You can use one of two methods. First Method Manual Entry: You can enter the current value of each asset class in the Personal column. The corresponding Book Value column will automatically be filled in as the same amount for that asset class. If you know the book value, you can enter it FP Solutions User Manual - Defined Contribution Pension Module Page 121 of 473

123 manually, but now that the foreign content limit has been abolished, you do not really need this data. FP Solutions automatically calculates the percentage of the portfolio that is allocated to each asset class, and displays this allocation between the Personal column and the Book Value column. Second Method The Allocator: Alternatively, you can use the Allocator function to specify the desired allocation: 21. At the bottom of the Personal column, click on Allocator. This will launch the Allocator data entry screen for your client s DC pension plan account. 22. Enter the total value of your client s DC pension plan account in the Amount to Allocate field. 23. Choose your client s risk tolerance for his pension assets by clicking on Conservative, Moderate, Moderate Growth, Moderate Aggressive or Aggressive; each one will result in a different allocation as shown in the % field for each asset class. You can also enter the allocations manually. 24. Click on OK. The Allocator data entry screen will close and you will be returned to the Asset Values data screen, with the DC pension plan portfolio allocated according to your choices. 25. By default, the Book Value of each asset class will be set to the allocated values, but you can adjust these amounts manually. FP Solutions User Manual - Defined Contribution Pension Module Page 122 of 473

124 Asset Allocation Data Entry Screen Use the Asset Allocation data entry screen to specify new target asset allocations to be implemented for your client s DC pension plan portfolio as he gets older. FP Solutions allows you to specify changes as often as every year during the planning horizon. The first column of numbers shows the existing asset allocation, based on the asset values that you recorded on the Asset Values data entry screen. To enter a new target asset allocation in the second column: 16. From the New allocation at age drop-down, choose the age at which you want to change your client s target asset allocation. 17. Enter the target allocation for each asset category for that age. FP Solutions will rebalance the portfolio to the new allocation at that age, after which time the portfolio will be permitted to evolve without further rebalancing until the next age for which you specify a new asset allocation. 18. Repeat for the last column. 19. Click on OK. This will enter the asset allocations for the two ages listed on the screen into the Defined Contribution Plan Variables page. 20. To enter allocation changes at other ages, simply return to the Asset Allocation data entry screen and repeat Steps 1 through 4 for the additional ages. You can repeat this for every year in the planning horizon, or you can use the Edit Variables function to enter all of the allocation/age sets directly into the Defined Contribution Pension Variables page. This is discussed further in the section called Variable Data. FP Solutions User Manual - Defined Contribution Pension Module Page 123 of 473

125 Once you enter an asset allocation for a specific age, FP Solutions remembers that allocation and denotes this by placing an asterisk beside that age in the New allocation at age drop-down menu. (e.g., 60*). Example: Suppose that you entered only two asset allocation changes, one at age 50 and one at age 60. FP Solutions will rebalance the portfolio to the specified allocation at age 50. The portfolio will then be allowed to grow as the market dictates, and as a result, the asset allocation will evolve continuously. At age 60, the portfolio will be rebalanced to the allocation that you specified for that age. Deposit Data Entry Screen Use the Deposit data entry screen to record the regular planned deposits to your client s DC pension plan account. Annual or Monthly: Click on either Annual or Monthly to specify whether the deposits will be made annually or monthly. Beginning of period: Check the Beginning of period box if the deposits will be made at the beginning of each compounding period, and clear the box if the deposits will be made at the end of each period. You can use two different methods, alone or in combination, to specify how the deposits will be made to your client s DC pension plan account. Contributions (% of Income): In most DC plans, both the employer and the employee contribute a fixed amount of salary. If this is the case, enter the percentage of income that your client must pay in the Employee field, and enter his employer s contribution rate in the Employer field. FP Solutions User Manual - Defined Contribution Pension Module Page 124 of 473

126 Note that the Income Tax Act restricts the amount that can be contributed to a taxpayer s registered savings, including employer and employee contributions to registered pension plans. Contributions to a defined contribution plan are limited by the money purchase limit, which is calculated as 18% of the taxpayer s earned income in the previous year, to an annual maximum imposed by the Income Tax Act. If the deposits that you specify on the Deposit data entry screen would exceed this limit, FP Solutions will limit the deposits to the maximum permitted by the Income Tax Act. Additional Contributions: Sometimes the contributions to a DC plan are defined as a flat amount as opposed to (or in addition to) a percentage of income, or in the case of a deferred profit sharing plan, as a percentage of profits. If this is the case, you can specify the additional contributions, for each of two age brackets, as follows: 1. For the first age bracket, enter the dollar amount of your client s contributions, if any, in the Employee field. 2. Enter the dollar amount of the employer s contributions in the corresponding Employer field. 3. Enter the age at which these contributions will commence in the From age field. 4. Enter the age after which these contributions will cease or change in the To age field. 5. Enter the annual rate at which these contributions will increase during the specified age bracket. If the contributions will decrease over time, enter a negative number. 6. Repeat steps 1 through 5 for the second age bracket. Example: In the screen capture above, the client will contribute $2,500 (indexed at 3%) to his DC plan from January of the year in which he turns 40, up to and including December of the year in which he turns 49, while his employer will contribute $5,000, indexed at 3%, during the same time period. In January of the year in which he turns 50 years of age, his FP Solutions User Manual - Defined Contribution Pension Module Page 125 of 473

127 contributions will increase to $4,000 (indexed at 3%), and his employer s contributions will increase to $8,000 (indexed at 3%). These contributions will continue up to and including December of the year in which he turns 55. Note that each amount is only indexed until the end of the specified age bracket. At the beginning of the second age bracket, the new amount, without indexation, serves as the starting point. In other words, the amounts that you enter into the Amount fields are future dollars, not current dollars. Resetting the Additional Contributions: If you later want to adjust the additional contributions, and you return to the Deposit data entry screen, you will note that the fields are blank and disabled. To make the changes on the Deposit data entry screen, you must first click on Reset to enable the fields, and then you will have to complete the bottom portion of the data entry screen, using the same method as discussed above. However, all entries on the Deposit data entry screen are automatically written into the Employee or Employer columns of the Defined Contribution Pension Variables page. So, you can also make the desired adjustments directly on the Variables page by using the Edit Variables function. Withdraw Data Entry Screen Funds accumulated within a DC pension plan must be used to provide a lifelong retirement income. When a member of a DC pension plan retires or is terminated, the funds can be used to purchase a life annuity, or transferred to a locked-in registered retirement account (LIRA). Once the member has reached the allowable minimum retirement age (specified by pension legislation and the pension plan itself), he can transfer the funds to a locked-in retirement income fund (LRIF) or a life income fund (LIF), depending on the province, or use the proceeds to purchase a life annuity. Use the Withdraw data entry screen to record your client s planned withdrawals from his DC pension plan, whether it is through a LIF, LRIF or life annuity. Annual or Monthly: Click on either Annual or Monthly to specify whether your client will be making withdrawals annually or monthly. Beginning of period: Check the Beginning of period box if your client will be making withdrawals at the beginning of each compounding period, and clear the box if your client will be making withdrawals at the end of each period. FP Solutions User Manual - Defined Contribution Pension Module Page 126 of 473

128 LRIF/LIF at age: Enter the age at which your client will transfer funds from his LIRA into an LRIF/LIF. The maximum age at which a taxpayer can convert a LIRA to an LRIF/LIF is age 71. Note that withdrawals from an LRIF/LIF do not have to commence until the year after the year that the LRIF/LIF is established, and FP Solutions assumes that this is the case even if your client elects to establish an LRIF/LIF earlier than age 71. Example: Suppose that Bill converts his LIRA to a LIF at age 67. FP Solutions assumes that the minimum withdrawals will begin at age 68. While many people do not to convert their LIRAs until age 71, some people choose to do so earlier to create income that is eligible for the pension tax credit. Also, unlike an unlocked RRSP, funds cannot be withdrawn directly from a LIRA, so if your client needs money from his LIRA, he will first have to convert it to an LRIF or a LIF, at which time the minimum withdrawal rules under the Income Tax Act will apply. Split % of LRIF/LIF income starting at age: FP Solutions allows the pension income to be split between the spouses to help them minimize their taxes payable. To split the income check the Split box and then enter the percent of the income that is being split to the spouse, this percentage can be a maximum of 50%. Finally, select an age at which the splitting of the income will begin from the drop down provided. Use Spouse s Age: LRIFs and LIFs are both considered RRIFs in terms of the Income Tax Act, which prescribes the minimum required withdrawals, based on age. If your client s spouse is younger than your client is, then you should base the LRIF or LIF on the spouse s age, because it reduces the minimum withdrawal required by the Income Tax Act and maximizes the tax deferral opportunities while maintaining flexibility of withdrawals. FP Solutions User Manual - Defined Contribution Pension Module Page 127 of 473

129 Retirement Plan: Click on either Locked-in RRIF (LRIF) or Life Income Fund (LIF), to indicate the type of plan your client will be using. The maximum withdrawal from a LIF is based on a calculation of what your client would receive if he used the LIF balance at the beginning of the year to purchase a term certain annuity payable to age 90, using an interest rate that cannot exceed the long-term rate on Government of Canada bonds, or 6%, whichever is greater. Furthermore, he must convert the balance of a LIF to a life annuity by no later than age 80. The maximum withdrawal from an LRIF depends on the plan s investment earnings. Furthermore, an LRIF never has to be converted into a life annuity, so it provides more flexibility in terms of estate planning. However, LRIFs are not available in all provinces. There are three ways that you can specify withdrawals from your client s LRIF/LIF: First method Withdraw minimum required: Use this method if your client wants to maximize tax deferral by restricting his withdrawals to the minimum required under the Income Tax Act: 1. Enter 71 (the latest age at which LIRAs can be turned into an LRIF or LIF) in the LRIF/LIF at age field. 2. Make sure that the Withdraw maximum allowable box is unchecked. 3. Make sure that the No maximum box is unchecked. 4. If your client s spouse is younger than your client, check the Use spouse s age box. 5. Make sure zero (0) is entered in each of the Amount fields in the Withdrawals other than minimum or maximum area of the screen. FP Solutions User Manual - Defined Contribution Pension Module Page 128 of 473

130 Second method Withdraw maximum allowable: If your client wants or needs to withdraw as much as possible from his LIF or LRIF, check the Withdraw maximum allowable box. This will disable the bottom portion of the screen, and FP Solutions will then calculate the maximum withdrawal using the standard pension formulas, depending on whether you specified either an LRIF or a LIF elsewhere on the screen. Third method Withdrawals other than minimum or maximum: If your client plans to withdraw more than the minimum required amount, but less than or more than the maximum amount, you should use the Withdrawals other than minimum or maximum section. Note that if the withdrawals that you specify in this portion of the data entry screen are less than the required minimum withdrawal under the Income Tax Act, then FP Solutions will override your selection and use the required minimum withdrawal. Similarly, if the specified withdrawals exceed the maximum permitted under pension legislation, FP Solutions will override your selection and use the maximum permitted withdrawal (unless you check the No maximum box, discussed shortly). You can specify two different withdrawal rates, with the changes to take place when your client reaches a specified age. For each age bracket, you can also specify a different indexation rate. 11. Enter the desired withdrawal in the Amount field for the first age bracket. 12. Enter the age at which your client will start making the specified withdrawal in the From age field. 13. Enter the age after which your client will cease making the specified withdrawal in the To age field. 14. Enter the annual rate at which your client will increase his withdrawals during the specified age bracket. If the withdrawals will decrease over time, enter a negative number. 15. Repeat steps 1 through 4 for the second age bracket. Example: Suppose that you specified annual withdrawals of $60,000 from age 60 to age 64, and withdrawals of $50,000 annually from age 65 to age 90. FP Solutions assumes that the $60,000 withdrawals will begin in January of the year in which your client turns 60, and they will continue (indexed) up to and including December of the year in which he turns 64. In January of the year in which he turns 65, the withdrawals will decrease to $50,000 annually and they will continue at this amount (indexed) until the December of the year in which he turns 90. FP Solutions User Manual - Defined Contribution Pension Module Page 129 of 473

131 No maximum: The bottom portion of this data entry screen allows you to specify withdrawals other than the maximum or minimum amounts. However, if the amounts that you specify do not satisfy the minimum limit imposed by the Income Tax Act or the maximum limit imposed by pension legislation, FP Solutions will automatically adjust them. The pension legislation in some provisions may allow withdrawals in excess of the maximum amount in certain circumstances (e.g., shortened life expectancy). If you want to override the maximum limit, check the No maximum box. Then FP solutions will not automatically reduce your specified withdrawals even if they exceed the maximum amount. The withdrawals must still meet the minimum withdrawal requirement imposed by the Income Tax Act. Resetting the Withdrawals: If you want to adjust the withdrawals later, and you return to the Withdraw data entry screen, you will note that the fields in the bottom half of the screen are blank and disabled. To make the changes on the Withdraw data entry screen, you must first click Reset to enable the fields, and then you will have to complete the bottom portion of the data entry screen, using the same method as discussed above. However, all entries on the Withdraw data entry screen are automatically written into the Withdrawal column of the Defined Contribution Pension Variables page. So, you can also make the desired adjustments directly on the Variables page by using the Edit Variables function. Taxation Data Entry Screen Use the Taxation data entry screen to enter a variety of parameters that will affect the growth and taxation of your client s DC pension account. FP Solutions User Manual - Defined Contribution Pension Module Page 130 of 473

132 Annual portfolio turnover: Enter the rate at which your client is likely to turn over the Canadian content of his DC pension portfolio in the Canadian content field. Enter the rate at which your client is likely to turnover the foreign content of his DC pension portfolio in the Foreign content field. In an unregistered investment account, portfolio turnover can result in realized taxable capital gains, but this is not an issue with a DC pension account because, as a registered pension plan, it is tax sheltered. When assets within a registered account are sold, it resets the cost base of the portfolio, and this was particularly important when the foreign content of registered plans was limited. FP Solutions used the portfolio turnover rates to ensure that the registered portfolio did not violate the foreign content limit. Although the foreign content limit has been eliminated and thus the turnover rate within a registered portfolio does not have tax implications, it is still important from the point of view of specifying the extent to which your client subscribes to a buy and hold strategy. It also has implications for the brokerage or trading fees incurred by your client. Set maximum contribution limit at: FP Solutions automatically calculates your client s money purchase limit based on information that you entered elsewhere regarding his employment income. However, if you are running the DC Pension module as a standalone module, you will not have entered this information, and FP Solutions will calculate the money purchase limit to be zero. If this is the case, you can override the automatic calculation by checking the Set maximum contribution limit at box, and entering an amount in the corresponding field. LRIF Withdrawals: The maximum withdrawal from an LRIF that is generally permitted by pension legislation is the greatest of the following four amounts: FP Solutions User Manual - Defined Contribution Pension Module Page 131 of 473

133 the minimum withdrawal required under the Income Tax Act; the investment return earned in the previous year; the value of the LRIF at the beginning of the year less the net value of all funds that have been transferred in since the LRIF was established (the net value of funds transferred in means all amounts transferred to the LRIF, including the initial amount used to establish the LRIF, not including investment returns, less all amounts transferred to another LRIF or used to purchase an annuity); and for the first two years of operation, 6% of the value of the LRIF at the beginning of the year. FP Solutions allows you to override the last amount (i.e., 6% for the first 2 years): 1. Enter the desired maximum withdrawal rate in the Maximum % field. 2. Enter the number of years that this maximum percentage should be used in the Apply to the first # of years field. No pension credit pre age 65: The Income Tax Act provides for a non-refundable tax credit on the first $2,000 of eligible pension income, but the definition of eligible pension income for this purpose depends on your client s age. If a taxpayer is at least 65 years old before the end of the year, eligible pension income includes, among other things, regular annuity payments received from a registered pension plan or RRSP or payments from a RRIF. If the taxpayer is not age 65 prior to the end of the year, eligible pension income still includes payments from a pension plan received as a life annuity, but annuity payments from an RRSP, RRIF, LIF or LRIF only qualify as eligible pension income if the payments result from the death of your client s spouse. If your client is under 65 years of age and his withdrawals do not qualify for the pension credit, check the No pension tax credit pre age 65 box. Carrying Charges Data Entry Screen Use the Carrying Charges data entry screen to describe the fees associated with your client s DC pension account, and the source of funds used to pay those fees. FP Solutions User Manual - Defined Contribution Pension Module Page 132 of 473

134 New deposit sales charge: Enter the average front-end charge that your client will pay on new investments purchased within his DC pension account. FP Solutions assumes that these sales charges will be deducted from the investment account. Annual administration/trustee fee: Enter any flat annual fees associated with your client s DC pension account. Enter this as a dollar amount (e.g., $100). Managed/Wrap Account expense: Enter any percentage fees associated with your client s DC pension account. Enter this as a percentage of total assets (e.g. 2%). Pay account charges outside of investment: If your client will use other sources of funds (e.g., employment income) to pay the annual administration fee or the percentage management fee, check this box. Then choose the age at which your client will start paying these fees from the DC pension account by selecting the appropriate age from the drop-down menu. To always pay the account charges with outside funds, select the age that corresponds to the end of your client s planning horizon. If your client always wants to pay the account charges from the investment income, clear the Pay account charges outside of investment box. Annuity Data Entry Screen Use the Annuity data entry screen if your client plans to convert the funds from his DC pension plan into an annuity. When a vested DC pension plan member is terminated or retires, he usually has the choice of purchasing an immediate or deferred annuity, or of transferring the funds to a LIRA, and eventually to an LRIF or LIF, depending on his province of residence. In most jurisdictions, the balance of a LIF must be used to purchase a life annuity by no later than age 80, although the plan member can choose to purchase a life annuity earlier. The annuitant of an LRIF is never required to convert the funds to a life annuity, but is free to do so at any time after reaching the eligible retirement age. FP Solutions User Manual - Defined Contribution Pension Module Page 133 of 473

135 Convert to Annuity: If your client plans to convert his DC account to an annuity at any time during his planning horizon: 1. Check the Convert to Annuity box 2. Enter the age at which this conversion will take place in the Annuitize at age field. 3. Enter the guarantee period of the annuity, if any, in the Guarantee period field. If there is no guarantee period, enter zero. 4. Complete the Annuity Calculation portion of the data entry screen. Annuity Calculation: You can enter your own annuity payment data, or let FP Solutions calculate the annuity payments automatically. If you want to enter your own annuity data: 1. Click on Manual Calculation. 2. Enter the annuity payments in the Monthly field. To use FP Solutions to calculate the annuity payments: 1. Click on Automatic Calculation. 2. Review the amount that FP Solutions automatically enters in the Life expectancy field, which is based on standard mortality tables. If you have reason to believe FP Solutions User Manual - Defined Contribution Pension Module Page 134 of 473

136 that your client s life expectancy is different, enter your own value in the Life expectancy field. 3. Enter the rate of return that FP Solutions should use to calculate the annuity in the Interest rate field. Note that regardless of the method you use, the annuity payments will not be indexed. Variable Data If your client plans to make non-recurring or variable deposits or withdrawals to his DC pension account, enter this information using the Edit Variables function. You can also use the Edit Variables function to enter variable information about portfolio turnover, trustee fees and changes in asset allocation. From any of the Locked-in RRSP data entry screens, click on Edit Variables. This will open the Locked-in RRSP Variables data entry screen, where you can enter additional information on a year-by-year basis. There are several buttons of note on the top left of this screen. Click on Data to return to the Locked-in RRSP data entry dialogue box. Click on CALC to recalculate the spreadsheet values. Click on OK/Main to return to the data entry screen that you were in when you clicked on Edit Variables. However, you should first recalculate the spreadsheet values. Click on the Client s Name to switch to the Edit Variables screen for the client s spouse. From the drop-down menu, click on Turnover, Trustee Fee, Allocation, Deposits or Withdrawals to navigate quickly to various sections of the data entry screen. At the top of each amount column of the Locked-in RRSP Variables data entry screen, it specifies whether the amounts that you enter should be rates (i.e., percentages) or annual or monthly dollar amounts. FP Solutions User Manual - Defined Contribution Pension Module Page 135 of 473

137 Manual Data Entry: You can choose to enter information on the Variables data entry screen manually, simply by navigating to the appropriate cell and inputting the desired numbers. Automatic Data Entry: You can fill in some of the columns of the Locked-in RRSP Variables data entry screen using the Custom Trend feature. To apply a custom trend to a portfolio turnover rate: 2. Click on Rate at the top of one of the Portfolio Turnover columns. This will launch the Custom Trend dialogue box for that column 3. Specify the time over which the custom trend will be applied by either: a. Checking the Use ages box, and then choosing the appropriates ages from the From age and To age drop-down menus; or b. Unchecking the Use ages box, and then choosing the appropriate years from the From year and To year drop-down menus. 4. Specify the turnover rate in the Set value at field. 5. Specify how often the portfolio will turnover by selecting an option from the Frequency drop-down menu. 6. Click on Apply, and the column will be filled with the specified trend. To clear out any manually or automatically entered data on the variables page use the Clear All button in the Custom Trend dialogue. When clicked this button removes all of the data in the selected column, to remove data from a specific age or year range use the steps above and enter zero in the Set value at field and the Indexed at field. FP Solutions User Manual - Defined Contribution Pension Module Page 136 of 473

138 To apply a custom trend to an annual or monthly fee, deposit or withdrawal: 37. Click on Annual $ or Monthly $ at the top of a Trustee Fee, Deposit, or Withdrawal column. This will launch the Custom Trend dialogue box for that column. 38. Specify the time over which the custom trend will be applied by either: a. Checking the Use ages box, and then choosing the appropriates ages from the From age and To age drop-down menus; or b. Unchecking the Use ages box, and then choosing the appropriate years from the From year and To year drop-down menus. 39. Specify the annual amount in the Set value at field. 40. Specify the annual indexation rate, if any, in the Indexed at field. 41. Specify how often the fee will be paid, or how often the deposit or withdrawal will be made, by selecting an option from the Frequency drop-down menu. 42. Click on Apply, and the column will be filled with the specified trend. FP Solutions User Manual - Defined Contribution Pension Module Page 137 of 473

139 Documentation To access the documentation for the Defined Contribution Pension module: 22. From the main menu bar, click on Goto. 23. From the drop-down menu, click on Pension Plans. 24. From the drop-down menu, click on Defined Contribution Pension: Client. This will launch the Defined Contribution Pension report, which is suitable for distribution to your client. This report is based on the data that you collected, and it is presented in a series of pages. To print the Defined Contribution Pension report: 35. Make sure that the Defined Contribution Pension report is on screen (access the report as described above). FP Solutions User Manual - Defined Contribution Pension Module Page 138 of 473

140 36. From the main menu bar, click on File. 37. From the drop-down menu, click on Print Preview. This will launch the Print Preview dialogue box. 38. Select the pages of the Defined Contribution Pension report that you want to print by holding the Ctrl key, and clicking on the title of each desired page. 39. Click on Print. Summary Page The first part of the Summary page provides a numerical and graphical summary of the asset allocation of your client s existing DC pension account, based on the information that you recorded on the Asset Values data entry screen. The assets are classified in three simple categories (cash, bonds and equities). The middle chart illustrates the planned deposits to your client s DC pension account (including both employer and employee contributions) based on the information that you recorded on the Deposit data entry screen, or via the Edit Variables function. The middle chart also shows your client s planned withdrawals from his DC pension account, whether those withdrawals are via an LRIF, LIF or annuity. The minimum required withdrawal is also shown. The final chart on the Summary page illustrates the projected balance of your client s DC pension account. This is based on his initial balance, the planned employer and employee deposits, planned withdrawals, existing and future asset allocations, and your return assumptions for the various asset classes as specified in your Defaults file. Note that the balance will drop to zero when the balance is converted to a life annuity, unless the annuity has a guarantee period, in which case the balance will be equal to the present value of the remaining guaranteed payments. The final chart also shows the deferred taxes that would be owing if your client died and the remaining balance became taxable on his final tax return. Ledger Page The Ledger page provides a numerical summary of the projected changes in your client s DC pension account on a year-by-year basis. Annual Deposit: This is the sum of all of the deposits to your client s DC pension account, including both employer and employee contributions. Where necessary, FP Solutions may restrict the annual deposits to amounts less than the maximums that you specified on the Deposit data entry screen, so that the deposits do not exceed the money purchase contribution limit. Annual Withdrawal: This is the sum of: FP Solutions User Manual - Defined Contribution Pension Module Page 139 of 473

141 the income that your client will receive from his DC pension, whether through withdrawals from an LRIF or LIF, or payments from a life annuity that was purchased with the DC funds; any sales charges, based on the information that you entered on the Carrying Charges data entry screen; and any trustee or management fees, if you specified them on the Carrying Charges data entry screen and specified that they are to be paid from the investment account. Minimum Withdrawal: This is the minimum withdrawal from your client s LIF or LRIF, as imposed by the Income Tax Act. Where necessary, FP Solutions may increase the withdrawals from your client s DC pension account to an amount greater than the maximum amount that you specified on the Withdraw data entry screen, to comply with the minimum withdrawal requirements specified by the Income Tax Act. Annual Growth: This is the portion of the increase in the Estate Value that can be attributed to the investment return, net of fees and taxes, but excluding deposits. Weighted Return: This is the projected annual return on the portfolio as a whole, based on the asset allocation that you specified in the Asset Value and Asset Allocation data entry screens and the return assumptions contained in your Defaults file. Estate Value: This is the projected balance of your client s DC pension account at the end of the year, after accounting for new deposits or withdrawals, investment returns and fees. Deferred Tax: This is the projected additional income tax that your client would owe if the entire balance of his DC pension account became taxable at once (e.g., upon death if the assets did not roll over to a surviving spouse or child). FP Solutions User Manual - Defined Contribution Pension Module Page 140 of 473

142 Module: Defined Benefit Pension This module describes how to enter data regarding your client s participation in a defined benefit (DB) pension plan. You must complete separate Defined Benefit Pension modules for your client and his spouse, if they are both members of DB plans. This module also explains the documentation that FP Solutions generates with respect to your client s DB pension plan. Data Entry Enter basic pension plan information, including current years of service, pension accumulation rates, early retirement factors and employee/employer contribution rates through the basic data entry screens. Enter additional information that is not addressed during the basic data collection process, such as lump-sum contributions or secondary pensions, by using the Edit Variables function. Basic Data To enter regular, recurring information about your client s defined benefit pension plan: 22) From the main menu bar, click on Data. 23) From the drop-down menu, click on Pension Plans. 24) From the drop-down menu, click on Defined Benefit Pension: Client. (You can launch a similar module for your client s spouse, by clicking on Defined Benefit Pension: Spouse). This will launch the Pensions: Client data entry dialogue box, which consists of five data entry screens: Options, Pension Income, Contributions, Survivorship, and Early Retirement. Options Data Entry Screen Use the Options data entry screen to enter the following basic parameters about your client s DB pension plan: FP Solutions User Manual - Defined Benefit Pension Module Page 141 of 473

143 Current years of service: Enter the number of years of credited service that your client has accumulated to date. Minimum age pension can begin: Provincial and federal pension legislation specifies the minimum age at which pension payments can begin, and typically this is within 10 years of normal retirement age, or age 55. However, individual pension plans are free to set stricter minimum age requirements (e.g., while pension legislation may allow pensions to commence at age 55, an individual pension plan may specify that pensions cannot commence until age 60). Enter the greater of the minimum age specified by the pension plan and the minimum age specified by the legislation governing that pension plan. Contributions: You have two choices for completing this section: a) Click on Continue to retirement, to have employer and employee contributions continued until the retirement age that you specified in the Personal Information module. Employer and employee contributions will continue up to and including the last full month prior to the age of retirement. So, if your client plans to retire at age 64, FP Solutions assumes that the employer and employee contributions will continue until the last full month prior to your client s 64 th birthday. b) Click on Other, then enter the age to which contributions should continue in the Age field, and the appropriate month in the Month field. Contributions will continue until the month specified. FP Solutions User Manual - Defined Benefit Pension Module Page 142 of 473

144 Pension: You have two choices for completing this section: a) Click on Income begins at retirement, to have the pension commence with the first calendar month after your client reaches retirement age. Example: If your client plans to retire upon reaching age 64, and his 64 th birthday is on January 1, 2023, his pension will commence in February 2023 if you have clicked on Income begins at retirement. b) Click on Other, and then enter the age at which the pension payments should start in the Age field, and the month after attaining that age that the payment should start in the Month field. Example: Suppose that your client plans to retire upon reaching age 64, and that his 64 th birthday is on January 1, If you click on Other, and specify that his pension should begin in February at age 65, his first pension payment will be for February Pension Income Data Entry Screen Use the Pension data entry screen to specify the parameters that will be used to calculate your client s normal pension. FP Solutions User Manual - Defined Benefit Pension Module Page 143 of 473

145 Annual pension factor: The majority of defined benefit pensions define the pension benefit as a percentage of earnings per year of service. If your client s DB pension uses this method, enter the percentage in the Annual pension factor field. YMPE (factor reduction): Some pension plans integrate the pension benefit with the Canada Pension Plan, so that the full pension is paid up until age 65, when the CPP is assumed to commence. At age 65, the pension formula is adjusted by a YMPE reduction factor. Enter this reduction factor in the YMPE (factor reduction) field. Example: Suppose that Sonya retired at age 63 with 30 years of service and average earnings over the last 5 years of $70,000. Her pension plan is integrated with the CPP, and it provides a maximum benefit of 2% per year of credited service, with a 0.7% YMPE reduction factor. This means that once Sonya reaches 65 years of age, her pension will be calculated as 1.3% (i.e., 2% - 0.7%) per year of service on pensionable earnings up to the YMPE, and 2% per year of service on pensionable earnings in excess of the YMPE. Until she turns 65, Sonya s pension will be $42,000 per year, calculated as (2% 30 $70,000). Once she turns 65, her pension will be reduced because it is assumed that her CPP payments will commence. Assuming that the yearly maximum pension earnings (YMPE) is $39,000 when Sonya turns 65, her pension benefit (ignoring indexation) that year would be 33,810, calculated as ((1.3% 30 $39,000) + (2.0% 30 ($70,000 - $39,000))) Maximum years of service: Enter the maximum number of years for which pension benefits can be accumulated. Pensionable earnings: Click on either Average of last 5 years or Best of last 5 years, depending on the method used by your client s pension plan to determine pensionable earnings. If your client s pension plan uses a different formula, you will have to do the calculations manually, and enter the result in the next section. Manually set pension income: While the majority of defined benefit plans use a pension formula that can be accommodated by the top half of this data entry screen, there are some that do not. For example, they may use a different method of calculating pensionable earnings (e.g., career average earnings), or provide for a flat rate benefit (e.g., $1,000 per year of service). If your client s pension cannot be accommodated by the top half of this data entry screen, you will have to calculate the pension manually and enter it as follows: 1. Check the Manually set pension income box. 2. Enter the annual amount that you calculated in the corresponding data entry field. 3. If the amount that you calculated is in current dollars, check the Today s dollars box. If the amount that you calculated is in future dollars (i.e., the amount at retirement), make sure that the Today s dollars box is unchecked. FP Solutions User Manual - Defined Benefit Pension Module Page 144 of 473

146 You may also want to set the pension income manually, if you need to make the output correspond to the statement that your client receives from his pension fund. Split % of income starting at age: FP Solutions allows the pension income to be split between the spouses to help them minimize their taxes payable. To split the income check the Split box and then enter the percent of the income that is being split to the spouse, this percentage can be a maximum of 50%. Finally, select an age at which the splitting of the income will begin from the drop down provided. Integrate CPP/RPP contributions: If your client s pension plan provides for reduced employee contributions on income up to the CPP s yearly maximum pensionable earnings (YMPE), check the Integrate CPP/RPP contributions box. This has two consequences: a) FP Solutions will reduce the client s DB pension plan contribution by an amount equal to his CPP contributions for the year. Example: Ernie belongs to a contributory DB pension plan that requires an employee contribution of 8.5% of salary, and he earns $80,000 per year, so his contribution without integration would be $6,800, calculated as ($80, %). However, his plan integrates both contributions and benefits with the CPP and has a 0.7% YMPE reduction factor. In 2006, Ernie would have to make CPP contributions of 4.95% on income over the yearly basic exemption of $3,500, up to the YMPE of $42,100, for a total of $1,911, calculated as (($42,100 $3,500) 4.95%). FP Solutions assumes that Ernie s contributions to the DB pension plan would be reduced to $4,889, calculated as ($6,800 $1,911). b) FP Solutions will reduce the pension income from age 65 onwards, to coordinate the pension benefits with the CPP benefit, which normally commences at age 65. This offset is calculated as (factor reduction YMPE for the 3 years prior to age 65 number of years of service). The factor reduction is the amount you entered earlier in the YMPE (factor reduction) field of this data entry screen. The offset will be indexed at the same rate that the pension is indexed. Example: Suppose that Ernie retires at age 60 with 30 years of service and that his plan provides an integrated benefit of 2% of his final average earnings of $100,000, and that the plan has a 0.7% YMPE reduction factor. FP Solutions would calculate his pension benefit at age 60 to be $60,000, calculated as (2% $100,000 30). Now suppose that the average YMPE for the 3 years prior to Ernie reaching age 65 was $45,000. FP Solutions would calculate a reduction in Ernie s pension of $9,450 once he reaches age 65, calculated as (0.7% $45,000 30). Note that this reduction takes place at age 65, even if the client decides to commence receiving his CPP benefits at age 60. Index Pension at (% of Inflation): The more generous DB pension plans index the retirement benefit each year after retirement. The indexation factor is usually specified as a percentage of the Consumer Price Index. Enter this percentage in the Index pension at FP Solutions User Manual - Defined Benefit Pension Module Page 145 of 473

147 (% of inflation) field. FP Solutions will apply this percentage to the inflation rate that you specified in your Defaults file. Example: If you enter 70% in the Index pension at (% of inflation) field, and your default inflation rate is 3%, then pension payments will be indexed by 2.1% annually, calculated as (3 70%). Some pension plans only provide indexation until a certain age, or reduce the level of indexation after a certain age. If this is the case: 1. Enter the appropriate age in the To age field. The first indexation rate that you specify will continue from the time the pension starts until your client attains the specified age. 2. Enter the new indexation rate (as a percentage of the inflation rate) to be applied once your client has reached the specified age, in the Then index pension at field. If indexation ceases at the specified age, enter zero. Note: If you want to maintain the same indexation rate for the full planning period, either change the amount in the To age field to life expectancy, or enter the same inflation rate in the Then index pension at field. Contributions Data Entry Screen Use the Contributions data entry screen to specify the employee and employer contributions to the plan. Employee contributions: Enter the percentage of employment income that the employee will contribute to the plan. FP Solutions User Manual - Defined Benefit Pension Module Page 146 of 473

148 Employer contributions: Enter the minimum percentage of employment income that the employer will contribute to the plan. Pension legislation requires the employer to contribute at least the same amount as the employee. Note that the employer may in fact contribute more than this amount if an actuarial evaluation shows that it is necessary to fund the promised defined benefit at retirement. Although FP Solutions displays these minimum employer contributions in the DB Pension Plan report, it is for illustration purposes only. These employer contributions will not affect any of the future pension income or pension value projections. Maximum income for RPP contributions: If you have not completed the Employment and Other Income module, or if the contributions should be based on an amount that is less than or greater than the recorded employment income, you should check the Maximum income for RPP contributions box. Then, you should enter the desired amount for the first year of the financial plan in the corresponding data entry field. FP Solutions will use this amount, indexed annually to your default inflation rate, as a basis for calculating employer and employee contributions. Manually set Pension Adjustment (PA): If you specified the pension income manually on the Pension Income data entry screen, you will also have to calculate and enter the corresponding pension adjustment. Check the Manually set Pension Adjustment (PA) box, and enter the pension adjustment for the first year of the financial plan in the corresponding data entry field. FP Solutions indexes this amount annually to your default inflation rate. Survivorship Data Entry Screen Use the Survivorship data entry screen to specify whether the pension should be paid out on a single or joint life basis, and what the survivorship benefits are, if any. Single life pension: Most pension legislation requires that, if a plan member is married, the pension be paid out on a joint life basis, although some provinces allow the member s FP Solutions User Manual - Defined Benefit Pension Module Page 147 of 473

149 spouse to waive her pension rights. If your client is single, or if his spouse has waived her pension rights, click on Single life pension. Joint survivor pension: If your client s pension will be paid on a joint life basis, click on Joint survivor pension, and then enter the portion of the full rate pension that will be received in the % of single life pension field. Example: Suppose that your client, Harry, would be entitled to a pension of $38,000 annually if he were single. However, Harry is married to Susan, and he will receive 90% of the full pension, or $34,000 annually on a joint life basis as long as he lives, or for a minimum of 10 years. Furthermore, if he dies before Susan, Susan will continue to receive 60% of the full pension until her death. Survivor benefit: pre-retirement: Enter the percentage of the full pension that your client s surviving spouse will receive if your client predeceases her prior to retiring. Survivor benefit: post-retirement: Enter the percentage of the full pension that your client s surviving spouse will receive if your client predeceases her after retiring. Guarantee period: Enter the number of years that the pension payments are guaranteed. One of the drawbacks of defined benefit plans compared to defined contribution plans is that if the member (and his spouse, if married) dies prematurely, the unpaid pension benefits revert to the pension fund, not to the member s estate. However, many pension plans will guarantee payments for a minimum period, often 10 years. If the member (and his spouse, if married) dies prior to the expiry of the guarantee period, the remaining guaranteed payments will be paid to his estate. Manually set pension value: FP Solutions automatically calculates the living, survivor and estate values of the pension benefit earned to date, based on the present value of the promised pension benefits payable until the end of your client s life expectancy. This present value is calculated using the rate you specify later on this data entry screen (see Rate used to calculate value). However, if you specified the pension income manually on the Pension Income data entry screen, you will also have to calculate the value of the pension manually for the first year of the financial plan. You might choose to do this to make the pension value on your net worth statement conform to the latest pension statement that your client has received from his pension administrator. To do this: 1. Check the Manually set pension value box. 2. Enter your calculated pension value at the beginning of Year 1 of the financial plan in the corresponding data entry field. FP Solutions User Manual - Defined Benefit Pension Module Page 148 of 473

150 If you manually set the pension value for Year 1, FP Solutions will still calculate the pension values for each year from retirement until life expectancy as the present value of the promised pension benefits. However, for each year between Year 1 and retirement, FP Solutions will interpolate the values between the amount that you manually entered for Year 1 and the present value of the promised pension benefits that FP Solutions has calculated for the start of retirement. No pension values: If you do not want FP Solutions to calculate the living, survivor or estate values of the pension plan, check the No pension values box. By checking this box, you will remove the living value of the pension from the Net Worth statement, but you will maintain the income from that pension. Rate used to calculate value: FP Solutions automatically calculates the living, survivor and estate values of the pension benefit earned to date, based on the present value of the promised pension benefits payable until the end of your client s life expectancy. Enter the interest rate that FP Solutions should use in these present value calculations in the Rate used to calculate value field. Early Retirement Data Entry Screen Use the Early Retirement data entry screen to specify the penalty that your client will pay, in the form of a pension reduction, if he retires early. FP Solutions imposes a reduction of the lesser of the amounts calculated via two different formulas. This is best illustrated with an example. Formula 1: Pension plans may provide for an unreduced retirement pension earlier than normal retirement age, if the pensioner reaches a minimum combination of age and years of service. Example: Bill belongs to a DB plan that provides for an unreduced retirement pension once he has reached a minimum age of 55 AND he has accumulated at least 30 years of credited service. The plan allows for early retirement prior to this time as long as at least one of these conditions is met (i.e., he must be at least 55, or he must have at least 30 years of credited service), but it imposes a penalty on the shortfall of the other condition. If Bill retires at age 55 or later, the penalty imposed by Formula 1 is 3% for each year that his credited service is less than 30. If Bill has at least 30 years of credited service, the penalty imposed by Formula 1 is 3% for each year that Bill retires prior to age 55. Based on these parameters, you would fill out the first portion of the Early Retirement data entry screen as follows: FP Solutions User Manual - Defined Benefit Pension Module Page 149 of 473

151 Formula 2: Pension plans may provide for an unreduced retirement pension at normal retirement age, but impose a penalty if the member retires prior to attaining that age. Example: Bill s DB plan provides for an unreduced retirement pension at a normal retirement age of 60. If Bill retires prior to age 60, the penalty imposed by Formula 2 is 5% for each year that he retires prior to age 60. Based on these parameters, you would fill out the second portion of the Early Retirement data entry screen as follows: Example: Now suppose that Bill retires at age 58 with 27 years of credited service. Under Formula 1, Bill s pension would be reduced by 9%, calculated as ((minimum years of service actual years of service) annual penalty) or ((30 27) 3%). Under Formula 2, Bill s pension would be reduced by 10%, calculated as ((normal retirement age - actual retirement age) annual penalty) or ((60 58) 2%) FP Solutions imposes the lesser of these two reductions, or 9%. Variable Data If your client plans to make non-recurring or variable deposits or withdrawals to his DB pension account, enter this information using the Edit Variables function. You can also use the Edit Variables function to enter information on up to three additional DB pensions of which your client is an annuitant. From any of the Pensions data entry screens, click on Edit Variables. This will open the Defined Benefit Pension Variables data entry screen, where you can enter additional information on a year-by-year basis. There are several buttons of note on the top left of this screen. Click on Data to return to the Pensions data entry dialogue box. Click on CALC to recalculate the spreadsheet values. Click on Main/OK to return to the data entry screen that you were in before you clicked on Edit Variables. However, you should first recalculate the spreadsheet values. Click on the Client s Name to switch to the Edit Variables screen for the client s spouse. From the drop-down menu, click on Pensions or Contributions to navigate quickly to various sections of the data entry screen. FP Solutions User Manual - Defined Benefit Pension Module Page 150 of 473

152 Manual Data Entry: You can choose to enter information on the Pension Variables data entry screen manually, simply by navigating to the appropriate cell and inputting the desired numbers. Automatic Data Entry: You can also fill in the columns of the Pension Variables data entry screen using the Custom Trend feature. To apply a custom trend to one of the Other Pension or Contribution columns: 43. Click on Annual $ at the top of the column. This will launch the Custom Trend dialogue box for that column. 44. Specify the time over which the custom trend will be applied by either: c. Checking the Use ages box, and then choosing the appropriates ages from the From age and To age drop-down menus; or d. Unchecking the Use ages box, and then choosing the appropriate years from the From year and To year drop-down menus. 45. Specify the first annual amount in the Set value at field. 46. Specify the annual indexation rate, if any, in the Indexed at field. 47. Specify how often the pension will be paid, or how often the contribution will be made, by selecting an option from the Frequency drop-down menu. 48. Click on Apply, and the column will be filled with the specified trend. To clear out any manually or automatically entered data on the variables page use the Clear All button in the Custom Trend dialogue. When clicked this button removes all of the data in the selected column, to remove data from a specific age or year range use the steps above and enter zero in the Set value at field and the Indexed at field. FP Solutions User Manual - Defined Benefit Pension Module Page 151 of 473

153 Pension Values: For the normal DB pension that you enter through the Pension Income data entry screen, FP Solutions automatically calculates the living, survivor and estate values of the pension benefit earned to date, based on the present value of the promised pension benefits payable until the end of your client s life expectancy. However, FP Solutions does not automatically calculate the living, survivor and estate values of the other pensions that you enter through the Pension Variables data entry screen. If you want FP Solutions to calculate these pension values: 1. From the drop-down menu at the top of each Other Pension column, select the appropriate percentage survivor benefit. 2. Click on CALC. Documentation To access the documentation for the Defined Benefit Pension module: 25. From the main menu bar, click on Goto. FP Solutions User Manual - Defined Benefit Pension Module Page 152 of 473

154 26. From the drop-down menu, click on Pension Plans. 27. From the drop-down menu, click on Defined Benefit Pension: Client. This will launch the Defined Benefit Pension report, which is suitable for distribution to your client. This report is based on the data that you collected, and it is presented in a series of pages. To print the Defined Benefit Pension report: 40. Make sure that the Defined Benefit Pension report is on screen (access the report as described above). 41. From the main menu bar, click on File. 42. From the drop-down menu, click on Print Preview. This will launch the Print Preview dialogue box. 43. Select the pages of the Defined Benefit Pension report that you want to print by holding the Ctrl key, and clicking on the title of each desired page. 44. Click on Print. Summary Page The top chart on the Summary page illustrates your client s contributions (and the minimum contributions of his employer, if you specified them) to the DB plan. It also projects the pension income that your client will receive from the plan, based on your client s projected employment income, years of service and age of retirement, as well as the survivorship options that you specified. The bottom chart on the Summary page projects the value of your client s pension over time. The living value is based on the net present value of all future pension payments over your client s expected life expectancy. The survivor value is the net present value of survivor payments that will be made to your client s spouse, to the spouse s life expectancy, in the event that your client dies. Finally, the estate value is the net present value of all future payments that will be made to your client s estate, assuming that your client s spouse predeceases him. You will note that the estate value only extends as long as the guarantee period past the time that the pension commences. If there is no guarantee period, the estate value will be zero. Ledger Page The Ledger page provides a numerical summary of the defined benefit pension plan parameters on a year-by-year basis. Employee Contributions: This is the sum of your client s expected annual contributions to the plan, based on the percentage of employment income that you specified on the Contributions data entry screen. FP Solutions User Manual - Defined Benefit Pension Module Page 153 of 473

155 Employer Contributions: This is the minimum employer contribution, based on the percentage of employment income that you specified on the Contributions data entry screen. However, the actual employer contributions may be higher, if an actuary determines that your client s employer must make larger contributions in order to fund the promised defined pension benefit. Pension Adjustment: Participation in any registered pension plan results in a pension adjustment that will subsequently reduce your client s RRSP contribution room. This column documents the pension adjustment resulting from the current year of credited service. Pension Income: This is the sum of all projected defined benefit pension income, including the DB pension that you defined on the Pension Income data entry screens, as well as any other DB pensions that you specified on the Pension Variables data entry screen. Living Value: This is the net present value of all future pension payments over your client s life expectancy. Survivor Value: This is the net present value of survivor payments that will be made to the client s spouse, to the spouse s life expectancy, in the event that your client dies. Estate Value: This is the net present value of all future payments that will be made to the client s estate, assuming that the client s spouse predeceases him. FP Solutions User Manual - Defined Benefit Pension Module Page 154 of 473

156 Module: Personal-use Real Estate This module describes how to enter data regarding your client s personal-use real estate, including his principal residence and recreational property. You can only complete one Personal-use Real Estate module for the family (i.e., there are not separate modules for the client and his spouse). This module also explains the documentation that FP Solutions generates with respect to your client s personal-use real estate. Data Entry Enter basic information about your client s personal-use real estate, including current values and payment terms, using the basic data entry screens. Enter additional information that is not addressed during the basic data collection process, such as lumpsum mortgage payments, by using the Edit Variables function. Basic Data To enter regular, recurring information about a client s personal-use real estate: 25) From the main menu bar, click on Data. 26) From the drop-down menu, click on Real Estate. 27) From the drop-down menu, click on Personal-use Real Estate. This will launch the Personal-use Real Estate data entry dialogue box, which consists of two data entry screens: Principal Residence and Recreational Property. Principal Residence Data Entry Screen Use the Principal Residence data entry screen to enter information about the cost, ownership, and financing of your client s principal residence. Note that if your client rents his primary accommodations but owns a vacation property that could qualify as his principal residence, you should document that property on the Principal Residence data entry screen instead of the Recreational Property data entry screen. Property: Use the top portion of this data entry screen to enter the current value and ownership of the property. FP Solutions User Manual - Personal-use Real Estate Module Page 155 of 473

157 Current Value: Enter the current fair market value of the property (not the assessed value for property tax purposes). Index +/- Inflation: By default, FP Solutions assumes that the value of your client s principal residence will be indexed at the same rate as the inflation rate that is specified in your Default file. To review or change this indexation rate: 1. From the main menu bar, click on Data. 2. From the drop-down menu, click on Assumptions. 3. Check the default indexation rate and enter any desired changes in the Inflation field. Note that if you use this method to change the inflation rate, it will apply to all modules that index various values in accordance with the assumed inflation rate. You can specify that your client s principal residence will change in value at a faster or slower rate than the default inflation rate by entering the appropriate difference in the Index +/- Inflation field. Be sure to enter the increase or decrease as a percentage point, not a decimal. Example: Bob s house has a current fair market value of $230,000, so you enter this amount in the Current Value field. Suppose that your default assumption for the inflation rate is 3%, but Bob believes that the value of his house will only increase by 2% per year. To make this adjustment, enter -1% in the Index +/- Inflation field. FP Solutions will then index the value of Bob s principal residence by 2% per year, calculated as (3% - 1%). Owned by Client/Owned by Spouse: Enter the proportion of the property that is owned by your client in the Owned by Client field. FP Solutions automatically assumes that your client s spouse owns the remainder of the property and enters this amount in the Owned by Spouse field. Mortgage: Use the middle section of this data entry screen to describe the mortgage on your client s principal residence. FP Solutions will use this information to calculate the balance of your client s mortgage throughout the planning period. FP Solutions User Manual - Personal-use Real Estate Module Page 156 of 473

158 Initial Amount: Enter the original amount of your client s mortgage. FP Solutions will calculate the current balance for each year during the planning period based on this initial amount and the rest of the data that you enter in this Mortgage section. Mortgage Date: Enter the actual date that the current mortgage started (i.e., do not enter the date of the financial plan). You cannot enter a future date here; you should enter any future mortgage changes or additions by using the Edit Variables function. Payment: Enter the payment that your client is currently making for each period listed in the Payment Period field. If you want to calculate a new payment, use the Mortgage Calculator, described shortly. Payment Period: From the Payment Period drop-down menu, select your client s current payment frequency. Interest rate: Enter the interest rate that applies to your client s existing mortgage. Make sure that it is the correct interest rate for the compounding frequency listed in the Compound Period field. Compound Period: From the Compound Period drop-down menu, select the compounding frequency that applies to the interest rate that you entered in the Interest rate field. Mortgage Calculator: You can use FP Solutions Mortgage Calculator to calculate the interest rate, amortization period, payment or mortgage balance for a new or modified mortgage, given three of these four parameters. Note that regardless of which variable you are solving for, the Mortgage Calculator uses the Payment Period, Compound Period and Mortgage Date as entered on the Principal Residence or Recreational Property data entry screens, in addition to the other three variables. FP Solutions User Manual - Personal-use Real Estate Module Page 157 of 473

159 To use the Mortgage Calculator: 1. From either the Principal Residence or Recreational Property data entry screens, click on Mortgage Calculator. This will launch the Mortgage Calculator dialogue box. 2. Enter any three of the following four variables: a. Interest Rate: Enter the interest rate that applies to the new or modified mortgage. Make sure that it is the correct interest rate for the compounding frequency listed in the Compound Period field. b. Amortization: Enter the amortization period for the new or modified mortgage, from this point in time onwards. c. Payment: Enter the payment that your client will make on the new or modified mortgage. Make sure that the payment corresponds to the period listed in the Payment Period field. d. Mortgage Balance: Enter the outstanding balance of the new or modified mortgage. 3. Click on the remaining variable (i.e., click on Interest Rate, Amortization, Payment or Mortgage Balance, depending on which variable you are trying to solve for). 4. Click on Solve for Selection. FP Solutions will calculate the variable that you indicated in Step 3. Note that the Mortgage Calculator is a tool only; it does not input data into either the Principal Residence or Recreational Property data entry screens. You must transfer the new data manually if you want to use it. Interest Deductibility: Your client may be able to deduct some or all of the mortgage interest, perhaps as a business-use-of-home or rental expense. If some/all of the interest expense is deductible: 1. Check the Interest tax-deductible box. 2. Enter the percentage of the interest expense that your client and/or his spouse can deduct in the Deductible Portion field. 3. Enter the percentage of that deductible portion that can be deducted by the client in the by Client field. 4. FP Solutions automatically assumes that the remainder of the deductible portion is deductible by your client s spouse, and enters this percentage in the by Spouse field. FP Solutions User Manual - Personal-use Real Estate Module Page 158 of 473

160 Example: Frank and Susan have an outstanding mortgage on their principal residence that will result in a mortgage interest expense of $8,000 this year. Susan runs a homebased business that takes up 30% of their home, so 30% of their interest expense is deductible by Susan. To accommodate their situation, you would enter 30% in the Deductible Portion field. Assuming that you have designated Frank as the client and Susan as his spouse, you would then enter 0% in the by Client field. FP Solutions would automatically enter 100% in the by Spouse field. Life Insurance: If your client and/or his spouse have mortgage life insurance, check the Life Insured Client box or the Life Insured Spouse box. FP Solutions will consider this information in the Estate Capital Needs and Survivor Capital Needs modules. Recreational Property Data Entry Screen Use the Recreational Property data entry screen to enter information about the cost, ownership, and financing of your client s recreational property. Note that if your client rents his primary accommodations but owns a vacation property that would qualify as his principal residence, you should document that property on the Principal Residence data entry screen instead of the Recreational Property data entry screen. The fields on the Recreational Property data entry screen are identical to those on the Principal Residence data entry screen, with the exception of the ACB field. FP Solutions does not ask for the adjusted cost base (ACB) on the Principal Residence data entry screen because the software assumes that any gain that might be realized upon sale of that property would be sheltered by the principal residence exemption. However, capital gains on recreational properties are not sheltered from tax. So, enter the adjusted cost base of the recreational property in the ACB field. FP Solutions User Manual - Personal-use Real Estate Module Page 159 of 473

161 Variable Data If your client plans to make non-recurring or variable repayments to, or withdrawals from, his mortgage account, enter this information using the Edit Variables function. You can also use the Edit Variables function to enter lump-sum changes to the value of the property, as well as changes in the mortgage interest rate. From either the Principal Residence or Recreational Property data entry screens, click on Edit Variables. This will open the Personal-use Real Estate Variables data entry screen, where you can enter additional information on a year-by-year basis. There are several buttons of note on the top left of this screen. Click on Data to return to the Personal-use Real Estate data entry dialogue box. Click on CALC to recalculate the spreadsheet values. Click on Main/OK to return to data entry screen that you were in before you clicked on Edit Variables. However, you should first recalculate the spreadsheet values. Click on Personal to switch to the Edit Variables screen for the client s commercial properties (assuming that you have initialized the Commercial Real Estate module). From the drop-down menu, click on Principal Residence or Recreational Property to navigate quickly to various sections of the data entry screen. The Variables data entry screen includes parallel sections for Principal Residence and Recreational Property, each with the same five columns: Adjust Value (Lump Sum): If the property experiences a sudden increase in value, perhaps because of an addition, you can make that adjustment by entering a lump sum in this column. Do not enter a decrease in value by entering a negative number here. Instead, adjust the growth rate in relation to inflation. Maintenance (Annual $): Enter any expected maintenance expenses, either as single lump sum amounts, or by using the Custom Trend feature (see Automatic Data Entry, below). Adjust Mortgage (Lump Sum): Enter any expected lump sum adjustments to the mortgage balance. If your client is making a lump-sum prepayment, enter this amount as a negative number. If your client has increased his mortgage balance, perhaps as a result of consolidating other debts or taking advantage of a mortgage account withdrawal provision, enter the adjustment as a positive number. Interest Rate (Annual Rate): Enter any expected changes in the mortgage rate. This will override the interest rate entered on the Principal Residence or Recreational Property data entry screens. This new rate will apply for all subsequent years, until you enter another new rate. FP Solutions User Manual - Personal-use Real Estate Module Page 160 of 473

162 Payment: If your client will increase or decrease his regular mortgage payments, enter the new payment amount. This will override the payment amount entered on the Principal Residence or Recreational Property data entry screens. This new payment amount will apply for all subsequent years, until you enter a new payment amount. Manual Data Entry: You can choose to enter information on the Personal-use Real Estate data entry screen manually, simply by navigating to the appropriate cell and inputting the desired numbers. Automatic Data Entry: You can also fill in the Maintenance columns of the Personaluse Real Estate Variables data entry screen using the Custom Trend feature. To apply a custom trend to one of the Maintenance columns: 49. Click on Annual $ at the top of the column. This will launch the Custom Trend dialogue box for that column. 50. Specify the time over which the custom trend will be applied by either: e. Checking the Use ages box, and then choosing the appropriates ages from the From age and To age drop-down menus; or f. Unchecking the Use ages box, and then choosing the appropriate years from the From year and To year drop-down menus. 51. Specify the first annual maintenance cost in the Set value at field. 52. Specify the annual indexation rate, if any, in the Indexed at field. 53. Specify how often the maintenance expense will be incurred by selecting an option from the Frequency drop-down menu. 54. Click on Apply, and the column will be filled with the specified trend. Documentation To access the documentation for the Personal-use Real Estate module: FP Solutions User Manual - Personal-use Real Estate Module Page 161 of 473

163 28. From the main menu bar, click on Goto. 29. From the drop-down menu, click on Real Estate. 30. From the drop-down menu, click on Personal-use Real Estate. This will launch the Personal-use Real Estate report, which is suitable for distribution to your client. This report is based on the data that you collected, and it is presented in a series of pages. To print the Personal-use Real Estate report: 45. Make sure that the Personal-use Real Estate report is on screen (access the report as described above). 46. From the main menu bar, click on File. 47. From the drop-down menu, click on Print Preview. This will launch the Print Preview dialogue box. 48. Select the pages of the Personal-use Real Estate report that you want to print by holding the Ctrl key, and clicking on the title of each desired page. 49. Click on Print. Summary Page The first pie chart on the Summary page illustrates the proportion of equity to debt (i.e., the ratio of current value to mortgage balance) for your client s personal-use real estate, as of the first day of the financial plan. It combines the values of your client s principal residence and recreational property. The second pie chart on the Summary page provides a breakdown of the mortgage payments for the first year of the financial plan, into the components of principal, nondeductible interest, and deductible interest, if any. The bottom chart on the Summary page provides a projection of the market value of your client s personal-use real estate and the corresponding mortgage balances. It also illustrates the deferred taxes that could become payable on the recreational property if your client disposes of that property, or if he dies and is unable to rollover the property to his spouse. Ledger Pages The Ledger pages provide a summary of the financial status of your client s personal-use real estate on a year-by-year basis. Ledger 1 documents the principal residence, while Ledger 2 documents the recreational property. The only difference between these two FP Solutions User Manual - Personal-use Real Estate Module Page 162 of 473

164 ledgers is that Ledger 2 has an added column to document the deferred tax that may be incurred on the recreational property, because it is not sheltered by the principal residence exemption. Mortgage Amount: This is the outstanding mortgage balance at the end of each year. Interest Rate: This is the mortgage interest rate that you entered through the basic data entry screens, or that you modified using the Edit Variables function. Annual Payment: This is the total mortgage payments (principal and interest) that your client can expect to pay each year. Interest Deduction: If your client and/or his spouse are able to deduct some or all of the mortgage interest expense, the deductible amount is documented in this column. Property Value: This is the projected value of the real estate at the end of each year, based on the indexation rate that you entered through the basic data entry screens. Equity Percent: This is calculated as ((Property Value Mortgage Amount) Property Value). Equity Amount: This is calculated as (Property Value Mortgage Amount). It reflects annual changes in equity due to both the increase/decrease in property value as well as the repayment of mortgage principal. Deferred Tax: This column projects the income taxes that your client would have to pay on his recreational property if he disposed of it for its current fair market value. It is calculated as ((Property Value Adjusted Cost Base) 50% top marginal tax rate for the province of residence). FP Solutions User Manual - Personal-use Real Estate Module Page 163 of 473

165 Module: Life Insurance This module describes how to enter data regarding your client s and his spouse s life insurance policies. You cannot complete separate Life Insurance modules for your client and his spouse. All of the information is recorded in a single module. This module also explains the documentation that FP Solutions generates with respect to their life insurance. Data Entry Enter basic life insurance information, such as death benefits or face amounts, as well as regular, recurring premiums or withdrawals, through the basic data entry screens. Enter additional information that is not addressed during the basic data collection process, such as lump-sum premiums or withdrawals, through the Edit Variables function. Basic Data To enter regular, recurring information about your client s and his spouse s life insurance policies: 28) From the main menu bar, click on Data. 29) From the drop-down menu, click on Other Assets & Debts. 30) From the drop-down menu, click on Life Insurance Values. Unlike some other modules in FP Solutions, there are not two separate modules for your client and his spouse; all of their insurance is addressed within a single module. This will launch the Life Insurance data entry dialogue box, which consists of six data entry screens: Group/CPP, Individual 1, Individual 2, Individual 3, Joint 1, Joint 2 and Leverage. Group/CPP Data Entry Screen Use the Group/CPP data entry screen to enter information about your client s and his spouse s group life insurance policies, and to specify whether FP Solutions should incorporate the CPP death benefit into their financial plan. FP Solutions User Manual - Life Insurance Module Page 164 of 473

166 Multiple of Income: If your client has life coverage under a group life insurance plan and the death benefit is a multiple of his employment income: 1. Click on Multiple of Income. 2. Enter the multiple in the corresponding data entry field. Repeat for your client s spouse, if appropriate. Specific Amount: If your client has life coverage under a group life insurance plan, but the death benefit is a specific amount instead of a multiple of his employment income: 1. Click on Specific Amount. 2. Enter the amount of the death benefit in the corresponding data entry field. Repeat for your client s spouse, if appropriate. CPP Death Benefits: If your client is eligible to receive the maximum CPP death benefit of $2,500, check the Client box in the CPP Death Benefits section. Repeat for your client s spouse, if appropriate. If they are not eligible to receive the maximum CPP death benefit, you can enter an estimated amount using the Edit Variables function. Individual 1 Data Entry Screen Use the Individual 1 data entry screen to enter information on a life insurance policy owned by your client or his spouse. This data entry screen can be used for term life, term- 100, whole life and universal life policies. FP Solutions User Manual - Life Insurance Module Page 165 of 473

167 Client: Click on Client if the policy is on the life of your client. FP Solutions assumes that the policy owner and the insured are the same individual. Spouse: Click on Spouse if the policy is on the life of your client s spouse. Increasing Death Benefit: If the face amount of the policy increases over time, as is the case with some UL policies, check the Increasing Death Benefit box. If you check this box, FP Solutions adds the amounts entered in the Face Amount and Cash Value fields together. Note that if you leave this box unchecked but manually enter increasing face amounts on the bottom of the Individual data entry screen, FP Solutions will assume that the death benefit remains constant at the current face amount. Annual Premium: Enter the annual premium or deposit required for the policy. Note that if you enter this information via this Life Insurance module, you should not enter the premiums again in the Lifestyle Needs module. You should only include life insurance premiums in the Lifestyle Needs module if you are not completing the Life Insurance Module. Premium Index: Enter the annual rate at which the premiums will be indexed. # of Years to Pay: Using the drop-down menu, select the number of years that the premiums must be paid. FP Solutions User Manual - Life Insurance Module Page 166 of 473

168 Include premiums in lifestyle needs: This box is used to specify where the premiums are factored into the FP Solutions calculations. If you check this box, the premiums will be added to your clients lifestyle needs. If you leave the box unchecked, the premiums will be recorded as an investment activity. In either case, they will be recognized as a cash outflow. Face Amount: In the face amount column, enter the death benefit for the current year and for every 10-year period. For a term life policy, this is simply the original death benefit. After you enter the current death benefit and press Enter (or Tab), FP Solutions asks you if you want to fill in the remainder of the column with the same value. In the case of a fixed term, term-100 or most whole life policies, click Yes. In the case of a universal life policy, click No, and enter the values manually, referring to the policy illustration. If you want to enter the face amount for each policy year, instead of only every 10 years, you should use the Edit Variables function to describe the policy, instead of one of the Individual data entry screens. Note that if the policy has a term of coverage that is not a multiple of 10 years, you may want to describe that policy using the Edit Variables function instead of one of the Individual data entry screens, so that you can better control when the term is up. Cash Value: If the policy will build up a cash surrender value (CSV), enter this CSV for the current year and every 10-year period thereafter, referring to the policy illustration. For fixed term and term-100 policies, enter 0. If you want to enter the CSV for each policy year, instead of only every 10 years, you should use the Edit Variables function to describe the policy, instead of one of the Individual data entry screens. Withdrawals: If the policy owner will be making regular withdrawals from the policy, enter the annual after-tax amount of those withdrawals. Income Index: If the policy owner will be making regular withdrawals from the policy and those withdrawals will increase over time, enter the indexation rate. Start at age: From the drop-down menu, select the age at which the policy owner will start making withdrawals from the policy. End at age: From the drop-down menu, select the age after which the policy owner will stop making withdrawals from the policy. Example: If you enter 60 as the Start at age and 65 as the End at age, withdrawals will be made for a total of six years, at age 60, 61, 62, 63, 64 and 65. FP Solutions User Manual - Life Insurance Module Page 167 of 473

169 Individual 2 and Individual 3 Data Entry Screens Use the Individual 2 and Individual 3 data entry screens to record information about additional life insurance policies owned by your client or his spouse. These screens are identical to the Individual 1 data entry screen. If your client and/or his spouse have more than 3 individual policies, you can use the Edit Variables function to enter information on up to 3 additional individual policies. Joint 1 Data Entry Screen Use the Joint 1 data entry screen to enter information on a joint life insurance policy owned by your client or his spouse. This data entry screen can be used for term life, term- 100, whole life and universal life policies. Joint First to die: Click on Joint First to die if the policy s death benefit will be paid upon the first death of either your client or his spouse. Joint Last to die: Click on Joint Last to die if the policy s death benefit will be paid upon the last death of either your client or his spouse. Increasing Death Benefit: If the face amount of the policy increases over time, as is the case with some UL policies, check the Increasing Death Benefit box. Note that if you FP Solutions User Manual - Life Insurance Module Page 168 of 473

170 leave this box unchecked but manually enter increasing face amounts on the bottom of the Joint data entry screen, FP Solutions will assume that the death benefit remains constant at the current face amount. Annual Premium: Enter the annual premium or deposit required for the policy. Note that if you enter this information via this Life Insurance module, you should not enter the premiums again in the Lifestyle Needs module. You should only include life insurance premiums in the Lifestyle Needs module if you are not completing the Life Insurance Module. Premium Index: Enter the annual rate at which the premiums will be indexed. # of Years to Pay: Using the drop-down menu, select the number of years that the premiums must be paid. Include premiums in lifestyle needs: This box is used to specify where the premiums are factored into the FP Solutions calculations. If you check this box, the premiums that will be added to your clients lifestyle needs. If you leave the box unchecked, the premiums will be recorded as an investment activity. In either case, they will be recognized as a cash outflow. Face Amount: In the face amount column, enter the death benefit for the current year and for every 10-year period. For a term life policy, this is simply the original death benefit. After you enter the current death benefit and press Enter (or Tab), FP Solutions asks you if you want to fill in the remainder of the column with the same value. In the case of a fixed term, term-100 or most whole life policies, click Yes. In the case of a universal life policy, click No, and enter the values manually, referring to the policy illustration. If you want to enter the face amount for each policy year, instead of only every 10 years, you should use the Edit Variables function to describe the policy, instead of one of the Joint data entry screens. Note that if the policy has a term of coverage that is not a multiple of 10 years, you may want to describe that policy using the Edit Variables function instead of one of the Joint data entry screens, so that you can better control when the term is up. Cash Value: If the policy will build up a cash surrender value (CSV), enter this CSV for the current year and every 10-year period thereafter, referring to the policy illustration. For fixed term and term-100 policies, enter 0. If you want to enter the CSV for each policy year, instead of only every 10 years, you should use the Edit Variables function to describe the policy, instead of one of the Joint data entry screens. Withdrawals: If your client (or his spouse) will be making regular withdrawals from the policy, enter the annual after-tax amount of those withdrawals. FP Solutions User Manual - Life Insurance Module Page 169 of 473

171 Income Index: If your client (or his spouse) will be making regular withdrawals from the policy and those withdrawals will increase over time, enter the indexation rate. Start at age: From the drop-down menu, select the age of your client at which time your client or his spouse will start making withdrawals from the policy. End at age: From the drop-down menu, select the age after which time your client or his spouse will stop making withdrawals from the policy. Example: If you enter 60 as the Start at age and 65 as the End at age, withdrawals will be made for a total of six years, at age 60, 61, 62, 63, 64 and 65. Joint 2 Data Entry Screen Use the Joint 2 data entry screen to record information about another joint life insurance policy owned by your client or his spouse. This screen is identical to the Joint 1 data entry screen. If your client and/or his spouse have more than 2 joint policies, you can use the Edit Variables function to enter information on up to 2 additional joint policies. Leverage Data Entry Screen Use the Leverage data entry screen to record information about any existing loans against any of your client s or his spouse s policies. FP Solutions User Manual - Life Insurance Module Page 170 of 473

172 Current Loan Balance: Enter the current balance of any existing policy loans. Note: If your client is planning to borrow against the cash surrender value of the policy in the future, enter this income using the Edit Variables function. The interest rate and deductibility options that you specified on the Leverage data entry screen will apply. Interest rate: Enter the annual interest rate that is applied to the loan against the policy. Interest tax-deductible: If your client and/or his spouse is able to deduct the interest on the loan, check the Interest tax-deductible box. Deductible Portion: If you checked the Interest tax-deductible box, enter the percentage of the annual interest expenses that is deductible by the client and/or his spouse in the Deductible Portion field. By Client: If some or all of the interest on the loan is deductible, indicate how much of that deductible portion is deductible by your client by entering the appropriate percentage in the By Client field. Once you press Enter, FP Solutions will automatically calculate the portion that is deductible by your client s spouse. Example: Hank and Gerda own a joint last-to-die life insurance policy and they have taken out a loan against the policy in the amount of $30,000 at a rate of 8%, such that the interest expense during the first year is $2,400, calculated as ($30,000 8%). From the proceeds of the $30,000 loan, they used $6,000 to purchase some new furniture, and they FP Solutions User Manual - Life Insurance Module Page 171 of 473

173 invested the remaining $24,000 in common shares. Hank invested $14,400 in his name, while Gerda invested $9,600 in her name. The deductible portion of the interest expense on the loan is 80%, calculated as (amount used to earn property or business income total proceeds) or ($24,000 $30,000), so you would enter 80% in the Deductible Portion field. Hank can deduct 60% of the deductible portion of the interest expense, because he used 60% of the deductible portion for his investment purposes, calculated as ($14,400 $24,000). Similarly, Gerda can deduct 40% of the deductible portion of the interest expense, because she used 40% of the deductible portion for her investment purposes, calculated as ($9,600 $24,000). By Spouse: Alternatively, if some or all of the interest on the loan against the policy is deductible, indicate how much of that deductible portion is deductible by your client s spouse by entering the appropriate percentage in the By Spouse field. Once you press Enter, FP Solutions will automatically calculate the portion that is deductible by your client. Variable Data If your client plans to make non-recurring or variable deposits to or withdrawals from his life insurance policy, enter this information using the Edit Variables function. You can also use the Edit Variables function to document additional policies, or to provide a greater level of detail than is possible with the Individual or Joint data entry screens. From any of the Life Insurance data entry screens, click on Edit Variables. This will open the Life Insurance Variables data entry screen, where you can enter additional information on a year-by-year basis. There are several buttons of note on the top left of this screen. Click on Data to return to the Life Insurance data entry dialogue box. Click on CALC to recalculate the spreadsheet values. Click on Main/OK to return to the data entry screen that you were in before you clicked on Edit Variables. However, you should first recalculate the spreadsheet values. From the drop-down menu, click on Group, Individual 1, Individual 2, Individual 3, Joint 1, Joint 2 or Leverage to navigate quickly to various sections of the data entry screen. FP Solutions User Manual - Life Insurance Module Page 172 of 473

174 Manual Data Entry: You can choose to enter information on the Life Insurance Variables data entry screen manually, simply by navigating to the appropriate cell and inputting the desired numbers. Automatic Data Entry: You can fill in some of the columns of the Life Insurance Variables data entry screen using the Custom Trend feature. To apply a custom trend to a face amount, cash value, deposit or withdrawal: 55. Click on Annual $ (for premium or withdrawal columns) or Amount $ (for face amount or cash value columns) at the top of a one of the columns. This will launch the Custom Trend dialogue box for that column. 56. Specify the time over which the custom trend will be applied by either: g. Checking the Use ages box, and then choosing the appropriates ages from the From age and To age drop-down menus; or h. Unchecking the Use ages box, and then choosing the appropriate years from the From year and To year drop-down menus. 57. Specify the annual amount (or face amount) in the Set value at field. 58. Specify the annual indexation rate, if any, in the Indexed at field. 59. For premium or withdrawal columns, specify how often the deposit or withdrawal will be made, by selecting an option from the Frequency drop-down menu. For face amount or cash value columns, select the Every year option from the Frequency drop-down menu. 60. Click on Apply, and the column will be filled with the specified trend. FP Solutions User Manual - Life Insurance Module Page 173 of 473

175 Group Life Insurance You can use this portion of the Life Insurance Variables data entry screen to record the face amount of a group insurance policy that cannot be accommodated by the basic Group/CPP data entry screen. Example: George s group life insurance policy has a face amount of $50,000, indexed annually by 3%. The basic Group/CPP data entry screen does not accommodate indexing of specific amounts, but you can enter this information on the Life Insurance Variables data entry screen by using the Custom Trend feature. You can also use this portion of the Life Insurance Variables data entry screen to record a CPP death benefit that is less than the maximum benefit of $2,500. Finally, you can also use this section to record information about additional group life insurance policies, in the event that your client and/or his spouse have more than two group life insurance policies between them. Individual Life Insurance You can use this portion of the Life Insurance Variables data entry screen if you would prefer to describe your client s individual life insurance policies in more detail than can be accommodated by the Individual data entry screens. You can enter annual face FP Solutions User Manual - Life Insurance Module Page 174 of 473

176 amounts and cash values on the Life Insurance Variables data entry screen, compared to values every 10 years on the Individual data entry screens. You can also use this portion of the Life Insurance Variables data entry screen to record data about additional individual life insurance policies owned by your client and/or his spouse. Between the three Individual data entry screens and the Life Insurance Variables data entry screen, you can describe a total of six individual life insurance policies owned by your client and/or his spouse. Joint Life Insurance You can use this portion of the Life Insurance Variables data entry screen if you would prefer to describe your client s joint life insurance policies in more detail than can be accommodated by the Individual data entry screens. You can enter annual face amounts and cash values on the Life Insurance Variables data entry screen, compared to values every 10 years on the Individual data entry screens. You can also use this portion of the Life Insurance Variables data entry screen to record data about additional joint life insurance policies owned by your client and/or his spouse. Between the two Joint data entry screens and the Life Insurance Variables data entry screen, you can describe a total of four joint life insurance policies owned by your client and/or his spouse. Leverage Use this portion of the Life Insurance Variables data entry screen if your client is planning to borrow against the cash surrender value of a life insurance policy in the future. The interest rate and deductibility options that you specified on the Leverage data entry screen will apply. You should also use the Life Insurance Variables data entry screen instead of the Leverage data entry screen if your client will be making repayments on the loan, because only the Life Insurance Variables data entry screen records these repayments. FP Solutions User Manual - Life Insurance Module Page 175 of 473

177 Documentation To access the documentation for the Life Insurance module: 31. From the main menu bar, click on Goto. 32. From the drop-down menu, click on Other Assets & Debts. 33. From the drop-down menu, click on Life Insurance Values. This will launch the Life Insurance report, which is suitable for distribution to your client. This report is based on the data that you collected, and it is presented in a series of pages. To print the Life Insurance report: 50. Make sure that the Life Insurance report is on screen (access the report as described above). 51. From the main menu bar, click on File. 52. From the drop-down menu, click on Print Preview. This will launch the Print Preview dialogue box. 53. Select the pages of the Life Insurance report that you want to print by holding the Ctrl key, and clicking on the title of each desired page. 54. Click on Print. Summary Page The first part of the Summary page provides a numerical and graphical summary of the current death benefits of all of the life insurance policies owned by your client and his spouse. It also shows the value of those policies at retirement, when it is assumed that group life insurance coverage provided through employment ceases. The middle chart illustrates the projected deposits to, and withdrawals from, all of the policies owned by your client and his spouse. The withdrawals will be taxable to the extent that they exceed the adjusted cost basis of the policy. The final chart on the Summary page illustrates the projected cash surrender values of all policies owned by your client and his spouse, as well as the total death benefits that would be payable to their estates. Ledger Pages There are four Ledger pages that provide numerical summaries of the projected values of your client s and his spouse s life insurance policies on a year-by-year basis. FP Solutions User Manual - Life Insurance Module Page 176 of 473

178 Ledger 1 Page The Ledger 1 page summarizes the projected values of your client s individual and group/cpp life insurance policies. Annual Premium: This is the annual premium or deposit that your client makes to all of his individual policies. Death Benefit: This is the projected death benefit of all of your client s individual life insurance policies. CSV: This is the projected cash surrender value of all of your client s individual life insurance policies. Withdrawals, Non-taxable: This is your client s projected non-taxable withdrawals from any of his individual life insurance policies. Withdrawals will be non-taxable as long as they do not exceed the adjusted cost basis of the policy. Withdrawals, Taxable: This is your client s projected taxable withdrawals from any of his individual life insurance policies. Withdrawals will be taxable to the extent that they exceed the adjusted cost basis of the policy. CPP/Group Benefits: This is the projected death benefits that will be paid upon your client s death from his group life insurance policies, as well as the CPP death benefit. FP Solutions assumes that the group life insurance coverage ceases upon your client s retirement. Total Benefit: If you selected the Increasing Death Benefit option on an Individual data entry screen, the amounts in this column will be a sum of the amounts in the Death Benefit, CSV, and CPP/Group Benefits columns. If you did not select the Increasing Death Benefit option, the CSV will be treated as part of the death benefit, and the amounts in this column will be a sum of the amounts in the Death Benefit and CPP/Group Benefits columns. Ledger 2 Page The Ledger 2 page summarizes the projected values of your client s spouse s individual and group/cpp life insurance policies. Annual Premium: This is the annual premium or deposit that your client s spouse makes to all of her individual policies. Death Benefit: This is the projected death benefit of all of your client s spouse s individual life insurance policies. CSV: This is the projected cash surrender value of all of your client s spouse s individual life insurance policies. FP Solutions User Manual - Life Insurance Module Page 177 of 473

179 Withdrawals, Non-taxable: This is your client s spouse s projected non-taxable withdrawals from any of her individual life insurance policies. Withdrawals will be nontaxable as long as they do not exceed the adjusted cost basis of the policy. Withdrawals, Taxable: This is your client s spouse s projected taxable withdrawals from any of her individual life insurance policies. Withdrawals will be taxable to the extent that they exceed the adjusted cost basis of the policy. CPP/Group Benefits: This is the projected death benefits that will be paid upon your client s spouse s death from her group life insurance policies, as well as the CPP death benefit. FP Solutions assumes that the group life insurance coverage ceases upon your client s spouse s retirement. Total Benefit: If you selected the Increasing Death Benefit option on an Individual data entry screen, the amounts in this column will be a sum of the amounts in the Death Benefit, CSV, and CPP/Group Benefits columns. If you did not select the Increasing Death Benefit option, the CSV will be treated as part of the death benefit, and the amounts in this column will be a sum of the amounts in the Death Benefit and CPP/Group Benefits columns. Ledger 3 Page The Ledger 3 page summarizes the projected values of all of the joint life insurance policies owned by your client and/or his spouse. Annual Premium: This is the projected combined annual premiums or deposits that your client and or his spouse make to all of their joint life policies. Joint First, Benefit: This is the projected combined death benefits of all of the joint, firstto-die policies owned by your client and/or his spouse. Joint First, CSV: This is the projected combined cash surrender values of all of the joint, first-to-die policies owned by your client and/or his spouse. Joint Last, Benefit: This is the projected death benefit of all of the joint, last-to-die policies owned by your client and/or his spouse. Joint Last, CSV: This is the projected combined cash surrender values of all of the joint, last-to-die policies owned by your client and/or his spouse. Withdrawals, Non-taxable: This is the projected combined non-taxable withdrawals from all of the joint first-to-die or last-to-die policies owned by your client and/or his spouse. Withdrawals will be non-taxable as long as they do not exceed the adjusted cost basis of the policy. FP Solutions User Manual - Life Insurance Module Page 178 of 473

180 Withdrawals, Taxable: This is the projected combined taxable withdrawals from all of the joint first-to-die or last-to-die policies owned by your client and/or his spouse. Withdrawals will be taxable to the extent that they exceed the adjusted cost basis of the policy. Ledger 4 Page The Ledger 4 page provides a breakdown of the payments and costs associated with any loans against the life insurance policies owned by your client and/or his spouse. Payments Received: This is the sum of any future policy loans that you recorded on the Life Insurance Variables data entry screen. Annual Interest: This is the annual interest that accumulates on all outstanding policy loans at the end of the previous year, as recorded in the Total Debt column, based on the interest rate that you specified on the Leverage data entry screen. Example: Suppose that your client, Ben, has Total Debt of $15,000 at the end of Year 1, and that you had specified an interest rate of 8% on the Leverage data entry screen. The amount shown in the Annual Interest column for Year 2 will be $1,200, calculated as ($15,000 8%). Annual Repayment: This is the projected repayments of outstanding policy loans during the year. Total Debt: In Year 1, the amount in the Total Debt column is calculated as: the Current Balance as specified on the Leverage data entry screen; plus Payments Received for Year 1; plus Annual Interest for Year 1; minus Annual Repayment for Year 1. In Year 2 and all later years, the amount in the Total Debt column is calculated as: Total Debt from the previous year; plus Payments Received for the current year; plus Annual Interest for the current year; minus Annual Repayment for the current year. Percentage of CSV: This is calculated as (Total Debt Total CSV). It provides a measure of the extent to which the policies are leveraged. FP Solutions User Manual - Life Insurance Module Page 179 of 473

181 Total CSV: This is the sum of the projected combined cash surrender values of all policies owned by the client and/or his spouse (i.e., it is the sum of all of the CSVs shown on the Ledger 1, Ledger 2, and Ledger 3 pages). Total Benefit: This is the sum of the projected death benefits from all individual and joint policies owned by the client and/or his spouse. It does not include CPP or Group death benefits, because your client and/or his spouse cannot use leverage on these policies. So, it is the sum of: the Death Benefit column from the Ledger 1 page; the Death Benefit column from the Ledger 2 page; the Joint First Benefit column from the Ledger 3 page; and the Joint Last Benefit column from the Ledger 3 page. FP Solutions User Manual - Life Insurance Module Page 180 of 473

182 Module: Projected Income This module describes how to enter the additional data that FP Solutions needs to create a detailed after-tax income projection for your client. You must complete separate Projected Income modules for your client and his spouse. This module also explains the documentation that FP Solutions generates with respect to your client s projected income. Data Entry Enter the tax parameters that remain constant from year to year using the basic data entry screen. Enter additional information that is not addressed during the basic data collection process, such as one-time tax credits, through the Edit Variables function. Basic Data To enter the constant tax parameters that FP Solutions needs to create a detailed after-tax income projection for your client: 31) From the main menu bar, click on Data. 32) From the drop-down menu, click on Detailed Projections. 33) From the drop-down menu, click on Projected Income: Client. (You can launch a similar module for the client s spouse, by clicking on Projected Income: Spouse.) This will launch the Income Tax data entry dialogue box, which consists of a single data entry screen. FP Solutions User Manual - Projected Income Module Page 181 of 473

183 Province for tax calculations: FP Solutions needs to know in which province your client will pay tax. Do one of the following: Click on Province of residence. FP Solutions will use the province that corresponds to the address that you entered for the client in the Personal Information module. Click on Other; then select the province of taxation from the drop-down menu. Self-employed: Check this box if your client is self-employed, as either a sole proprietor or a partner in a partnership. Owners of corporations are not considered self-employed. If you specify that the client is self-employed, FP Solutions will remove the EI contributions and double the CPP contributions. Disability Amount: Check this box if your client is eligible for the disability amount. Disability Amount transferred from dependents other than spouse: Check this amount if your client has a dependent, other than his spouse, who qualifies for the disability amount, and who will transfer their disability amount to your client. Number of dependents: Enter the number of your client s disabled dependents who will transfer their disability amounts to him. Equivalent to married: Check this box if your client is not married, or is married but either did not live with his spouse or support his spouse, and if your client supported a qualified relative in his residence. AMT carry forward amount: If your client has an alternative minimum tax (AMT) carry forward that he can use to reduce his future federal tax liability, enter this amount. FP FP Solutions User Manual - Projected Income Module Page 182 of 473

184 Solutions will then use some or all of this AMT amount to reduce your client s federal taxes payable in the first year of the financial plan, but only to the point where those taxes would be at least equal to the AMT otherwise payable. FP Solutions will continue to carry forward and apply the unused AMT amount until it is reduced to zero. Example: Sally has a federal AMT carryover of $10,000. For the first year of the financial plan, FP Solutions calculates that Sally s federal tax under the normal tax system would be $14,600 and that her federal tax under the AMT system would be $12,000. FP Solutions will apply $2,600 of Sally s AMT in the first year, calculated as (federal tax under normal system federal tax under AMT system) or ($14,600 - $12,000), to reduce her federal tax owing to $12,000. Her AMT carryover at the end of the first year will be reduced to $7,400, calculated as ($10,000 - $2,600), and FP Solutions will apply the remaining carryover in successive years as her tax situation permits. Hide Federal Tax Brackets: The Summary page of the Projected Income report includes a bar graph that shows your client s total income and the portion of that income that must be paid in income taxes. This graph also includes lines that depict the thresholds of each of the federal income tax brackets. If you do not want the graph to show any or all of these tax bracket lines: Check the 1st. box to hide the line that depicts the threshold between the first and second tax brackets. Check the 2nd. box to hide the line that depicts the threshold between the second and third tax brackets. Check the 3rd. box to hide the line that depicts the threshold between the third and fourth tax brackets. To show one or more of the lines again, simply uncheck the appropriate box. Variable Data FP Solutions automatically calculates the following basic federal and provincial tax credits for your client: basic personal tax credit; spousal tax credit; equivalent-to-spouse tax; disability tax credit; medical expenses tax credit; tuition and education tax credits; pension tax credit; tax credits for CPP and EI contributions; and FP Solutions User Manual - Projected Income Module Page 183 of 473

185 charitable donations tax credit. However, if your client is eligible for other federal or provincial tax credits, enter this information using the Edit Variables function. From the Income Tax data entry screen, click on Edit Variables. This will open the Projected Income Variables data entry screen, where you can enter additional information on a year-by-year basis. There are several buttons of note on the top left of this screen. Click on Data to return to the Income Tax data entry dialogue box. (You can also double click on any cell in the Variables spreadsheet to reopen the Income Tax data entry dialogue box.) Click on CALC to recalculate the spreadsheet values. Click on Main/OK to return to the data entry screen that you were in when you clicked on Edit Variables. However, you should first recalculate the spreadsheet values. Click on Your Client s Name to switch to the Edit Variables screen for the client s spouse. The Projected Income Variables data entry screen includes parallel sections for Federal Non-refundable Tax Credits and Provincial Non-refundable Tax Credits. lowest federal tax rate (federal column): Most federal tax credits are calculated with reference to the lowest federal tax rate (i.e., 16% in 2004, 15% in 2005, and 15.25% in 2006). Enter any additional amounts that could give rise to a federal personal tax credit at this rate, such eligible adoption expenses, the new transit pass tax credit, etc. 100% (federal or provincial columns): Not all tax credits are calculated with reference to the lowest marginal tax rate. For example, the federal political contribution tax credit is 75% of the first $400 in donations, 50% on the next $350 and 33.33% on donations over $750. For tax credits such as these, you should calculate the actual tax credit manually, and enter it in the 100% column. Example: Fiona makes a political contribution of $1,000 every few years to the local Progressive Conservative Party. She can claim a federal tax credit of $558.33, calculated as ($400 75%) + ($350 50%) + ($ %). So, for each year that Fiona makes her $1,000 political contribution, you should enter the tax credit amount of $ in the 100% column. X% (where X depends on the province): Most provincial tax credits are calculated with reference to the lowest provincial tax rate, which varies with the province. FP Solutions will display the applicable lowest provincial tax rate at the top of FP Solutions User Manual - Projected Income Module Page 184 of 473

186 this column, depending on your client s province of taxation. Enter any additional amounts that could give rise to a provincial personal tax credit at this rate. Manual Data Entry: You can choose to enter information on the Projected Income Variables data entry screen manually, simply by navigating to the appropriate cell and inputting the desired numbers. Automatic Data Entry: You can also fill in the columns of the Projected Income Variables data entry screen using the Custom Trend feature. To apply a custom trend to one of the columns: 61. Click on Annual $ at the top of the column. This will launch the Custom Trend dialogue box for that column. 62. Specify the time over which the custom trend will be applied by either: i. Checking the Use ages box, and then choosing the appropriates ages from the From age and To age drop-down menus; or j. Unchecking the Use ages box, and then choosing the appropriate years from the From year and To year drop-down menus. 63. Specify the first annual tax credit in the Set value at field. 64. Specify the annual indexation rate, if any, in the Indexed at field. 65. Specify how often the tax credit will be incurred by selecting an option from the Frequency drop-down menu. 66. Click on Apply, and the column will be filled with the specified trend. Documentation To access the documentation for the Projected Income module: 34. From the main menu bar, click on Goto. 35. From the drop-down menu, click on Detailed Projections. FP Solutions User Manual - Projected Income Module Page 185 of 473

187 36. From the drop-down menu, click on Projected Income: Client. This will launch the Projected Income report, which is suitable for distribution to your client. This report is based on the data that you collected, and it is presented in a series of pages. To print the Projected Income report: 55. Make sure that the Projected Income report is on screen (access the report as described above). 56. From the main menu bar, click on File. 57. From the drop-down menu, click on Print Preview. This will launch the Print Preview dialogue box. 58. Select the pages of the Projected Income report that you want to print by holding the Ctrl key, and clicking on the title of each desired page. 59. Click on Print. Summary Page The pie chart at the top of the Summary page shows how much of your client s total income for the first year of the financial plan is paid out in federal and provincial income taxes, CPP/EI premiums and OAS clawbacks, and how much is remaining as after-tax income. The middle chart on the Summary page compares your client s projected before- and after-tax incomes to the federal tax brackets. The tax brackets as shown are indexed annually according to the inflation rate specified in your Defaults file. You can choose to show all, none or only one or two of the tax bracket lines, by making your selection on the Income Tax data entry screen, as discussed earlier in this module. You can use this chart to identify those years where tax-planning strategies can most effectively be used to drop your client into a lower tax bracket. The bottom chart on the Summary page illustrates the total cumulative payments that your client can expect to make over his lifetime to various taxes, clawbacks and government program premiums. It also demonstrates when the OAS clawback may come into effect. Ledger Pages The five Ledger pages in this module provide a breakdown of your client s projected before-tax income, taxes and tax credits, and after-tax income. To access the various Ledger pages, click on the numbered tabs at the bottom of the screen. FP Solutions User Manual - Projected Income Module Page 186 of 473

188 Ledger 1 The Ledger 1 page provides a consolidated summary of your client s total income on a year-by-year basis, both before tax and after tax. It summarizes the data provided on the other four Ledger pages. Total Income: This is your client s total income for the year from all sources. A breakdown of this income is provided in more detail on the Ledger 2 page. Total Deductions: This is the sum of all of the total deductions that FP Solutions applied when calculating your client s taxable income. A breakdown of these deductions is provided in more detail on the Ledger 3 page. Net Federal Tax: This is the net federal tax that your client will have to pay. A description of how this amount is calculated in included in the section on the Ledger 5 page. OAS Clawback: This is the clawback of OAS benefits that may occur if your client s projected income exceeds the projected OAS threshold. FP Solutions indexes the OAS threshold by the inflation rate specified in your Defaults file. This column is also included on the Ledger 5 page. Provincial Tax: This is the provincial tax that FP Solutions calculates based on your client s income and the province of taxation that you indicated on the Taxation data entry screen of the Projected Income module. This column is also included on the Ledger 5 page. CPP/EI Premiums: This is the sum of your client s projected CPP contributions and EI premiums, as shown in the CPP Contribution and EI Premium columns of the Ledger 5 page. After-tax Income: The values in this column are calculated as (Total Income (Net Federal Tax + OAS Clawback + Provincial Tax + CPP/EI Premiums). This after-tax income represents the annual amount that your client will have available to meet lifestyle needs and to make new investments. Ledger 2 The Ledger 2 page provides a breakdown of your client s projected income from all sources (taxable and non-taxable) on a year-by-year basis. These sources include the following: Total Employment: This includes your client s income from employment, stock options, and any other employment income that recorded on the Variables page of the Employment & Other Income module. FP Solutions User Manual - Projected Income Module Page 187 of 473

189 Government Benefits: This includes the sum of all CPP and OAS benefits that your client will receive, before any OAS clawbacks. If you did not check the Include CPP benefits box or Include OAS benefits box when you completed the Employment and Other Income module, this amount will be zero. RRSP/RRIF: This includes all income from your client s personal and spousal RRSPs and RRIFs. It includes at least the minimum required RRIF withdrawals, and payments from any registered annuities other than those that result from your client s participation in a registered pension plan. Pension/Other: This includes any income that your client will receive because of his participation in a registered pension plan. It includes income from funds that have been transferred from a pension plan to a LIRA, and subsequently to an LRIF, LIF or registered life annuity. FP Solutions may adjust the amounts that you specified in either the Defined Benefit or Defined Contribution pension modules, in order to meet the minimum limits imposed by the Income Tax Act and the maximum limits imposed by pension legislation. So, the amounts in this column may not necessarily reflect the amounts that you entered in the Defined Benefit or Defined Contribution pension modules. The other income that is included in the Pension/Other column includes: taxable benefits; self-employment income; and net rental income. Investment Income, Total: This is the total income that your client will receive from his non-registered investments, including the full amount of realized capital gains, dividend income, and interest income. Investment Income, Taxable: This is the total taxable income that will result from your client s total income as reported in the Investment Income, Total column. For example, it will include only the taxable portion of capital gains, and it will included the grossed-up amount of dividends from taxable Canadian corporations. Total Income: The values in this column represent the sum of the values in the: Total Employment column; Government Benefits column; RRSP/RRIF column; Pension/Other column; and Investment Income Taxable column. FP Solutions User Manual - Projected Income Module Page 188 of 473

190 These values are then transferred to the Total Income column of the Ledger 1 page. Ledger 3 The Ledger 3 page provides a year-by-year breakdown of your client s tax deductions from all sources, as documented in the following columns: Pension Contribution: This includes any contributions that your client makes to an employer-sponsored pension plan, which you may have recorded in the Defined Benefit Pension or Defined Contribution Pension modules. RRSP Contribution: This includes any contributions that your client makes to personal or spousal RRSPs, which you may have recorded in the RRSP/RRIF module. FP Solutions may limit the contributions that you specified to those permitted by the Income Tax Act. So, the amounts in this column may not necessarily be the amounts that you entered in the RRSP/RRIF module. Professional & Union Dues: This includes any amounts that you recorded as profession and union dues in the Employment Income module. Child Care: This includes any amounts that you recorded as child care expenses by using the Edit Variables function of the Lifestyle Needs module. Carrying Charges: This includes any carrying charges that your client pays on his nonregistered investments, which you may have recorded in the Non-registered Investments module. Remember that carrying charges associated with registered investment accounts are not tax deductible, so they are not included in the values shown in this column. Other Deductions: The values in this column are the sums of the following: deductible support payments, which you may have entered by using the Edit Variables function of the Lifestyle Needs module. deductible employment expenses, which you may have entered in the Employment Income module. social benefits repayments, which FP Solutions will calculate based on your client s employment and social program contribution history. stock option deductions, which FP Solutions will calculate based on information that you may have entered in the Stock Options module; capital loss carryovers, based on information that you may have entered on the Taxation data entry screen of the Non-registered Investments module. capital gains deductions, based on information that you may have entered in one or more of the Business Assets modules. FP Solutions User Manual - Projected Income Module Page 189 of 473

191 Total Deductions: This column is the sum of all of the other columns on the Ledger 3 page. These totals are transferred to the Total Deductions column on the Ledger 1 page. Ledger 4 The Ledger 4 page provides a year-by-year summary of the projected tax credits that your client will be able to use to offset his federal tax, which could include the following: Basic Personal: Every taxpayer, including your client, is entitled to claim a tax credit on the basic personal amount. This column records the projected basic personal amount, indexed annually according to the inflation rate specified in your Defaults file. FP Solutions calculates the resulting tax credit as this amount multiplied by the lowest federal marginal tax rate. Age Amount: Every taxpayer who is at least 65 years of age before the end of the year can claim a tax credit on the age amount. This maximum amount is indexed annually according to the inflation rate specified in your Defaults file. Remember, however, that the age amount is clawed back at a rate of 15% of net income above a threshold ($30,270 in 2006, indexed annually). This column documents the age amount remaining after the clawback, if it applies. FP Solutions calculates the resulting tax credit as this remaining amount multiplied by the lowest federal marginal tax rate. Spousal Amount: If your client has a spouse or common-law partner, he may be able to claim all or part of the spousal amount (maximum of $7,505 in 2006, indexed annually according to the inflation rate specified in your Defaults file). However, his spouse s net income in excess of a threshold ($751 in 2006, indexed annually) will reduce the spousal amount dollar for dollar. This column records the remaining spousal amount, if any, that is eligible for a federal tax credit. FP Solutions then calculates the resulting tax credit as this amount times the lowest federal marginal tax rate. Transferred from Spouse: If your client has a spouse or common-law partner, he may be able to transfer to his own tax return any of the following amounts that his spouse does not need to reduce her federal income tax to zero: age amount (if his spouse was 65 or older); pension amount; and the disability amount. FP Solutions automatically performs this calculation and enters the amount, if any, in the Transferred from Spouse column. FP Solutions then calculates the resulting tax credit as this amount multiplied by the lowest federal marginal tax rate. Other Credits: This column records the sum of all other amounts on which your client may be able to claim a non-refundable tax credit, including: FP Solutions User Manual - Projected Income Module Page 190 of 473

192 his CPP contributions; his EI premiums; his pension amount; his disability amount; disability amounts transferred from dependants other than his spouse; the new Employment credit; his own tuition fees and education expenses, as well as those transferred from dependents other than his spouse if you selected this option in the Education module; medical expenses in excess of the lesser of 3% of your client s net income and the medical expenses threshold (FP Solutions indexes the threshold annually according to the inflation rate specified in your Defaults file). Note that this column does not include any extra tax credits that you have entered through the Projected Income Variables data entry screen. However, FP Solutions does deduct these additional credits when it calculates the net federal tax, as explained on the Ledger 5 page. Charitable Donations: If you client makes charitable contributions, which you would have recorded in the Lifestyle Needs module, FP Solutions automatically calculates the resulting charitable donations tax credit. Unlike the previous columns, this column shows the actual tax credit, not the amount on which the tax credit can be claimed. Total Credits: This column is calculated as follows: FP Solutions takes the sum of the amounts in the: o Basic Personal column; o Age Amount column; o Spousal Amount column; o Transferred from Spouse column; and o Other Credits column. It multiplies this total by the lowest federal tax rate. It adds the charitable donations tax credit as recorded in the Charitable Donations column. Note that this column does not include any extra tax credits that you have entered through the Projected Income Variables data entry screen. However, FP Solutions does deduct these additional credits when it calculates the net federal tax, as explained on the Ledger 5 page. FP Solutions User Manual - Projected Income Module Page 191 of 473

193 Ledger 5 The Ledger 5 page provides a year-by-year breakdown of the projected income taxes, clawbacks and government benefit program contributions that your client will have to pay. Federal Tax: This column documents your client s basic federal tax, calculated by applying the federal tax brackets to his taxable income. FP Solutions indexes the federal tax brackets annually according to the inflation rate specified in your Defaults file. His taxable income is calculated as the amount from: the Total Employment column on the Ledger 2 page; plus the Government Benefits column on the Ledger 2 page; plus the RRSP/RRIF column on the Ledger 2 page; plus the Pension/Other column on the Ledger 2 page; plus the Investment Income, Taxable column on the Ledger 2 page; minus the Total Deductions column of the Ledger 1 page. Net Federal Tax: The values in this column are calculated as follows: start with the basic federal tax as shown in the Federal Tax column of this Ledger 5 page; subtract the total non-refundable tax credits as shown in the Total Tax Credits column of the Ledger 4 page; subtract any dividend tax credits, which FP Solutions will calculate based on the dividend income generated by the investments that you may have documented in the Non-registered Investments module; subtract the allowable portion of any AMT carryover, based on the amount you may have entered on the Income Tax data entry screen of the Projected Income module (remember, the carryover cannot be used to reduce the net federal tax to an amount below the AMT that would otherwise be payable for the year); add any federal surtax, as calculated by FP Solutions (the surtax has now been eliminated); subtract any other refundable tax credits that you may have recorded using the Edit Variables function of the Projected Income module. These values are transferred to the Net Federal Tax column on the Ledger 1 page. OAS Clawback: This column documents the clawback of OAS benefits that may occur if your client s projected income exceeds the OAS threshold. FP Solutions indexes the OAS FP Solutions User Manual - Projected Income Module Page 192 of 473

194 threshold by the inflation rate. These values are transferred to the OAS Clawback column on the Ledger 1 page. Provincial Tax: This column documents the provincial tax that FP Solutions calculates based on your client s income and the province of taxation that you indicated on the Taxation data entry screen of the Projected Income module. These values are transferred to the Provincial Tax column on the Ledger 1 page. CPP Contribution: This column documents your client s anticipated annual CPP contribution, which FP Solutions calculates based on your client s projected employment income. Your client s contribution is calculated as 4.95% of pensionable earnings, which is employment income over the basic exemption of $3,500 and up to the yearly maximum pensionable earnings (YMPE). FP Solutions indexes the YMPE annually according to the inflation rate specified in your Defaults file. EI Premium: This column documents your client s anticipated annual EI contribution, which FP Solutions calculates based on your client s projected employment income. Your client s contribution is calculated as 1.87% (2006 rate) of employment income, up to the maximum insurable earnings of $39,000. FP Solutions indexes the maximum insurable earnings annually according to the inflation rate specified in your Defaults file. Total Payable: The values in this column represent the sum of the values in the: Net Federal column; OAS Clawback column; Provincial Tax column; CPP Contribution column; and EI Premium column. The Total Payable amount is equal to the difference in the values of the Total Income and After-tax Income columns of the Ledger 1 page. FP Solutions User Manual - Projected Income Module Page 193 of 473

195 Module: Projected Cash Flow This module describes how to use the Optimize Cash Flow function when projecting your client s cash flow. The optimization function strives to match your client s income with total cash flow needs, by changing the amounts and distribution of deposits and withdrawals in the various investment modules. You should perform a cash flow optimization after you make any changes to your client s financial plan. This module also explains the documentation that FP Solutions generates with respect to your client s projected cash flow. Data Entry Any data that you enter into any of the FP Solutions modules automatically flows to the Projected Cash Flow module, where the program determines if your client has a cash flow excess or deficiency. So, there is no new numerical data to enter in this module, and no Edit Variables function. Instead, you must enter the instructions that FP Solutions needs to optimize and project your client s cash flow. There are two ways that you can start this process, as follows: Method 1: Via the Main Toolbar 34) From the main menu bar, click on Data. 35) From the drop-down menu, click on Detailed Projections. 36) From the drop-down menu, click on Projected Cash Flow. Note that unlike most of the other modules in FP Solutions, you cannot generate individual cash flow projections for both your client and his spouse. This will launch the Cash Flow data entry dialogue box, which consists of five data entry screens. Method 2: Via the Optimize button 1. From any screen in FP Solutions, click on the Optimize button in the toolbar. FP Solutions User Manual - Projected Cash Flow Module Page 194 of 473

196 This will launch the Cash Flow data entry dialogue box, which consists of five data entry screens, and it will simultaneously launch the Project Cash Flow report. Optimize Cash Flow Data Entry Screen Although FP Solutions automatically compiles a projected cash flow based on all of the data that you have entered in other modules, that cash flow is not optimized. If you want to perform a projected cash flow optimization, you must complete the Optimize Cash Flow data entry screen of the Projected Cash Flow module. The remaining four screens (RRSP/RRIF, Non-registered, Debts and Advanced Settings) allow you to fine-tune the selections that you make on the Optimize Cash Flow screen,. Note: When you are attempting to optimize your client s cash flow, you will find it helpful to have the Summary page of the Projected Cash Flow report on display. The charts on this page will provide you with visual feedback as the cash flow is optimized. This report is discussed in more detail in the Documentation section of this module. Cash Flow Excess Use the left side of the Optimize Cash Flow data entry screen to specify how cash flow excesses are to be optimized. Optimize Excess: Set the age range over which FP Solutions should optimize the cash flow excesses by choosing the appropriate ages from the From Age and To Age dropdown menus. Deposit to RRSPs: Check this box if you want FP Solutions to direct some or all of any cash excesses to your client s RRSPs. Then enter the percentage of any excesses that FP Solutions should direct to this option. FP Solutions User Manual - Projected Cash Flow Module Page 195 of 473

197 Deposit to Non-registered: Check this box if you want FP Solutions to direct some or all of any cash excesses to your client s non-registered investment account. Then enter the percentage of any excesses that FP Solutions should direct to this option. Pay Down Debts: Check this box if you want FP Solutions to direct any cash excesses to paying down your client s debts. Then enter the percentage of any excesses that FP Solutions should direct to this option. Increase Lifestyle Needs: Check this box if you want FP Solutions to direct any cash excesses to increasing your client s lifestyle expenditures. Then enter the percentage of any excesses that FP Solutions should direct to this option. Note: If you set any one option to 100%, this means that FP Solutions should give priority to this area. If you set two options each to 50%, FP Solutions will direct 50% of the excesses to each account. Even if you clearly specify one area as a priority, this does not necessarily mean that all excess cash flow will be directed to this area. For example, the Income Tax Act limits the deposits to RRSPs, so FP Solutions may not be able to direct all excess cash flow to registered savings even if you specify this as the top priority. Cash Flow Deficiency Use the right side of the screen to specify how cash flow deficiencies are to be optimized. Optimize Deficiency: Set the age range over which FP Solutions should optimize the cash flow deficiencies by choosing the appropriate ages from the From Age and To Age dropdown menus. Withdraw from RRSPs/RRIFs: Check this box if you want FP Solutions to fund some or all of any cash flow deficiencies by making withdrawals from your client s RRSPs. Then enter the percentage of any cash flow deficiencies that FP Solutions should fund using this option. Withdraw from Non-registered: Check this box if you want FP Solutions to fund some or all of any cash flow deficiencies by making withdrawals from your client s nonregistered investment accounts. Then enter the percentage of any cash flow deficiencies that FP Solutions should fund using this option. Increase Debts: Check this box if you want FP Solutions to satisfy some or all of any cash flow deficiencies by increasing your client s debts. Then enter the percentage of any cash flow deficiencies that FP Solutions should fund using this option. Decrease Lifestyle Needs: Check this box if you want FP Solutions to satisfy some or all of any cash flow deficiencies by decreasing your client s lifestyle expenditures. Then FP Solutions User Manual - Projected Cash Flow Module Page 196 of 473

198 enter the percentage of any cash flow deficiencies that FP Solutions should fund using this option. Note: If you set any one option to 100%, this means that all of the deficiencies will be covered through withdrawals from this area until there is nothing left in the selected account. If you set two options each to 50%, then withdrawals will be made equally from both accounts. Optimize Once you have completed the Optimize Cash Flow data entry screen as described above, you have completed the minimum requirements to perform an optimization. You can then fine tune the optimization process using the remaining four data entry screens (RRSP/RRIF, Non-registered, Debts and Advanced Settings), which are discussed shortly. At a minimum, you should review the default settings in these additional screens before performing an optimization. Click on Optimize to perform the optimization procedure. Click on Undo Last Optimization to revert to the pre-optimized values. Click on Reset Optimization to completely remove all deposits or withdrawals. Interpreting the Results Once you have performed the optimization procedure, go back to the Summary page of the Cash Flow Projection module and examine the cash flow graph that is in the middle of the page. The goal of the optimization process is to make your client s income match his total needs by changing the deposits and withdrawals being made in the investment modules. While FP Solutions might not be completely successful because of the limits on your client s income or certain investment limits, the graph should now show fewer years with cash flow excesses or deficiencies, or a least a moderation of the excesses and deficiencies during the years of the optimization. RRSP/RRIF Data Entry Screen If cash flow excesses are to be directed towards registered savings, the RRSP/RRIF data entry screen allows you to prioritize the deposits between client s personal and/or spousal RRSPs and the spouse s personal and/or spousal RRSPs. FP Solutions User Manual - Projected Cash Flow Module Page 197 of 473

199 Similarly, for those cash flow deficiencies that are to be funded from registered savings, the RRSP/RRIF data entry screen allows you to specify whether any withdrawals will be permitted prior to retirement, and it allows you to prioritize withdrawals from between the client s registered funds and those of his spouse. Non-registered Data Entry Screen If cash flow excesses are to be directed towards non-registered savings, the Nonregistered data entry screen allows you to prioritize the deposits between client s nonregistered investment account, that of this spouse, or their joint account. FP Solutions User Manual - Projected Cash Flow Module Page 198 of 473

200 Similarly, for those cash flow deficiencies that are to be funded from non-registered savings, the Non-registered data entry screen allows you to prioritize withdrawals from between the client s non-registered account, his spouse s non-registered account, or their joint non-registered account. Debts Data Entry Screen If cash flow excesses are to be directed towards paying down debt, the Debts data entry screen allows you to specify which debt(s) should be paid down first. FP Solutions User Manual - Projected Cash Flow Module Page 199 of 473

201 If cash flow deficiencies can be met by increasing debt, the Debts data entry screen allows you to specify which debt can be increased. Advanced Settings Data Entry Screen The Advanced Settings data entry screen allows you to specify how many iterations FP Solutions should carry out during the optimization process. The processing time required will increase with the number of iterations chosen. FP Solutions User Manual - Projected Cash Flow Module Page 200 of 473

202 Documentation Any data that you enter into your FP Solutions client file automatically flows to the Projected Cash Flow module, where the program determines if your client has a cash flow excess or deficiency, and you can view the results by launching the Projected Cash Flow report. You do not have to optimize the cash flows prior to reviewing this report, and in fact you may find it useful to have this report displayed on your screen before you run a cash flow optimization. To access the documentation for the Projected Cash Flow module: 37. From the main menu bar, click on Goto. 38. From the drop-down menu, click on Detailed Projections. 39. From the drop-down menu, click on Projected Cash Flow. This will launch the Projected Cash Flow report, which is suitable for distribution to your client. This report is based on the data that you collected, and it is presented in a series of pages. You can also launch the Projected Cash Flow report, along with the Cash Flow data entry dialogue box, by clicking on the Optimize button. To print the Projected Cash Flow report: 60. Make sure that the Projected Cash Flow report is on screen (access the report as described above). 61. From the main menu bar, click on File. 62. From the drop-down menu, click on Print Preview. This will launch the Print Preview dialogue box. 63. Select the pages of the Projected Cash Flow report that you want to print by holding the Ctrl key, and clicking on the title of each desired page. 64. Click on Print. Summary Page The numerical and graphical charts at the top of the Summary page compare your clients total income to their needs (including income taxes, lifestyle expenses and investment activities) for the first year of the financial plan, and any excess or deficiency is noted. FP Solutions User Manual - Projected Cash Flow Module Page 201 of 473

203 The middle chart on the Summary page shows a projection of your clients after-tax income and compares this to their lifestyle and total needs. There may be years when their combined income is greater than their total needs, such that they will have excess income. However, in other years, their income may fall short of their total needs and they will have a cash deficiency. The purpose of the optimization function is to balance these cash flows. The bottom chart on the Summary page highlights the excesses and deficiencies more clearly. An excess means that your clients could be investing more, while a deficiency means that they will have to limit (or even draw on) their investments, or increase their debts in order to maintain their desired lifestyle. Ledger Pages The four Ledger pages in this module provide a breakdown of the components that contribute to your clients cash flow. To access the different Ledger pages, click on the numbered tabs at the bottom of the screen. Ledger 1 The Ledger 1 page documents numerically all of the data that is presented graphically on the Summary page, and it compares after-tax income with income needs. This page summarizes the data provided on the other three Ledger pages. Total Income: This is a sum of your client s and his spouse s income from all sources, including non-taxable sources. It is the sum of the Total Income, Client and Total Income, Spouse columns from the Ledger 2 page. Total Tax Payable: This is a sum of all of your client s projected income taxes, clawbacks and government benefit program contributions, as well as those of his spouse. It is the sum of the Tax Payable, Client and Tax Payable, Spouse columns from the Ledger 2 page. Re-invested Growth: Depending on the type of investments in your clients portfolios, some of the income that is included in the Total Income column of the Ledger 2 page may be automatically allocated for reinvestment, such that its use is not under their control (e.g., dividend reinvestment plans). Income of this nature is included in this column. These values are transferred from the Re-invested Growth column of the Ledger 3 page. Lifestyle Needs: This is the sum of all of your client s (and his spouse s) lifestyle needs, which could include: debt servicing; shelter costs; FP Solutions User Manual - Projected Cash Flow Module Page 202 of 473

204 basic household expenses; discretionary personal expenses; transportation costs; travel/holiday costs; and education costs. These values are transferred from the Lifestyle Needs column of the Ledger 3 page. These amounts are discussed in more detail in the Lifestyle Needs module. Disposable Income: This is the income that your clients has available for investment. It is the difference between the Total After-tax column and the Total Expenses columns of the Ledger 3 page. These values are transferred from the Disposable Income column of the Ledger 3 page. Investment Activity: This is the net sum of most of the columns on the Ledger 4 page (i.e., Carry Charges + RRSP Contribution + Pension Contribution + Non-registered Savings Non-registered Withdrawals + Other Assets). These values are transferred from the Total Activity column of the Ledger 4 page. Note that a positive value for Investment Activity represents cash outflow, which reduces disposable income. Similarly, a negative value for Investment Activity means a cash inflow, which increases disposable income. Excess (Deficiency): This is calculated as the difference between the Disposable Income column and the Investment Activity column. The purpose of the optimization process is to reduce the absolute magnitude of this number as much as possible. Ledger 2 The Ledger 2 page provides a year-by-year breakdown of projected after-tax income from all sources, for both your client and his spouse. Total Income, Client: This is a sum of your client s income from all sources, including non-taxable sources, and it could include: employment income; net partnership income; self-employment income; government benefits (CPP and OAS); pension or annuity income; RRSP/RRIF withdrawals; net rental income; support payments; FP Solutions User Manual - Projected Cash Flow Module Page 203 of 473

205 Worker s Compensation payments; interest earned on investments; dividends earned from investments; or capital gains on investments. There is a corresponding Total Income column for your client s spouse. The sums of these two columns are transferred to the Total Income column on the Ledger 1 page. Tax Payable (Client): This is the sum of all of your client s projected income taxes, clawbacks and government benefit program contributions. This could include: federal income tax; provincial income tax; OAS clawback; CPP contributions; and EI premiums. There is a corresponding Tax Payable column for your client s spouse. The sums of these two columns are transferred to the Tax Payable column on the Ledger 1 page. After-tax Income (Client): This is calculated as the difference between the Total Income column and the Tax Payable column. There is a corresponding column for your client s spouse. These columns are carried over to the Ledger 3 page. Total After-tax: This combines the after-tax income of your client and his spouse. This column is carried over to the Ledger 3 page. Ledger 3 The Ledger 3 page provides a year-by-year comparison of total after-tax income with total expenses, to determine disposable income that can be used to meet investment objectives. After-tax Income (Client, Spouse, Total): These three columns are carried over from the Ledger 2 page. Re-invested Growth: Depending on the type of investments in your clients portfolios, some of the income that is included in the Total Income column of the Ledger 2 page may be automatically allocated for reinvestment, such that its use is not under their control (e.g., dividend reinvestment plans). Income of this nature is included in this column. These values are also transferred to the Re-invested Growth column on the Ledger 1 page. FP Solutions User Manual - Projected Cash Flow Module Page 204 of 473

206 Lifestyle Needs: This is the sum of all of your clients lifestyle needs, which could include: debt servicing; shelter costs; basic household expenses; discretionary personal expenses; transportation costs; travel/holiday costs; and education costs. These values are transferred to the Lifestyle Needs column of the Ledger 1 page. These amounts are discussed in more detail in the Lifestyle Needs module. Total Expenses: This is the sum of the Lifestyle Needs and Re-invested Growth columns. Disposable Income: This is the difference between the Total After-tax column and the Total Expenses column. It represents the income that your clients have available for investment. These values are transferred to the Disposable Income column of the Ledger 1 page. Ledger 4 The Ledger 4 page provides a year-by-year summary of projected investment activity. If you have run the Optimize function, some of these amounts could differ substantially from the amounts that you entered via the various investment modules. Carrying Charges: This is the sum of all of the carrying charges that your client and his spouse will pay on their non-registered investments, RRSP/RRIF accounts and their DC pension plan accounts, if you indicated that these charges are to be paid from funds outside of the investment accounts when you completed those investment modules. RRSP Contribution: This is the sum of all of the projected contributions that your client and his spouse will make to their personal and spousal RRSPs. Pension Contribution: This is the sum of all of the projected contributions that your client and his spouse will make to their defined contribution and/or defined benefit pension plans. Non-registered, Savings: This is the sum of all projected contributions that your client and his spouse will make to their non-registered savings accounts, including: individual accounts; FP Solutions User Manual - Projected Cash Flow Module Page 205 of 473

207 joint accounts; education accounts; and trust accounts. Non-registered, Withdrawals: This is the sum of the tax-free or principal portion of all withdrawals that your client and his spouse will make from their non-registered savings accounts. The income or growth portion of these withdrawals is already included in income. Other Assets/Debts: This is the sum of all additions or liquidations of other assets, which could include: stock options; their principal residence; their recreational property; commercial real estate; personal use assets; annuities; personal loans; life or disability insurance; or business assets. Total Activity: This is the net sum of the other columns on the Ledger 4 page (i.e., Carry Charges + RRSP Contributions + Pension Contributions + Non-registered Savings Non-registered Withdrawals + Other Assets). These values are transferred to the Investment Activity column of the Ledger 1 page. FP Solutions User Manual - Projected Cash Flow Module Page 206 of 473

208 Module: Projected Net Worth This module describes how to enter the additional data that FP Solutions needs to create a detailed net worth projection for your client and his spouse. You must complete the Net Worth module on a family basis. This module also explains the documentation that FP Solutions generates with respect to the net worth projection. Data Entry There is no new numerical data to enter in this module. Enter the basic instructions that FP Solutions needs to create the net worth projections as follows: 37) From the main menu bar, click on Data. 38) From the drop-down menu, click on Detailed Projections. 39) From the drop-down menu, click on Projected Net Worth. Note that unlike most other modules in FP Solutions, you cannot generate individual net worth statements for both the client and his spouse. This will launch the Net Worth data entry dialogue box, which consists of a single data entry screen. Include Deferred Taxes: Deferred taxes refer to the additional income taxes that could result if your client were to die or otherwise dispose of his assets without making use of any rollover provisions. Example: If your client died today and did not name his surviving spouse or dependent children as the beneficiary of his RRSPs, the full amount of those RRSPs would be FP Solutions User Manual - Projected Net Worth Module Page 207 of 473

209 taxable on his final return at his marginal tax rate. The resulting tax on his RRSPs that would result upon his death is referred to as deferred tax. If you want your client s net worth to be projected on an after-deferred-tax basis, check the Include Deferred Taxes box. Include Trust Assets: If your client is the beneficiary of a trust, you may or may not want to include those trust assets on your client s statement of net worth, depending on how certain you are that your client will receive control over those assets. If you want your client s projected net worth to include these trust assets, check the Include Trust Assets box. Display Date Label: The Projected Net Worth report, discussed shortly, includes a Statement of Net Worth on the Summary 2 page. Net worth statements are prepared as of a specific date. If you want that date to appear on the Statement of Net Worth, check the Display Date Label box. Display values for year: By default, FP Solutions creates the net worth statement that is shown on the Summary 2 page by using data from the first year of the financial plan. If you want this net worth statement to be based on projected data from a different year, click on the desired year from the drop-down menu. Annuity Values: Annuities can be valued using one of two methods: Click on Living Values if you want the net worth projection to be based on the present value of the annuity payments remaining until the end of your client s life expectancy. Click on Estate Values if you want the net worth projection to be based on the amount that your client s estate or his designated beneficiaries would receive if he died during the year. The method you choose also affects the way that pension values are displayed on the Net Worth statement. Documentation To access the documentation for the Projected Net Worth module: 40. From the main menu bar, click on Goto. 41. From the drop-down menu, click on Detailed Projections. 42. From the drop-down menu, click on Projected Net Worth. This will launch the Projected Net Worth report, which is suitable for distribution to your client. This report is based on the data that you collected, and it is presented in a series of pages. FP Solutions User Manual - Projected Net Worth Module Page 208 of 473

210 To print the Projected Net Worth report: 65. Make sure that the Projected Net Worth report is on screen (access the report as described above). 66. From the main menu bar, click on File. 67. From the drop-down menu, click on Print Preview. This will launch the Print Preview dialogue box. 68. Select the pages of the Projected Net Worth report that you want to print by holding the Ctrl key, and clicking on the title of each desired page. 69. Click on Print. Summary Pages There are two Summary pages in this report. Summary 1 Page The pie chart at the top of the Summary 1 page shows the breakdown of your client s assets into five categories: Non-registered investments, RRSPs/RRIFs, registered pension plan assets, real estate, and other assets, which could include the cash surrender value of insurance policies and all business asset values, for example. The second pie chart on the Summary 1 page shows the breakdown of your client s liabilities, as well as the deferred taxes (if you elected to show deferred taxes by checking the appropriate box on the Net Worth data entry screen). The debt shown on this chart is subdivided between that associated with the principal residence and other debt. In most cases, interest on debt that is associated with the principal residence is not deductible, while interest on other debt may or may not be deductible, depending on its purpose. The bar chart on the bottom of the Summary 1 page illustrates the growth of your client s net worth over his planning horizon. The bars are subdivided to show the breakdown of the various asset categories. The Net Worth line represents the projected value of all of your client s assets, net of any debts, but without factoring in deferred taxes. The Estate Worth line on this same chart equal s your client s total assets plus life insurance proceeds, less deferred taxes, debts, probate and any other costs that you specified at death. Summary 2 Page The Summary 2 page provides a standard statement of net worth at whatever point in time you specified on the Net Worth data entry screen. The statement will include deferred taxes if you elected to show them by checking the appropriate box on the Net Worth data FP Solutions User Manual - Projected Net Worth Module Page 209 of 473

211 entry screen. If you elected to show deferred taxes, then your client s net worth (after taxes) will be calculated as (total assets (total liabilities + deferred taxes)). If you elected not to show deferred taxes, then your client s net worth will be calculated as (total assets total liabilities). Ledger Page This module only includes one Ledger page, which provides a breakdown of the values used to calculate your client s living net worth and his estate net worth on a year-by-year basis. Assets: The amounts in this column are the sums of the projected values of all of your client s assets (plus those of his spouse), including the following: non-registered investments; RRSPs/RRIFs; defined-contribution pension accounts; present value of their accrued benefits under a defined-benefit pension plan; trusts of which they are the annuitants, if you chose to include them by checking the appropriate box on the Net Worth data entry screen; education savings plans; principal residence; recreational property; commercial real estate; life insurance cash surrender values; stock options; annuity values; and personal use assets. Liabilities: The amounts in this column are the sums of the projected values of all of your client s liabilities (plus those of his spouse), including the outstanding balances of their: principal residence mortgage; recreational property mortgage; commercial real estate mortgage; loans used to acquire personal use assets (credit cards, lines of credit, etc.); leveraged life insurance; and FP Solutions User Manual - Projected Net Worth Module Page 210 of 473

212 loans to acquire investment assets. Net Worth Before Taxes: The amounts in this column are calculated as the value from the Assets column minus the corresponding value from the Liabilities column. Deferred Taxes: The amounts in this column are the taxes that would arise if your client and his spouse disposed of all of their property, including all of their registered assets, at the end of the year. It could include tax on: the taxable capital gains on non-registered investments; the balance of their RRSPs/RRIFs, LIRAs, LIFs and LRIFs; the commuted value of all benefits payable from defined benefit or defined contribution pension plans. the taxable capital gain on their recreational property; the taxable capital gain and recapture of capital cost allowance on commercial real estate; the taxable capital gain on personal use assets; the taxable capital gain and recapture of capital cost allowance on business assets; the taxable capital gain on stock options; the difference between the guaranteed value and the adjusted principal amount of non-registered annuities. If either your client or his spouse has planned a charitable bequest upon death, FP Solutions will adjust the deferred taxes for the resulting charitable donations tax credit. Adjustments: The amounts in this column are the sums of the additional adjustments that FP Solutions makes between the projection of net worth while your client and his spouse are living, and the projection of net worth upon their death. These adjustments include: funeral expenses; probate/legal fees; bequests that you entered in the Survivor Capital Needs and Estate Capital Needs modules.; the difference between the present value of pension benefits payable to life expectancy to the present value of any payments that will continue for a guaranteed period after death; the difference between the present value of annuity payments payable to life expectancy to the present value of any payments that will continue for a guaranteed period after death; and FP Solutions User Manual - Projected Net Worth Module Page 211 of 473

213 certain business adjustments, such as the refundable dividend tax on hand (RDTOH). FP Solutions User Manual - Projected Net Worth Module Page 212 of 473

214 Life Insurance: The amounts in this column are the sums of the death benefits from: mortgage insurance on the principal residence mortgage, recreational property mortgage and commercial real estate mortgage; any other debt insurance; group life insurance; personal life insurance; and corporate life insurance. Net Worth Estate: This column records the projected after-tax net worth of your client s estate upon his death and the death of his spouse. The values are calculated as (Assets Liabilities Deferred Taxes Adjustments + Life Insurance). It is displayed on the bottom graph of the Summary 1 page as the Estate Worth line. FP Solutions User Manual - Projected Net Worth Module Page 213 of 473

215 Module: Retirement Capital Needs This module explains how to enter data regarding the your client s need to accumulate sufficient capital by retirement age to fund his desired retirement lifestyle. This module also explains the documentation that FP Solutions generates with respect to your client s retirement capital needs. Data Entry Any data that you enter into any of the FP Solutions modules automatically flows to the Retirement Capital Needs module, where the program determines if your client will accumulate sufficient capital to fund his desired retirement lifestyle. So, you may not have to enter any new numerical data in this module (although you may be making some adjustments), and there is no Edit Variables function. Instead, you must enter the instructions that FP Solutions needs to project your client s retirement capital needs and to optimize his retirement investment deposits and withdrawals. To launch the Retirement Capital Needs module: 40) From the main menu bar, click on Data. 41) From the drop-down menu, click on Needs Analysis. 42) From the drop-down menu, click on Retirement Capital Needs. Note that, unlike many of the other modules in FP Solutions, you cannot assess the retirement capital needs of your client and his spouse separately. This is because you need to take both of their tax and retirement income situations into account when determining which investment source to use for withdrawals. This will launch the Retirement Capital Needs data entry dialogue box, which consists of four data entry screens: Retirement Assumptions, Deposits, Withdrawals and Sample Allocations. Retirement Assumptions Data Entry Screen Use the Retirement Assumptions data entry screen to define the method that FP Solutions uses when performing the retirement capital needs calculations. Provide income to age: Enter the age of your client to which a retirement income will be required. FP Solutions User Manual - Retirement Capital Needs Module Page 214 of 473

216 Solve retirement income with program integration: Click on Solve retirement income with program integration to optimize the way in which your client s resources are used during retirement. If necessary, the program will modify the withdrawals that you specified in the Registered and Non-registered Investment modules. These changes will be made directly on the Variables pages of Registered and Non-registered Investment modules Note: The Solve Retirement Income with Program Integration feature performs a modified version of the Optimize Cash Flow feature. Planners using the Advanced or Business level versions of FP Solutions should use the Optimize Cash Flow feature instead of the Solve Retirement Income with Program Integration feature described in this section. Quick solve retirement income without program integration: Click on Quick solve retirement income without program integration if you want to test the impact of liquidating certain assets to fund your client s retirement lifestyle. When you use this option, the program assumes that withdrawals are going to be made from non-registered sources first, and then from registered sources. Furthermore, these withdrawals are made based on proportionate ownership (e.g., if the client owns 80% of the non-registered assets, then 80% of the withdrawals will come from the client s nonregistered account). The impact of the liquidation is only recorded in the Retirement Capital Needs module. The Registered and Non-registered Investment modules are not changed. Note: If you want factor the sale of recreational, commercial or business property into the integrated retirement capital needs assessment (i.e., not via Quick Solve), you should FP Solutions User Manual - Retirement Capital Needs Module Page 215 of 473

217 create a separate scenario in which the client sells the property and invests the proceeds, prior to running the integration. Deposits Data Entry Screen If, after running the retirement integration, you find that your client will not have enough capital to fund his retirement lifestyle, you can use the Deposits data entry screen to adjust the planned deposits to registered and non-registered savings, without having to go back to the Registered or Non-registered Investment modules. The data that you enter through the Deposits data entry screen will over-write any previous data, and will be recorded on the Registered or Non-registered Investment Variables data entry screens. Update retirement savings: Check this box if you want to modify the registered or nonregistered deposits. If you do not check this box, the remaining fields on this data entry screen will remain disabled. Annual: Click on Annual if the deposit amounts that you specify on this data entry screen should be applied annually. Monthly: Click on Monthly if the deposit amounts that you specify on this data entry screen should be applied monthly. Beginning of period: Check this box if the deposits will be made at the beginning of each compounding period. Clear this box if the deposits will be made at the end of each compounding period. Index deposits at: Enter the annual rate at which the deposits should be indexed. Often it makes sense for the client to increase his deposits as his employment income increases. FP Solutions User Manual - Retirement Capital Needs Module Page 216 of 473

218 RRSPs: Enter the new deposit amounts that your client and his spouse should make to their personal or spousal RRSPs. FP Solutions will only apply these deposits to the extent that they do not exceed the individual s RRSP contribution room. Note that when you use this method, the deposits will continue until retirement age. If you want to adjust the deposits over a shorter period of time, or in an irregular pattern (e.g. $500 for the first 5 years, then $1,000 for the next 5 years, etc.), use the Edit Variables function in the Registered Investments module. Non-registered: Enter the new deposit amounts that your client and his spouse should make to their individual or joint non-registered investment accounts. Note that when you use this method, the deposits will continue until retirement age. If you want to adjust the deposits over a shorter period of time, or in an irregular pattern (e.g. $500 for the first 5 years, then $1,000 for the next 5 years, etc.), use the Edit Variables function in the Nonregistered Investments module. Withdrawals Data Entry Screen Use the Withdrawals data entry screen to specify how FP Solutions should use the registered and non-registered investments when addressing the retirement income deficiencies. You can specify whether the registered or non-registered assets should be used first, and whether the client s assets or those of his spouse should be used first. Once you complete this screen, FP Solutions will re-solve for retirement income with full program integration. Replace Withdrawals: If you have previously recorded specific withdrawals in the Registered or Non-registered Investment modules, you can choose to allow FP Solutions to overwrite these withdrawals during the optimization process by checking the Replace Withdrawals box. If you leave this box unchecked, FP Solutions will only optimize the withdrawals for those years in which you did not already specify a withdrawal. FP Solutions User Manual - Retirement Capital Needs Module Page 217 of 473

219 Withdraw from RRSPs/RRIFs: If you want FP Solutions to draw on the registered assets to satisfy the retirement income deficiencies, check the Withdraw from RRSPs/RRIFs box. To make this source the top priority, enter 100% in the corresponding % field. Withdraw from Non-registered: If you want FP Solutions to draw on the non-registered assets to satisfy the retirement income deficiencies, check the Withdraw from Nonregistered box. To make this source the top priority, enter 100% in the corresponding % field. Note: If you want FP Solutions to draw from both the registered and non-registered accounts, check both boxes, and then use the % fields to indicate the percentage of each withdrawal that should come from each source. If FP Solutions can draw on both sources, but should draw on the non-registered savings first, check both boxes, but enter 100% in the Non-registered % field. Similarly, if FP solutions can draw on both sources but should draw on the registered savings first, check both boxes, but enter 100% in the Registered % field. RRSP/RRIF withdrawal priority: Use this section to specify how FP Solutions should use registered assets to address the retirement income deficiencies. These fields will only be enabled if you checked the Withdraw from RRSPs/RRIFs box at the top of the data entry screen. Withdraw from Client: If you want FP Solutions to draw on your client s registered assets to satisfy the retirement income deficiencies, check the Withdraw from Client box. To make this source the top priority, enter 100% in the corresponding % field. Withdraw from Spouse: If you want FP Solutions to draw on your client s spouse s registered assets to satisfy the retirement income deficiencies, check the Withdraw from Spouse box. To make this source the top priority, enter 100% in the corresponding % field. Note: If you want FP Solutions to draw from both the client s and spouse s registered accounts, check both boxes, and then use the % fields to indicate the percentage of each withdrawal that should come from each source. If FP Solutions can draw on both sources, but should draw on the client s registered savings first, check both boxes, but enter 100% in the Withdraw from Client field. Similarly, if FP Solutions can draw on both sources, but should draw on the spouse s registered savings first, check both boxes, but enter 100% in the Withdraw from Spouse field. FP Solutions User Manual - Retirement Capital Needs Module Page 218 of 473

220 Non-registered withdrawal priority: Use this section to specify how FP Solutions should use non-registered assets to address the retirement income deficiencies. These fields will only be enabled if you checked the Withdraw from Non-registered box at the top of the data entry screen. Withdraw from Client: If you want FP Solutions to draw on your client s non-registered assets to satisfy the retirement income deficiencies, check the Withdraw from Client box. To make this source the top priority, enter 100% in the corresponding % field. Withdraw from Spouse: If you want FP Solutions to draw on your client s spouse s nonregistered assets to satisfy the retirement income deficiencies, check the Withdraw from Spouse box. To make this source the top priority, enter 100% in the corresponding % field. Withdraw from Joint-owned: If you want FP Solutions to draw on your client s and spouse s joint non-registered assets to satisfy the retirement income deficiencies, check the Withdraw from Joint-owned box. To make this source the top priority, enter 100% in the corresponding % field. Note: If you want FP Solutions to draw from all three non-registered accounts (client, spouse and joint), check all three boxes, and then use the % fields to indicate the percentage of each withdrawal that should come from each source. If FP Solutions can draw on all three sources, but should give priority to one of the sources, check all three boxes, but enter 100% in the % field for the priority source. Sample Allocations Data Entry Screen A major component of any retirement needs analysis is the calculation of the net present value (NPV) of the retirement income needs. This NPV is affected by the investment strategy and allocation of the assets used to fund those income needs. FP Solutions calculates the NPV of your client s retirement income needs, using the average rate of return that could be earned using model conservative, moderate or aggressive investment allocations. FP Solutions uses the rates of return for the various asset classes as specified in your Defaults file, to calculate an average rate of return for each of the model asset allocations. It then uses this average rate of return to calculate the NPV of the retirement income needs. FP Solutions User Manual - Retirement Capital Needs Module Page 219 of 473

221 The Sample Allocations data entry screen allows you to modify these model investment allocations. FP Solutions provides default conservative, moderate and aggressive allocations, but you can edit each of these allocations, and their names, by clicking on the appropriate field and entering the desired value. Index required savings at: When FP Solutions calculates the required level of annual savings, it can calculate a fixed annual amount, or an amount that is indexed annually. The later approach may be more acceptable to your client because the rate of savings can increase as his employment income increases. If you want FP Solutions to index the savings, enter the indexation rate in the Index required savings at field. Documentation To access the documentation for the Retirement Capital Needs module: 43. From the main menu bar, click on Goto. 44. From the drop-down menu, click on Needs Analysis. 45. From the drop-down menu, click on Retirement Capital Needs. This will launch the Retirement Capital Needs report, which is suitable for distribution to your client. This report is based on the data that you collected, and it is presented in a series of pages. To print the Retirement Capital Needs report: 70. Make sure that the Retirement Capital Needs report is on screen (access the report as described above). FP Solutions User Manual - Retirement Capital Needs Module Page 220 of 473

222 71. From the main menu bar, click on File. 72. From the drop-down menu, click on Print Preview. This will launch the Print Preview dialogue box. 73. Select the pages of the Retirement Capital Needs report that you want to print by holding the Ctrl key, and clicking on the title of each desired page. 74. Click on Print. Summary Pages The two Summary pages provide numerical and graphical comparisons of your client s retirement needs with the resources available. Summary 1 Page The Summary 1 page compares your client s projected retirement income with his retirement lifestyle goals, and it identifies any projected shortfalls. The first chart on the Summary 1 page documents the desired retirement lifestyle expenses for the first year of retirement, and it compares this with the client s projected after-tax income from all sources, assuming that the conservative, moderate or aggressive asset allocation models are implemented. Example: In the example, above, the client s expected retirement lifestyle expenses during the first year of retirement amount to $154,107. Based on his existing assets, planned deposits, and other sources of income, FP Solutions projects that his after-tax income would only be $123,435 if he implements the conservative asset allocation, which is only 80% of his goal. On the other hand, if he employs the aggressive asset allocation, FP Solutions projects that his after-tax income would be 102% of his goal, or $157,198. The second chart on the Summary 1 page provides a year-by-year illustration of your client s projected income, based on his existing asset allocation strategy, and it compares this with his target lifestyle expenses. For each year, it also shows how much of that income comes from investment sources. This graph will clearly identify when any income surpluses or shortfalls are expected to occur. If a shortfall exists, your client has three choices: reduce spending now, so that he can devote more toward retirement savings; FP Solutions User Manual - Retirement Capital Needs Module Page 221 of 473

223 reduce his spending in retirement, so that he can support it with his accumulated capital; or change his investment strategy to strive for a higher after-tax return. Summary 2 Page The Summary 2 page looks at the same issue from a different angle, by projecting the amount of capital that will be required at retirement to sustain the desired retirement lifestyle expenses, and comparing this with the amount of capital that is likely to be available. The first chart on the Summary 2 page documents the capital required at retirement to sustain your client s desired retirement lifestyle expenses, based on the model conservative, moderate and aggressive investment allocations. It compares this with the projected capital that your client is likely to accumulate, based on the registered and nonregistered deposit amounts that you have specified, and your client s current asset allocation. Example: Based on the deposit amounts entered via the Registered and Non-registered Investment modules, FP Solutions projects that the client in the above example will accumulate capital of $1,501,064 by retirement if it was invested according to his existing asset allocation, which is expected to generate an average return of 7.37%. If he implements the conservative asset allocation during retirement, which will provide an average return of 5.20%, FP Solutions projects that he would need to have accumulated capital of $2,133,551 by retirement in order to be able to sustain his desired level of retirement lifestyle expenses. Based on the chart above, if the client maintains his moderate asset allocation during retirement, the amount that he has accumulated by retirement should be sufficient to maintain his retirement lifestyle expenses. The second chart on the Summary 2 page provides a year-by-year comparison of how the capital that will be accumulated using the current investment allocation strategy compares to the capital that would be needed if one of the model asset allocations was used. Ledger Pages The three Ledger pages provide numerical summaries of the calculations leading to the estimation of the retirement capital needed. FP Solutions User Manual - Retirement Capital Needs Module Page 222 of 473

224 Ledger 1 Page The Ledger 1 page compares your client s projected after-tax income with his projected lifestyle needs on a year-by-year basis, and identifies any income deficiencies that remain even after you have used the retirement integration function. Fixed Income: This column documents the sum of your client s and spouse s income from all non-investment sources, including employment, registered pension plans, Canada Pension Plan and Old Age Security. Investment Income, Registered: This column documents your client s and spouse s income from registered investments (other than registered pension plans). It includes any withdrawals that you specified in the Registered Investments module, or that FP Solutions calculated when you used the retirement integration function. Investment Income, Non-registered: This column documents your client s and spouse s income from non-registered investments. It includes any withdrawals that you specified in the Non-registered Investments module, or that FP Solutions calculated when you used the retirement integration function. Income Tax: This column documents the total amount of income tax that your client and his spouse are projected to pay on all sources of income (i.e., including fixed income and investment income). After-tax income: This column documents the combined after-tax income of your client and his spouse, from all sources. Lifestyle Needs: This column documents the lifestyle needs of your client and his spouse, both before and after retirement, based on the information that you entered in the Lifestyle Needs module. Excess/(Deficiency): The amounts in this column are calculated as (After-tax Income Lifestyle Needs). Excesses that appear in this column do not take planned savings into account and are not automatically invested by program. To have the excesses invested either manual enter deposits into the investment modules or use the deposits data entry screen provided in the Retirement Capital Needs data entry screen. When deficiencies are displayed in this column, the Solve Retirement Income with Program Integration feature should be performed to have the program draw down on the available investment assets. Ledger 2 Page The Ledger 2 page summarizes the steps that FP Solutions uses to calculate the capital required at retirement. After-tax Fixed Inc.: This column documents the after-tax income from all noninvestment sources, including employment, registered pension plans, Canada Pension Plan and Old Age Security. FP Solutions User Manual - Retirement Capital Needs Module Page 223 of 473

225 Lifestyle Needs: This column documents the lifestyle needs of your client and his spouse, both before and after retirement, based on the information that you entered in the Lifestyle Needs module. Retirement Deficiency: The amounts in this column are calculated as (Lifestyle Needs After-tax Fixed Inc.). This amount must be funded with retirement savings. Net Present Value of Retirement Deficiency (Conservative, Moderate, Aggressive): These three columns document the net present value (NPV) of the projected retirement income deficiencies, using the average rates of return that could be expected from the conservative, moderate and aggressive asset allocations that you specified on the Sample Allocations data entry screen. Available Capital: This column documents the projected capital that your client will have accumulated by the end of each year, based on the deposit amounts entered into the Registered and Non-registered Investment modules and your client s current asset allocation. Ledger 3 Page The Ledger 3 page identifies the changes to the annual deposits before retirement and the changes to lifestyle expenses after retirement that would be required if your client used one of the model asset allocations instead of his current asset allocation. Recall that the first chart on the Summary 2 page showed the projected amount of capital that your client would accumulate by retirement if he continues to use his existing asset allocation and he follows the deposit strategies that you outlined in the Registered and Non-registered Investment modules. This is the amount documented as Projected Assets near the top of the Summary 2 page. Example: In our previous example, FP Solutions projected that the client would accumulate capital of $1,501,064 by retirement if his registered and non-registered portfolios continued to be invested according to his existing asset allocation until retirement. Deposit (Withdrawal): This column documents the projected annual deposits and withdrawals based on the deposit and withdrawal amounts that you entered in the Registered and Non-registered Investment modules, or the withdrawals that FP Solutions calculated when you used the retirement integration function. Note that deposits are shown up until retirement age, and then the numbers turn negative to indicate that the withdrawals have commenced. Annual Savings Required (Conservative, Moderate, Aggressive): These three columns document the annual savings that would be required to accumulate the same level of capital by retirement if your client follows the deposit strategies that you outlined in the Registered and Non-registered Investment modules, but uses the conservative, moderate or aggressive asset allocations that you documented in the Sample Allocations data entry FP Solutions User Manual - Retirement Capital Needs Module Page 224 of 473

226 screen, until retirement. Note that the values in these columns increase each year. This shows the client the cost of waiting to commence saving for retirement. Reduction to Retirement Lifestyle (Conservative, Moderate, Aggressive): These three columns document the annual reduction in (or increase to) retirement lifestyle expenses that your client would face if he managed to accumulate the projected assets at retirement as shown on the Summary 2 page by following his current asset allocation, but then uses the conservative, moderate or aggressive asset allocations that you documented in the Sample Allocations data entry screen, after retirement. FP Solutions User Manual - Retirement Capital Needs Module Page 225 of 473

227 Module: Survivor Capital Needs This module describes how to enter data regarding your client s capital needs upon the death of his spouse, using the Survivor Capital Needs: Client module. To calculate the spouse s capital needs upon the death of your client, you should complete the Survivor Capital Needs: Spouse module, which follows a parallel format. This module also explains the documentation that FP Solutions generates with respect to your client s survivor capital needs. Data Entry Enter basic information, such as the length of the planning horizon, recurring survivor needs, or lump-sum needs upon the spouse s death, by using the basic data entry screens. Enter additional information that is not addressed during the basic data collection process, such as lump-sum or irregular capital needs in the years after the spouse s death, by using the Edit Variables function. Basic Data To enter regular, recurring information about your client s capital needs upon the death of his spouse: 43) From the main menu bar, click on Data. 44) From the drop-down menu, click on Needs Analysis. 45) From the drop-down menu, click on Survivor Capital Needs: Client. (Note: you can also assess the capital needs of your client s spouse upon the death of your client by clicking on Survivor Capital Needs: Spouse. The process parallels that described below.) This will launch the Survivor Capital Needs data entry dialogue box, which consists of three data entry screens: Survivor Assumptions, Lump Sum Needs, and Sample Allocations. Survivor Assumptions Use the Survivor Assumptions data entry screen to enter information about your client s capital needs upon the death of his spouse and to specify whether FP Solutions should incorporate CPP survivor benefits into the financial plan. Example: The screen capture, below, illustrates the information entered to assess the capital needs of the client, Richard, upon the death of his spouse, Amanda. FP Solutions User Manual - Survivor Capital Needs Module Page 226 of 473

228 Provide income to age: Enter the client s age to which income should be provided. % of Lifestyle Need provided: When you completed the Lifestyle Needs module, it included the lifestyle needs of the entire family. These needs will likely decrease if your client s spouse dies, because less will be spent on food, transportation, clothing, etc. Enter the percentage of the original lifestyle needs that you estimate will be required after the spouse s death. Monthly child dependency needs: While the Lifestyle Needs module factors in the cost of raising a child, these costs could increase if one parent dies, because of new childcare costs, transportation costs, counseling costs, etc. If your client s child is not disabled, enter these additional costs in the Monthly child dependency needs field. FP Solutions assumes that these additional costs will only continue until the dependant reaches 18 years of age. If the child is disabled and you have indicated this in the Personal Information module, use the Monthly child disability needs field instead, as described below. Monthly child disability needs: While the Lifestyle Needs module factors in the cost of raising a child, these costs could increase if one parent dies, because of new childcare costs or caregiver costs, transportation costs, counseling costs, etc. If your client s child is disabled and you have indicated this in the Personal Information module, enter these additional costs in the Monthly child disability needs field. FP Solutions assumes that these costs will continue until the end of the planning horizon, regardless of the child s attained age. Employment Income, % of Current: Sometimes after a spouse dies, the client scales back his working hours to take on additional family responsibilities, and this can come with a reduction in employment income. Enter the percentage of your client s current FP Solutions User Manual - Survivor Capital Needs Module Page 227 of 473

229 employment income that he expects to receive after the death of his spouse in the % of Current field. Employment Income, Set at: In some cases, your client may not be currently working, but would be forced to return to work upon his spouse s death. If this is the case, enter the client s anticipated employment income, in current dollars, in the Set at field. FP Solutions will index this employment income according to the inflation rate specified in your Defaults file. Then enter the rate at which this income would be taxed in the % tax field. CPP Survivor Benefits: Check this box if you want FP Solutions to include the maximum CPP death benefit of $2,500 and the maximum CPP survivor s and orphan s pensions in the needs analysis. Include Life Insurance CSV: Check this box if you want FP Solutions to consider the CSV of life insurance owned by your client to be available to meet his survivor capital needs upon the death of his spouse. Include Business Interests: Check this box if you want FP Solutions to consider your client s business assets to be available to meet his survivor capital needs upon the death of his spouse. Liquidate Recreational Property: Check this box if you want FP Solutions to consider the value of your client s recreational property to be available to meet his survivor capital needs upon the death of his spouse. Liquidate Commercial Property: Check this box if you want FP Solutions to consider the value of your client s commercial property to be available to meet his survivor capital needs upon the death of his spouse. Lump Sum Needs Data Entry Screen Use the Lump Sum Needs data entry screen to enter information on fixed sums that your client will need upon the death of his spouse. FP Solutions User Manual - Survivor Capital Needs Module Page 228 of 473

230 Funeral and Final Expenses: Enter the amount of expenses associated with your client s spouse s death, including funeral costs. You can choose to index this amount by the inflation rate specified in your Defaults file by checking the corresponding Index box. Emergency Fund: Enter the amount of funds that should be available to your client for emergencies upon his spouse s death. You can choose to index this amount by the inflation rate specified in your Defaults file by checking the corresponding Index box. Charitable Bequests: Enter the amount of charitable cash bequests that your client s spouse would like to make at the time of her death. You can choose to index this amount by the inflation rate specified in your Defaults file by checking the corresponding Index box. Other Bequests: Some people like the idea of leaving a cash legacy to their children upon death. Enter any non-charitable cash bequests that your client s spouse would like to make at the time of her death. You can choose to index this amount by the inflation rate specified in your Defaults file by checking the corresponding Index box. Sample Allocations A major component of any survivor needs analysis is the calculation of the net present value (NPV) of the survivor income needs. This NPV is affected by the investment strategy and allocation of the assets used to fund those income needs. FP Solutions uses your client s existing asset allocation, along with the rates of return for those asset classes as specified in your Defaults file, to calculate an average rate of return. It then uses this average rate of return to calculate the NPV of the survivor income needs. FP Solutions User Manual - Survivor Capital Needs Module Page 229 of 473

231 For demonstration purposes, FP Solutions also calculates the NPV of these same survivor income needs using the average rate of return that could be earned using conservative, moderate or aggressive investment allocations. The Sample Allocations data entry screen allows you to modify these model investment allocations. FP Solutions provides default conservative, moderate and aggressive allocations, but you can edit each of these allocations, and their names, by clicking on the appropriate field and entering the desired value. Variable Data If your client will have irregular or lump-sum survivor capital needs in the future, enter this information using the Edit Variables function. Example: Amanda would like to make a $50,000 contribution to a charitable organization upon her death, in annual lump-sums of $10,000 (indexed) over 5 years, but only if she dies after reaching age 60. You can use the Edit Variables to enter this stream of charitable contributions in the future. From any of the Survivor Capital Needs data entry screens, click on Edit Variables. This will open the Survivor Capital Needs Variables data entry screen, where you can enter additional information on a year-by-year basis. There are several buttons of note on the top left of this screen. Click on Data to return to the Survivor Capital Needs data entry dialogue box. Click on CALC to recalculate the spreadsheet values. Click on Main/OK to return to the Main Workspace. However, you should recalculate the spreadsheet values before returning to the Main Workspace. FP Solutions User Manual - Survivor Capital Needs Module Page 230 of 473

232 From the drop-down menu, click on Charitable or Other to navigate quickly to various sections of the data entry screen. Manual Data Entry: You can choose to enter information on the Survivor Capital Needs Variables data entry screen manually, simply by navigating to the appropriate cell and inputting the desired numbers. Automatic Data Entry: You can also fill in the columns of the Survivor Capital Needs Variables data entry screen using the Custom Trend feature. To apply a custom trend to any of the columns: 67. Click on $ Amount at the top of one of the desired columns. This will launch the Custom Trend dialogue box for that column. 68. Specify the time over which the custom trend will be applied by either: k. Checking the Use ages box, and then choosing the appropriates ages from the From age and To age drop-down menus; or l. Unchecking the Use ages box, and then choosing the appropriate years from the From year and To year drop-down menus. FP Solutions User Manual - Survivor Capital Needs Module Page 231 of 473

233 69. Specify the annual amount in the Set value at field. 70. Specify the annual indexation rate, if any, in the Indexed at field. 71. Specify how often the lump sum will be required, by selecting an option from the Frequency drop-down menu. 72. Click on Apply, and the column will be filled with the specified trend. Documentation To access the documentation for the Survivor Capital Needs module: 46. From the main menu bar, click on Goto. 47. From the drop-down menu, click on Needs Analysis. 48. From the drop-down menu, click on Survivor Capital Needs: Client. This will launch the Survivor Capital Needs report, which is suitable for distribution to your client. This report is based on the data that you collected, and it is presented in a series of pages. To print the Survivor Capital Needs report: FP Solutions User Manual - Survivor Capital Needs Module Page 232 of 473

234 75. Make sure that the Survivor Capital Needs report is on screen (access the report as described above). 76. From the main menu bar, click on File. 77. From the drop-down menu, click on Print Preview. This will launch the Print Preview dialogue box. 78. Select the pages of the Survivor Capital Needs report that you want to print by holding the Ctrl key, and clicking on the title of each desired page. 79. Click on Print. Summary Pages The two Summary pages provide numerical and graphical comparisons of your client s survivor capital needs, the resources available and the amount of insurance needed to meet those needs. Summary 1 Page The first part of the Summary 1 page documents the net present value (NPV) of the difference between the survivor s annual income needs and the income available, for the duration of the planning horizon. The NPV is calculated using the average rate of return of your client s existing asset allocation, as well as the average rates of return for the model conservative, moderate and aggressive investment allocations. This information is shown both in tabular and graphical formats. Example: In the screen capture, below, $61,368 is the total income needed by your client for the first year after the death of his spouse. The actual income deficiency, if one exists, is the difference between $61,368 and the after-tax income shown on the Ledger 2 page. FP Solutions calculates the NPV of each annual income deficiency, and the total of these NPVs is recorded as NPV of Income Deficiency, for each of 4 allocation models (Your Allocation, Conservative, Moderate and Aggressive). The next three sections of the table on the Summary 1 page (Survivor Lump-sum Needs, Income Producing Assets, and Life Insurance Benefits) are expressed in current dollars, so they already represent net present value and are not affected by the investment allocation. The final line of the table estimates the amount of additional life insurance required, and it is calculated as ((NPV of Income Deficiency + Total Lump-sum Needs) (Total Available Capital + Total Life insurance Benefits)). This calculation is performed for FP Solutions User Manual - Survivor Capital Needs Module Page 233 of 473

235 your client s existing portfolio allocation, as well as the model conservative, moderate and aggressive investment allocations. The chart on the bottom of the Summary 1 page compares your client s projected aftertax income (based on existing assets and insurance) with his projected lifestyle needs after his spouse s death. Summary 2 Page The first part of the Summary 2 page compares the amount of insurance already in force with the total amount of insurance that is needed on your client s spouse s life to meet your client s survivor capital needs, for each of the four investment allocations (existing, conservative, moderate and aggressive). This information is presented for two points in time: the spouse dies today, and the spouse dies in 20 years. The second chart on the Summary 2 page compares your client s projected assets, including insurance proceeds, with the assets that he would require to meet all of his needs as the survivor, should his spouse die at any point during the planning horizon. The chart shows three different lines for the assets required, depending on whether a conservative, moderate or aggressive allocation strategy is used. If there is a shortfall, this indicates that your client will have to either reduce his standard of living, or earn additional income. Because it is usually not possible to increase one s employment income at will or with any certainty, this shortfall is usually best met with insurance. Ledger Pages The three Ledger pages provide numerical summaries of the calculations leading to the estimation of life insurance needed. Ledger 1 Page The Ledger 1 page compares your client s projected after-tax income with his survivor needs following the death of his spouse, and identifies any income deficiencies on a yearby-year basis. Employment Income: The amounts in this column reflect your client s projected employment income, based on data that you recorded via the Employment & Other Income module, and as modified by the adjustments that you entered via the Survivor Assumptions data entry screen. Government Benefits: The amounts in this column reflect the sum of the survivor s pension and orphan s benefits that your client will receive from the Canada Pension Plan. FP Solutions User Manual - Survivor Capital Needs Module Page 234 of 473

236 Pension Other Inc.: The amounts in this column include any pension or annuity income that your client will receive. Tax Payable: This column documents the total amount of income tax that your client is projected to pay on all sources of income. After-tax Income: This column documents your client s projected after-tax income (excluding income from investments) after the death of his spouse, calculated as (Employment Income + Government Benefits + Pension Other Income Tax Payable). Lifestyle Needs: The amounts in this column reflect your client s lifestyle needs as you recorded them via the Lifestyle Needs module, and as modified by the adjustments that you entered via the Survivor Assumptions data entry screen, including any additional child care costs. Income Deficiency: The amounts in this column are calculated as (After-tax Income Lifestyle Needs). Note that in this column, a negative number actually indicates a surplus of income, while a positive result indicates that a deficiency exists. The data from this column is transferred to the Income Deficiency column on the Ledger 2 page. Ledger 2 Page The Ledger 2 page summarizes the projected capital required by your client to meet the lump-sum requirements and survivor lifestyle expenses after his spouse s death, and compares it with his projected available capital. If the sum of the NPV of Income Deficiencies and Lump Sum Needs columns exceeds the sum of the Projected Assets and Life Insurance columns, your client will need additional insurance on the life of his spouse. Income Deficiency: The data in this column is transferred from the Income Deficiency column on the Ledger 1 page. NPV of Income Deficiencies: This section documents the net present value of the projected income deficiencies, using the average rates of return that could be expected from the conservative, moderate and aggressive asset allocations that you specified on the Sample Allocations data entry screen. Lump-sum Needs: The amounts in this column document your client s projected lumpsum needs, including the final expenses, charitable donations and personal bequests that you specified via the Lump-sum Needs and Survivor Capital Needs Variables data entry screens. It also includes any amounts required to discharge all of the family s debts, and to pay any taxes resulting from the liquidation of assets upon death. Projected Assets: The amounts in this column represent the sum of all assets that could be available to meet your client s survivor needs. This could include: FP Solutions User Manual - Survivor Capital Needs Module Page 235 of 473

237 non-registered investments; RRSPs and RRIFs (including locked-in plans); commuted pension values; commercial and recreational real estate (if you indicated that they could be liquidated on the Survivor Assumptions data entry screen); business assets (if you indicated that they could be liquidated on the Survivor Assumptions data entry screen); and the CSV of life insurance policies (if you indicated that they could be liquidated on the Survivor Assumptions data entry screen). Life Insurance: The amounts in this column reflect the death benefits that would become available upon the death of your client s spouse because of policies already in force. This data is transferred to the Ledger 3 page. Ledger 3 Page The Ledger 3 page summarizes the projected life insurance needed on your client s spouse s life and compares it to the life insurance already in force. Life Insurance Needs: The amounts in these columns reflect the total amount of insurance that would be needed to cover the shortfall between the sum of the NPV of Income Deficiencies and Lump Sum Needs columns of the Ledger 2 page and the Projected Assets on that same page. Because the net present value of the income deficiencies depends on the return assumptions, which in turn depend on the assumed asset allocations, the Life Insurance Needs are calculated for each of the three model asset allocations (conservative, moderate and aggressive). Life Insurance: The amounts in this column reflect the death benefits that would become available upon the death of your client s spouse because of policies already in force. This data is transferred from the Ledger 2 page. Additional Insurance Required: The amounts in these columns are calculated as (Life Insurance Needs Life Insurance), for each of the three asset allocations. FP Solutions User Manual - Survivor Capital Needs Module Page 236 of 473

238 Module: Estate Capital Needs This module describes how to enter data regarding your client s and spouse s need to have sufficient capital in their estate upon both of their deaths. To address survivor capital needs upon just one of their deaths, complete the Survivor Capital Needs module. This module also explains the documentation that FP Solutions generates with respect to their estate capital needs. Data Entry Enter basic information, such as the liquidity of various assets, the applicable probate fee schedule and lump sums needed at the time of death, by using the basic data entry screens. Enter additional information that is not addressed during the basic data collection process, such as lump-sum or irregular capital needs in the years after death, by using the Edit Variables function. Basic Data To enter regular, recurring information about your client s estate capital needs: 46) From the main menu bar, click on Data. 47) From the drop-down menu, click on Needs Analysis. 48) From the drop-down menu, click on Estate Capital Needs. This will launch the Estate Capital Needs data entry dialogue box, which consists of three data entry screens: Liquid Assets, Lump Sum Needs, and Probate. Liquid Assets Data Entry Screen Use the Liquid Assets data entry screen to specify which assets are considered sufficiently liquid to be able to satisfy debts, final expenses and other estate expenses after death. Liquid assets are those that can easily be converted into cash at their full value in little or no time. FP Solutions User Manual - Estate Capital Needs Module Page 237 of 473

239 To specify that a particular asset is liquid, click on the checkbox to the left of that asset. Lump Sum Needs Data Entry Screen Use the Lump Sum Needs data entry screen to enter information on the fixed sums that their estate will need upon both of their deaths. Charitable Bequest, Amount: Enter the amount of charitable cash bequests that your client and his spouse would like to make at the time of their deaths. Note that this is in addition to any charitable bequests that you may have recorded in the Survivor Capital Needs modules. You can choose to index this amount by the inflation rate specified in your Defaults file by checking the corresponding Index box. Example: Sam would like to donate $50,000 to the Humane Society if he dies before his wife, but if they die at the same time, he would like the total donation to be $150,000. For this situation, you would enter a charitable bequest of $50,000 as a charitable bequest in the Survivor Capital Needs module, plus $100,000 as a charitable bequest in the Estate Capital Needs module. FP Solutions User Manual - Estate Capital Needs Module Page 238 of 473

240 Charitable Bequest, Assets: Check the Client RRSP box if your client wants to donate all of the funds in his RRSP, in addition to the amount specified in the Charitable Bequest: Amount field. Similarly, if your client s spouse wants to donate all of the funds in her RRSP, check the Spouse RRSP box. While donated RRSP funds will be subject to tax, the resulting charitable donations tax credit will offset that tax. Other Bequests: Some people like the idea of leaving a cash legacy to their children upon death. Enter any non-charitable cash bequests that your client and his spouse would like to make if they both die. Note that this is in addition to any other bequests that you may have recorded in the Survivor Capital Needs modules. You can choose to index this amount by the inflation rate specified in your Defaults file by checking the corresponding Index box. Executor/Trustee Fees: Use this section to specify the executor or trustee fee schedule that will be applied to their estate. Minimum Executor Fee: If the executor or trustee will impose a minimum fee for small estates, enter the minimum fee. FP Solutions will calculate the actual fee as the greater of the minimum fee and the fee as calculated according to the schedule that you specified in the Executor/Trustee Fees section. Example: The executor of Richard and Amanda s estate charges a fee of 5% on the first $100,000 of assets passing through the estate, plus 2% on estates between $100,001 and $500,000, and 1% on estates over $500,000, with a minimum fee of $5,000. If their estate is valued at $650,000, the executor s fees will be $14,500, calculated as the greater of (($100,000 5%) + ($400,000 2%) + ($150,000 1%)), and the minimum of $5,000. Probate Data Entry Screen There are two main factors to consider when calculating probate fees: the provincial probate fee schedule, and the amount that is subject to probate. Each province has its own probate fee schedule. FP Solutions automatically defaults to the probate fee schedule of the client s province of residence, but you can use the Probate data entry screen to modify this selection if the assets will be subject to probate in a different province. FP Solutions User Manual - Estate Capital Needs Module Page 239 of 473

241 Province of residence: If your client s estate will be subject to probate in his province of residence, click on Province of Residence. The Set Probate Parameter fields will be disabled because FP Solutions will use the probate fee schedule for his province of residence, which is stored in the program. Other: If your client s estate will be subject to probate in a province other than his province of residence, click on Other, and then select the appropriate province from the corresponding drop-down menu. The Set Probate Parameter fields will be disabled because FP Solutions will use the probate fee schedule for the selected province, as stored in the program. Set probate parameters at: If you do not want to use the probate fee schedules that are stored within FP Solutions (perhaps because of recent legislative changes), choose Other Probate Calculations from the provincial drop-down menu, and then enter your alternative calculations in the Set probate parameters at fields. Transfer outside of Estate: Only those assets that flow through the estate are subject to probate. Assets with a designated beneficiary (e.g., registered plans or life insurance), or FP Solutions User Manual - Estate Capital Needs Module Page 240 of 473

242 property held in joint tenancy are not subject to probate. To exclude certain categories of assets from the probate fee calculations, check the box beside that category. Variable Data If your client s estate will have irregular or lump-sum capital needs in the future, enter this information using the Edit Variables function. Example: Richard and Amanda have a daughter, Sheila, who is currently 13 years old. Richard anticipates that once Sheila is 18, she will need $10,000 a year for five years to obtain her post-secondary education. You could use the Edit Variables function to enter this as a series of lump-sum needs in the future. From any of the Estate Capital Needs data entry screens, click on Edit Variables. This will open the Estate Capital Needs Variables data entry screen, where you can enter additional information on a year-by-year basis. There are several buttons of note on the top left of this screen. Click on Data to return to the Estate Capital Needs data entry dialogue box. Click on CALC to recalculate the spreadsheet values. Click on Main/OK to return to the Main Workspace. However, you should recalculate the spreadsheet values before returning to the Main Workspace. From the drop-down menu, click on Charitable or Other to navigate quickly to various sections of the data entry screen. FP Solutions User Manual - Estate Capital Needs Module Page 241 of 473

243 Manual Data Entry: You can choose to enter information on the Estate Capital Needs Variables data entry screen manually, simply by navigating to the appropriate cell and inputting the desired numbers. Automatic Data Entry: You can also fill in the columns of the Estate Capital Needs Variables data entry screen using the Custom Trend feature. To apply a custom trend to any of the columns: 73. Click on $ Amount at the top of the desired column. This will launch the Custom Trend dialogue box for that column. 74. Specify the time over which the custom trend will be applied by either: m. Checking the Use ages box, and then choosing the appropriates ages from the From age and To age drop-down menus; or n. Unchecking the Use ages box, and then choosing the appropriate years from the From year and To year drop-down menus. 75. Specify the annual amount in the Set value at field. 76. Specify the annual indexation rate, if any, in the Indexed at field. 77. Specify how often the lump sum will be required, by selecting an option from the Frequency drop-down menu. 78. Click on Apply, and the column will be filled with the specified trend. FP Solutions User Manual - Estate Capital Needs Module Page 242 of 473

244 Documentation To access the documentation for the Estate Capital Needs module: 49. From the main menu bar, click on Goto. 50. From the drop-down menu, click on Needs Analysis. 51. From the drop-down menu, click on Estate Capital Needs. This will launch the Estate Capital Needs report, which is suitable for distribution to your client. This report is based on the data that you collected, and it is presented in a series of pages. To print the Estate Capital Needs report: 80. Make sure that the Estate Capital Needs report is on screen (access the report as described above). 81. From the main menu bar, click on File. 82. From the drop-down menu, click on Print Preview. This will launch the Print Preview dialogue box. FP Solutions User Manual - Estate Capital Needs Module Page 243 of 473

245 83. Select the pages of the Estate Capital Needs report that you want to print by holding the Ctrl key, and clicking on the title of each desired page. 84. Click on Print. Summary Pages The two Summary pages provide numerical and graphical comparisons of the estate s capital needs, the resources available and the amount of insurance needed to meet those needs. Summary 1 Page The Summary 1 page illustrates how much of the estate will be eroded by various expenses, and how much will be left for distribution to the estate s heirs. The table and pie chart at the top of the page provide a breakdown of what the estate s expenses would be if your client and his spouse died at the beginning of the first year of the financial plan. The amount remaining after all estate expenses and bequests have been paid is shown as the Estate Worth at the bottom of the table. This amount does not include the death benefits of insurance policies already in force. The middle chart illustrates, on a year-by-year basis, how much of the estate will be consumed by expenses and specific bequests, how much is lost through estate adjustments (i.e., the difference between living and estate values of pension plans), and what the remaining estate is worth before insurance. The bottom chart illustrates the total estate expenses as a percentage of total assets, along with the extent to which insurance offsets those estate expenses. Summary 2 Page The Summary 2 page illustrates the extent to which insurance can be expected to offset estate erosion. The first chart shows the value of the total assets of the client and his spouse on a yearby-year basis, and it compares this with the amount that would be left after all of the estate expenses, adjustments and specific bequests are met (i.e., the Estate Worth column as shown on the Ledger 1 page). By adding in the insurance death benefits, it also shows the amount that would be available for transfer to the estate s heirs (i.e., the Total Estate column as shown on the Ledger 2 page). Ideally, the amount of life insurance should be at least equal the expected estate erosion, so that a full transfer of assets to the heirs is possible. The second chart compares the estate expenses (as documented in the Estate Expenses column of the Ledger 3 page) with the total liquidity that is projected to be available to FP Solutions User Manual - Estate Capital Needs Module Page 244 of 473

246 satisfy those expenses (calculated as the sum of the Total Insurance and Liquid Assets columns of the Ledger 3 page). If there are insufficient liquid assets to meet the projected estate expenses, additional costs in the form of interest expenses may be incurred, or the estate may be forced to sell some of the non-liquid assets at less than their true value. Ledger Pages The three Ledger pages provide numerical summaries of the calculations leading to the estimation of life insurance needed. Ledger 1 Page The Ledger 1 page illustrates the calculation of the value of the estate, before insurance. Total Assets: This is the sum of the projected values of all of your client s assets (plus those of his spouse), including the following: non-registered investments; RRSPs/RRIFs; defined-contribution pension accounts; present value of their accrued benefits under a defined-benefit pension plan; trusts of which they are the annuitants, if you chose to include them by checking the appropriate box on the Net Worth data entry screen; education savings plans; principal residence; recreational property; commercial real estate; life insurance cash surrender values; stock options; annuity values; and personal use assets. This amount is transferred to the Ledger 2 page. Estate Adjustments: This accounts for the difference between the living value and estate value of certain assets, such as pension plan entitlements. Net Assets: This is calculated as (Total Assets Estate Adjustments). FP Solutions User Manual - Estate Capital Needs Module Page 245 of 473

247 Debts: This is the sum of the projected values of all of your client s liabilities (plus those of his spouse), including the outstanding balances of their: principal residence mortgage; recreational property mortgage; commercial real estate mortgage; loans used to acquire personal use assets (credit cards, lines of credit, etc.); leveraged life insurance; and loans to acquire investment assets. Deferred Taxes: The amounts in this column are the taxes that would arise if your client and his spouse disposed of all of their property, including all of their registered assets, at the end of the year. It could include tax on: the taxable capital gains on non-registered investments; the balance of their RRSPs/RRIFs, LIRAs, LIFs and LRIFs; the commuted value of all benefits payable from defined benefit or defined contribution pension plans; the taxable capital gains on their recreational property; the taxable capital gains and recapture of capital cost allowance on commercial real estate; the taxable capital gains on personal use assets; the taxable capital gains and recapture of capital cost allowance on business assets; the taxable capital gains on stock options; the difference between the guaranteed value and the adjusted principal amount of non-registered annuities. Probate/Other Needs: This is the sum of: probate fees; legal fees associated with the estate; charitable bequests, including those that you entered via the Survivor Capital Needs modules and the Estate Capital Needs modules; other lump-sum bequests that you entered via the Survivor Capital Needs modules and the Estate Capital Needs modules. FP Solutions User Manual - Estate Capital Needs Module Page 246 of 473

248 Estate Worth: This is the remaining value of the estate, before insurance, that will be available for distribution to the estate s heirs. It is calculated as (Net Assets (Debts + Deferred Taxes + Probate & Other Needs)). This column is transferred to the Ledger 2 page. Ledger 2 Page The Ledger 2 page illustrates the calculation of the value of the estate, after insurance. Total Assets: This is a copy of the Total Assets column of the Ledger 1 page. Expenses & Adjustments: This is the total of all adjustments, expenses, debts, fees and specific bequests associated with the estate. It is calculated as (Estate Adjustments + Debts + Deferred Taxes + Probate & Other Needs), as these amounts are shown on the Ledger 1 page. Estate Worth: This is transferred from the Ledger 1 page. It can also be calculated using amounts on the Ledger 2 page as (Total Assets Expenses & Adjustments). Life Insurance Death Benefits, Client: This is the sum of all death benefits payable upon the death of the client (other than specific debt insurance), including the CPP death benefit if you indicated that it should be included in the Survivor Capital Needs module. Life Insurance Death Benefits, Spouse: This is the sum of all death benefits payable upon the death of the client s spouse (other than specific debt insurance), including the CPP death benefit if you indicated that it should be included in the Survivor Capital Needs module. Life Insurance Death Benefits, Other: This includes all debt insurance on the client s or spouse s debts, including mortgage insurance on personal, recreational and commercial real estate. Joint and corporate-owned insurance is also included in this sum. Total Estate: This is the amount that will be available for distribution to the estate s heirs, after insurance. It is calculated as (Estate Worth + all Life Insurance Death Benefits). Ledger 3 Page The Ledger 3 page compares the projected liquidity in the estate with the estate expenses upon death. Total Insurance: Insurance proceeds are readily available to meet the expenses of the estate. This is the sum of the three Life Insurance Death Benefits columns on the Ledger 2 page (Client, Spouse, Other). It includes both the death benefits and the cash values for increasing policies. FP Solutions User Manual - Estate Capital Needs Module Page 247 of 473

249 Liquid Assets: This is the sum of the projected values of those assets that you identified as being liquid assets on the Liquid Assets data entry screen. Estate Expenses: This is the total of all expenses, debts, fees and specific bequests associated with the estate. It is calculated as (Debts + Deferred Taxes + Probate & Other Needs), as these amounts are shown on the Ledger 1 page. Net Liquidity: This is the liquidity that is projected to be in the estate after the estate expenses are paid. It is calculated as (Estate Expenses (Total Insurance + Liquid Assets)). If this amount is negative, it is an indication that additional insurance may be required to avoid having to sell some of the non-liquid assets below their true value. Non Liquid Assets: This is calculated as (Total Assets Liquid Assets), as the Total Assets are shown on the Ledger 1 page. If these assets must be liquidated to meet estate expenses, they may have to be sold below their true value. Estate Adjustments: This is transferred from the Ledger 1 page. Total Estate: This is transferred from the Ledger 2 page. FP Solutions User Manual - Estate Capital Needs Module Page 248 of 473

250 Module: Disability Capital Needs This module describes how to perform a disability capital needs analysis. This module also explains the Disability Capital Needs report that FP Solutions generates when you perform a disability capital needs analysis. Launching a Disability Capital Needs Analysis From within an Existing Plan To launch a disability capital needs analysis for your client from within an existing plan: 10. Click on Data in the main menu bar. 11. Click on Needs Analysis in the drop-down menu. 12. Click on Disability Capital Needs: Client or Disability Capital Needs: Spouse in the drop-down menu. 13. Click on Yes in response to the question The module you have selected is not present in the current plan. Would you like to add this module to the current plan? This will launch the Disability Income dialogue box, discussed in the next section. 14. Complete the data entry screens, and click on OK. This will launch the Disability Capital Needs report. Creating a New Plan To create a new financial plan focused on disability capital needs: 1. Launch FP Solutions. 2. From the start-up screen, click on Create a New Plan. 3. Click on Total Needs. 4. Click on Disability Income Needs (Plus) in the drop-down menu. This will launch the Default Presets screen, which allows you to choose a default scheme of rates of return for each asset class. 5. Click on your desired default scheme in the drop-down menu. 6. Click on Finish. This will launch a blank financial plan, including the Disability Capital Needs module, and a data entry wizard. 7. Complete the data entry wizard, including Step 8, Disability and Life Insurance. The disability insurance screens are discussed in the next section. 8. Click on Finish. You will be prompted to enter a file name. FP Solutions User Manual - Disability Capital Needs Module Page 249 of 473

251 9. Enter the file name and click on Save As, then click on OK. This will launch the Disability Capital Needs report. Data Entry The Disability Insurance dialogue box includes the following data entry screens: Personal DI #1 and Personal DI #2 Other DI Personal CI Personal LTC Assumptions, which includes four sub-screens Personal DI Data Entry Screen The Personal DI data entry screens allow you to specify the details of up to two personal disability insurance policies. FP Solutions User Manual - Disability Capital Needs Module Page 250 of 473

252 Benefit Amount Monthly benefit amount: Enter the maximum monthly benefit for total disability. Taxable: Check the Taxable box if the benefits will be taxable to the recipient. Long term disability benefits are taxable if the employer pays the insurance premiums without declaring them as a taxable benefit to the employee. If the insured paid the premiums personally, the benefits are not taxable. Own Occ/Any Occ: Specify whether the policy uses an own occupation or an any occupation definition of disability by clicking on the appropriate choice. Annual Increase Benefit (AIB): Some disability policies will increase the insurance coverage, in terms of the maximum monthly benefit paid upon total disability, as the insured s earned income increases. This is sometimes called the Future Income Option, and the increase is normally capped at a maximum percentage per year. Enter this amount in the AIB field. AIB number of years: Choose the number of years that the AIB is available from the drop-down menu. Note: This screen reminds you to enter the premiums via the Variables screen, discussed later, because in many policies these premiums change over time. Cost of Living Allowance Cost of Living Allowance (COLA): Check this box if the policy provides for the benefit to be increased to reflect increases in the cost of living. Inflation: Choose this COLA option if the benefit is increased by the plan s assumed annual inflation rate. (Note: To review or modify the assumed inflation rate, click on Data in the main menu bar, and then click on Assumptions in the drop-down menu. This will launch the Assumptions data entry screen, and the inflation rate is specified at the bottom of the screen.) Fixed: Choose this COLA option if the benefit is increased by a fixed amount each year, and enter the rate in the % field. FP Solutions User Manual - Disability Capital Needs Module Page 251 of 473

253 Maximum Benefit (x base): If the insurance policy caps the maximum benefit that can be provided after the application of a COLA option to a multiple of the original benefit, enter that multiple in the Maximum Benefit (x base) field. Eligibility Elimination period (EP): Enter the number of days that the insured must be disabled before benefits will be paid in the Accident and Sickness fields. Some disability policies have different elimination periods for disabilities caused by accident versus illness, so make sure you fill in both fields. Benefit period (BP): Choose the length of the benefit period from the Accident and Sickness drop-down menus. Some disability policies have different benefit periods for disabilities caused by accident versus illness, so make sure you fill in both fields. Pension Rider Some disability insurance policies include a rider that provides for additional income to be paid until retirement age, when government and/or employer pensions begin. FP Solutions assumes that the proceeds of this rider are used to make up the lost employer s registered pension plan contributions during the period of disability. Pension rider: Enter the monthly amount of any pension rider. This will effectively reduce the client s lifestyle needs dollar for dollar each year until the earlier of the end of the disability or retirement age. Payable after (# days): Enter the rider s waiting or elimination period, in days. Other DI Data Entry Screen The Other DI data entry screen allows you to specify the details of other disability insurance policies, including group disability insurance and business overhead expense insurance plans. FP Solutions User Manual - Disability Capital Needs Module Page 252 of 473

254 Group Disability Insurance FP Solutions assumes that group disability insurance includes a combination of short term and long term coverage, and that long term benefits begin upon expiry of the short term benefit period. Weekly Income (WI): Enter the maximum weekly benefit that will be paid in the event of a short term disability. Monthly Long Term Disability (LTD): Enter the maximum monthly benefit that will be paid in the event of a long term disability (i.e., if the insured is still disabled after the end of the short term disability benefit period). Index: Check the Index box if the long term disability benefits are indexed for inflation. FP Solutions uses the plan s assumed annual inflation rate. (Note: To review or modify the assumed inflation rate, click on Data in the main menu bar, and then click on Assumptions in the drop-down menu. This will launch the Assumptions data entry screen, and the inflation rate is specified at the bottom of the screen.) Taxable: Check the Taxable box if the long term disability benefits are taxable The short term disability benefits are assumed to be taxable. Long term disability benefits are taxable if the employer pays the insurance premiums without declaring them as a taxable benefit to the employee. Elimination Period (EP) WI: Enter the number of days that the insured must be disabled before short term disability (i.e., weekly income) benefits will commence, in both the Accident and Sickness fields. Benefit Period (BP): Enter the number of weeks that short term disability (i.e., weekly income) benefits will be paid in the WI field. Select the duration of the long term disability benefit period from the LTD drop-down menu. FP Solutions User Manual - Disability Capital Needs Module Page 253 of 473

255 Business Overhead Expense Insurance Business owners can buy business overhead expense insurance to protect their businesses if they become disabled. The benefits can be used to pay for ongoing business expenses, such as rent or staff wages. Basic benefit: Enter the amount of the basic monthly benefit that will be paid to cover overhead expenses. Additional Monthly Income (AMI): Enter the monthly benefit that will be paid to the insured as replacement income. Include with personal: Check the Include with personal box if FP Solutions should include the Additional Monthly Income in the insured s income. Elimination Period (EP): Enter the number of days that the insured must be disabled before benefits will commence, in both the Accident and Sickness fields. Benefit Period (BP): Select the duration of the basic monthly benefits from the Basic drop-down menu. Select the duration of the additional monthly income benefits from the AMI drop-down menu. Annual Premium: Enter the annual premium that the insured pays for the business overhead expense insurance in the Annual Premium field and select the age to which the insured will pay those premiums from the to age field. Personal CI Data Entry Screen The Personal CI data entry screen allows you to specify the details of existing or proposed critical illness insurance policies. FP Solutions User Manual - Disability Capital Needs Module Page 254 of 473

256 Total benefit amount: Enter the benefit that will be paid if the insured is diagnosed with an eligible critical illness. Expiry age: Enter the age at which CI coverage will expire. Return of premium at death: Check the Return of premium at death box if the insurance company will refund all or a portion of premiums if the insured dies without making a CI claim. This will activate the last two fields on the data entry screen. Return of premium at expiry: Check the Return of premium at expiry box if the insurance company will refund all or a portion of the premiums if the policy expires and the insured has not made a CI claim. This will activate the last two fields on the data entry screen. % of premium to refund: Enter the portion of CI premiums that the insurance company will refund if the insured dies or if the policy expires and the insured has not made a CI claim. Current premium refund balance: Enter the portion of the premiums paid to date eligible for the refund. For example, if the client has already paid $4,000 in premiums and the refund rate is 70%, you should enter $2,800 as the current premium refund balance.. Note: This screen reminds you to enter the premiums via the Variables screen, discussed later, because in many policies these premiums change over time. Personal LTC Data Entry Screen The Personal LTC data entry screen allows you to specify the details of existing or proposed long term care insurance policies. FP Solutions User Manual - Disability Capital Needs Module Page 255 of 473

257 Daily benefit amount: Enter the maximum daily benefit that will be paid if the insured requires long term care in an eligible facility in the Facility Care field. Enter the maximum daily benefit that will be paid if the insured requires long term home care in the Home Care field. Index benefit: If the maximum daily benefit for facility care or home care will be indexed, check the Facility Care and/or Home Care Index benefit boxes. FP Solutions uses the plan s assumed annual inflation rate. (Note: To review or modify the assumed inflation rate, click on Data in the main menu bar, and then click on Assumptions in the drop-down menu. This will launch the Assumptions data entry screen, and the inflation rate is specified at the bottom of the screen.) Elimination period: Enter the number of days that the insured must require long term care before benefits will be paid, in both the Facility Care and Home Care fields. Benefit period: Select the maximum duration of the facility care benefit from the Facility care drop-down menu. Select the maximum duration of the home care benefit from the Home Care drop-down menu. Expiry age: Enter the age at which LTC coverage will expire. Return of premium at death: Check the Return of premium at death box if the insurance company will refund all or a portion of premiums if the insured dies without making an LTC claim. This will activate the last two fields on the data entry screen. Return of premium at expiry: Check the Return of premium at expiry box if the insurance company will refund all or a portion of the premiums if the policy FP Solutions User Manual - Disability Capital Needs Module Page 256 of 473

258 expires and the insured has not made an LTC claim. This will activate the last two fields on the data entry screen. % of premium to refund: Enter the portion of LTC premiums that the insurance company will refund if the insured dies or if the policy expires and the insured has not made a LTC claim. Current premium refund balance: Enter the portion of the premiums paid to date eligible for the refund. For example, if the client has already paid $4,000 in premiums and the refund rate is 70%, you should enter $2,800 as the current premium refund balance. Note: This screen reminds you to enter the premiums via the Variables screen, discussed later, because in many policies these premiums change over time. Assumptions Data Entry Screens The Assumptions data entry screen in the Disability Capital Needs module includes four sub-screens: Disability Critical Illness Long Term Care Sample Allocations The first three sub-screens allow you to test the response of the client s financial plan to various health-related events, including disability, critical illness or long term care, based on the timing and duration of the event. You can test the plan against an event occurring individually (e.g., disability or critical illness or long term care) by completing only the one appropriate sub-screen. You can also test the plan against two or more events occurring either simultaneously or at different times by completing the appropriate screens (e.g., a critical illness that results in a long term disability, followed by the need for long term care at a later age). The final sub-screen allows you to fine-tune the investment allocations that are used in the disability capital needs analysis. Disability Assumptions Data Entry Sub-screen This data entry sub-screen allows you to specify the cause and extent of the assumed disability, and to identify the resources the client can draw on to meet his or her resulting financial needs. FP Solutions User Manual - Disability Capital Needs Module Page 257 of 473

259 Disability as a result of: From the drop-down menu, choose whether the disability is assumed to result from sickness or accident. This may impact the waiting period and benefit period, depending on the disability policy. Disability assumed to begin at age: Choose the desired age from the drop-down menu. Provide income to age: Enter the age to which disability income benefits will be required in the event of total disability. The default age is 90 (the typically planning period). If your client will be receiving significant retirement benefits, you may want to choose retirement age. % of lifestyle needs required when disabled: Enter the portion of lifestyle needs the client is assumed to need in the event of disability. This might be less than 100% if you think the insured will not have to pay for work-related transportation, clothing or childcare, for example; or it might be greater than 100% if you think the insured will have to pay for a higher level of childcare, for example. Assume total disability: Check the Assume total disability box if you assume the insured will be totally disabled and eligible for the maximum monthly disability benefit. FP Solutions assumes that this total disability will continue until the age entered in the Provide income to age field. Clear the Assume total disability box if you assume the insured will only be disabled for a few years, or will be partially disabled and eligible for a partial or residual disability benefit. This will activate the next two data entry fields. # of years disability is expected to last: Enter the number of years that the insured is expected to be totally disabled before being able to return to work on at least a partial basis. FP Solutions User Manual - Disability Capital Needs Module Page 258 of 473

260 % of pre-disability employment income to resume: Enter the percentage of previous income that the insured will receive after returning to work when he or she ceases to be totally disabled. A reduction in income may result in partial or residual disability benefits, depending on the policy. Include premiums in lifestyle needs: Check this box if you want the disability insurance premiums to be included in lifestyle needs in the Projected Cash Flow module. If you leave the box unchecked, the premiums will be treated as an investment activity in the Projected Cash Flow module. This refers to the disability insurance premiums you enter via the Variables screen, discussed later. Do not include Spouse s employment income: If you want to ignore the insured s spouse s income, perhaps because you assume the spouse will cease working while the insured is disabled, check the Do not include Spouse s employment income box. Liquidate Recreational Property: Check the Liquidate Recreational Property box if the insured s cottage or other recreational property can be sold to provide funds to meet expenses. Liquidate Commercial Property: Check the Liquidate Commercial Property box if the insured s rental property or other commercial property can be sold to provide funds to meet expenses. Critical Illness Assumptions Data Entry Sub-screen This data entry sub-screen allows you to specify one-time expenses that might be incurred at the start of the assumed critical illness, as well as ongoing expenses that might be incurred during recovery. Initial One-time Expenses Medical expenses not insured: Enter the cost of medical treatments that might not be covered by government or private health insurance, such as new drug treatments or out-of-country surgeries. Temporary food, lodging and travel: Enter the cost of traveling and staying at a medical treatment facility away from home. FP Solutions User Manual - Disability Capital Needs Module Page 259 of 473

261 Capital changes to principal residence: Enter the cost of retrofitting the client s home (e.g., making it wheelchair accessible), or moving to a more appropriate home, to accommodate a disability resulting from the critical illness. Debt elimination: If your client would like to be able to eliminate all debt upon being diagnosed with a critical illness, check the All debt box. If your client would like to reduce existing debt by a fixed amount, uncheck the All debt box and enter this amount in the Set amount field. Miscellaneous lump sum needs: Enter an amount your client would like to receive for miscellaneous purposes (e.g., for a family trip) upon being diagnosed with a critical illness. Ongoing Expenses Lifestyle/savings deficiencies: When a person is struck with a critical illness, it often impacts upon their earning ability, to the point where they cannot pay their lifestyle expenses or meet their savings goals. If your client would like to have sufficient capital available at the time of the critical illness to fund these deficiencies during the illness period, check the Provide necessary capital box. Other monthly income needs: If your client expects his or her monthly income needs to increase after a critical illness, perhaps because of increased childcare or personal care expenses, enter this amount in the Other monthly income needs field. Check the Index box if you want this amount to be indexed by the plan s assumed inflation rate. Also, specify the period (in years) over which this additional income will be needed in the # of years other income required field. Key person monthly income: If your client is a key person in an active business and will need to hire a replacement to keep the business going, enter the cost of that replacement in the Key person monthly income field. Also, specify the period (in months) over which this additional income will be needed in the # of months key person income required field. FP Solutions User Manual - Disability Capital Needs Module Page 260 of 473

262 Long Term Care Data Entry Sub-screen This data entry sub-screen allows you to specify the type and duration of long term care that your client might require, and the costs associated with that care. Type of long term care needed: Choose either facility care or home care from the drop-down menu. Age care to begin: Enter the age at which you assume the need for care will begin. # of years care required: Enter the number of years you assume care will be needed. In most cases, this will be for the client s remaining lifetime. Cost of care per day: Enter the assumed cost of daily care, and check the Indexed box if you want FP Solutions to index this amount by the plan s assumed inflation rate. Additional annual costs: Enter an amount for annual lump-sum costs (e.g., for the purchase of new equipment), and check the Indexed box if you want FP Solutions to index this amount by the plan s assumed inflation rate. Sample Allocations Data Entry Sub-screen FP Solutions calculates the present value of the capital that your client would need to have at the start of disability, critical illness or long term care in order to fund the ongoing expenses associated with that event, as you specified on the related Assumptions data entry sub-screens. This present value calculation depends on the rate of return that your client can earn on that capital, which in turn is influenced by the investment allocation. FP Solutions performs these calculations for three model portfolios (conservative, moderate and aggressive) and sets default allocations for each portfolio. The Sample Allocations data entry sub-screen lets you modify the asset allocation of each portfolio, and even the name of that portfolio. Simply enter the new information in the appropriate data fields, making sure that the allocation percentages add up to 100% for each portfolio. FP Solutions User Manual - Disability Capital Needs Module Page 261 of 473

263 Variable Data You can use the Edit Variables function to enter variable information about benefit amounts, benefit or elimination periods, premiums payable and refundable premiums. Accessing the Edit Variables Function To access the Edit Variables function: 5) Click on Data in the main menu bar. 6) Click on Needs Analysis in the drop-down menu. 7) Click on Disability Capital Needs: Client (or spouse, if you are doing a spousal analysis) in the drop-down menu. This will launch the Disability Income data entry dialogue box. 8) From any of the Disability Income data entry screens, click on Edit Variables. This will open the Disability Capital Needs Variables data entry screen, where you can enter additional information on a year-by-year basis. Alternatively, if you have the Disability Capital Needs module displayed, click on the Variables tab. Entering Data There are several buttons of note on the top left of the Disability Capital Needs Variables screen. Click on Main/OK to return to the data entry screen that you were in before you clicked on Edit Variables. However, you should first recalculate the spreadsheet values. FP Solutions User Manual - Disability Capital Needs Module Page 262 of 473

264 Click on CALC to recalculate the spreadsheet values. From the drop-down menu, click on Personal DI #1, Personal DI #2, Critical Illness or Long Term Care to navigate quickly to various sections of the data entry screen. Click on the client s name to switch to the Disability Capital Needs Variables screen for the client s spouse. Click on Data to return to the Disability Income data entry dialogue box. Manual Data Entry You can enter information on the Disability Capital Needs Variables data entry screen manually, simply by navigating to the appropriate cell and inputting the desired numbers. Automatic Data Entry You can also fill in some of the columns of the Disability Capital Needs data entry screen using the Custom Trend feature. FP Solutions User Manual - Disability Capital Needs Module Page 263 of 473

265 To apply a custom trend to one of the Disability Capital needs columns: 79. Click on Annual $ or Amount $ at the top of the column. This will launch the Custom Trend dialogue box for that column. 80. Specify the time over which the custom trend will be applied by either: o. Checking the Use ages box, and then choosing the appropriates ages from the From age and To age drop-down menus; or p. Unchecking the Use ages box, and then choosing the appropriate years from the From year and To year drop-down menus. 81. Specify the first annual amount in the Set value at field. 82. Specify the annual indexation rate, if any, in the Indexed at field. 83. Specify how often the deposit or withdrawal will occur by selecting an option from the Frequency drop-down menu. 84. Click on Apply, and the column will be filled with the specified trend. FP Solutions User Manual - Disability Capital Needs Module Page 264 of 473

266 Additional Data Columns The Variables data entry screen also includes a few additional columns that allow you to add specialized information that apply to some unique policies. Cash Value: A few personal DI policies have a side value or cash value account, similar to permanent life insurance. FP Solutions treats any amounts that you enter in the Cash Value column as an asset of the client, and it is included under Life and Disability Equity on the Net Worth documents. Cash Value Withdrawal: If the personal DI policy includes a cash value account, you can use this column to show any funds the client draws out of this account. Amounts entered into this column are treated as Other Non-taxable income on the Projected Cash Flow documents. Refund of Premium, CI: If the critical illness policy allows for a refund of premiums, you can enter the appropriate amount in the appropriate year in this column. Refund of Premium, LTC: If the long term care policy allows for a refund of premiums, you can enter the appropriate amount in the appropriate year in this column. Documentation To access the documentation for the Disability Capital Needs module: 52. Click on Goto in the main menu bar. 53. Click on Needs Analysis in the drop-down menu. 54. Click on Disability Capital Needs: Client (or spouse, if you are doing a spousal analysis) in the drop-down menu. This will launch the Disability Capital Needs report, which is suitable for distribution to your client. Printing the Report To print the Disability Capital Needs report: 85. Make sure that the Disability Capital Needs report is on screen (access the report as described above). 86. Click on File in the main menu bar. FP Solutions User Manual - Disability Capital Needs Module Page 265 of 473

267 87. Click on Print Preview in the drop-down menu. This will launch the Print Preview dialogue box. 88. Select the pages of the Disability Capital Needs report that you want to print by holding the Ctrl key, and clicking on the title of each desired page. 89. Click on Print. Summary Pages When you perform a disability capital needs analysis, FP Solutions generates a report that is specific to the assumed disability, critical illness or long term care event that you specified on the Assumptions sub-screens. The subtitles on each Summary page refer to that specific event. For example, the Summary 1 page shown below was generated by specifying a disability of 3 years, starting at age 55, on the Disability Assumptions subscreen. Summary 1 Page - Capital Required The first part of the Summary 1 page shows the amount of capital your client would need at the start of a disability to meet the initial lump sum costs and ongoing financial needs that result from that disability. In the examples below, the capital needs analysis was based on the assumption of total disability lasting 3 years, starting at age 55. The tables and graph at the top of the Summary 1 page compare the amount needed, with the capital available to meet those needs. The ongoing financial needs are converted to a present value using the rates of return from three different portfolio mixes. The available capital includes lump-sum insurance benefits (i.e., critical illness benefits) and proceeds from the liquidation of vacation properties or commercial real estate (if you checked the Liquidate Recreational Property and/or Liquidate Commercial Property boxes on the Disability Assumptions data entry sub-screen). The graph in the top right corner of the Summary 1 page and the table below it highlight any shortfall in funds. In the example below, FP Solutions predicts that the client will have one-time lump-sum needs of $153,337 upon incurring the specified event. The present value of the ongoing income needs, based on a conservative portfolio return of 5.20%, is $191,841. In this case, the client expects total available capital of $150,000 from the proceeds of a critical illness insurance policy, which leaves the client with a shortfall of $195,178, calculated as ($153,337 + $191,841 - $150,000). FP Solutions User Manual - Disability Capital Needs Module Page 266 of 473

268 Comparing Income to Lifestyle and Savings Needs The graph at the bottom of the Summary 1 page compares the amount of income the client needs to meet his or her lifestyle needs and savings objectives with projected income, including disability income during a period of disability. In the example above, the client is almost able to meet his or her targets up to retirement age, except in those years when the scenario assumes he or she is disabled for 3 years. The shortfall in savings in these three years will also have a negative impact on retirement income, as shown on the Summary 2 page. Summary 2 Page Financial Impact The graph at the top of the Summary 2 page provides a more detailed comparison of projected after-tax income with the various income needs. Priority is given to meeting lifestyle needs first, followed by debt service, insurance and education and savings. In the example above, the client s after-tax income cannot meet all of his or her lifestyle needs during the assumed three-year period of disability. Not only will the client be unable to set aside the necessary money for retirement savings, he or she will also have to FP Solutions User Manual - Disability Capital Needs Module Page 267 of 473

269 draw on savings to meet debt service and insurance or education commitments, thereby eroding savings, which will have a further impact during retirement. Critical Illness and Long term Care The final graph on the Summary 2 page compares the projected costs associated with a critical illness and/or need for long term care, with the current level of critical illness or long term care insurance benefits. In the scenario above, the client is projected to have initial capital needs of about $225,000 at the onset of a critical illness, plus additional needs of about $62,000 in each of the following two years. The client s critical illness benefit of $150,000 will not cover these needs, suggesting the client either needs more critical illness coverage, or will have to draw on savings to meet those needs. This client is also projected to have long term care needs costing about $85,000 per year starting at age 75, but the long term care coverage will meet only about half of that need. This suggests the client either needs more LTC coverage, or will have to draw on savings to meet those needs. Ledger Pages The Disability Capital Needs report includes 4 ledger pages that provide detailed projections on a year-by-year basis. Ledger 1 Disability Income Compared to Income Needed The Ledger 1 page compares annual after-tax income to total income needs, and identifies any excess or deficiency. Consider the following Ledger 1 extract, where the client is assumed to experience a three-year disability, beginning in Year 5: FP Solutions User Manual - Disability Capital Needs Module Page 268 of 473

270 Income Earnings: This is the earned income of the client and his or her spouse (unless you specified that the spouse s income was to be excluded by checking the Do not include Spouse s employment income box on the Disability Assumptions data entry sub-screen). Disability Benefits: This is the total of all benefits received from personal and group disability insurance policies. Income Tax: This is the total income tax deducted from earned income and disability benefits, if those benefits are taxable. After-tax Income: This is calculated as (Income Earnings + Disability Benefits Income Tax). Income Needs: This is the total amount of income needed during the year, including: lifestyle needs, debt service, insurance, education, contributions to nonregistered or registered savings, and making up any lost employer contributions to a registered pension plan in the event of a disability. These lost RPP contributions are reduced by any pension rider that you specified on the Personal DI data entry screen. Excess/(Deficiency): This is calculated as (After-tax Income Income Needs). % of Needs Provided: This is calculated as (After-tax Income Income Needs). Ledger 2 Income Deficiencies if Disabled The Ledger 2 page provides details about any deficiencies that were identified on the Ledger 1 page. FP Solutions assumes that after-tax income is used to meet income needs in the following order of priority, starting with the most important: lifestyle needs debt service insurance and education savings FP Solutions User Manual - Disability Capital Needs Module Page 269 of 473

271 making up lost employer pension plan contributions So if there is an income deficiency in any one year, it affects these items in reverse order, starting with lost employer pension plan contributions, then savings, etc. In the example above, the software predicted a shortfall or deficiency of $71,377 in Year 5. In this particular case file, the client is not an RRP member, so his disability in Year 5 does not result in any lost RPP contributions. However, the client does have a savings target of $25,570 for that year, and because this is less than the total deficiency of $71,377, the software assumes that 0% of the savings target will be achieved. This still results in a deficiency of $45,807, calculated as ($71,377 - $25,570), and the software applies that deficiency to the next on the priority list, insurance and education savings, followed by debt service, followed by lifestyle needs. So, the software predicts that in Year 5, this client will not be able to contribute anything to savings or to education and/or insurance targets, will not be able to make the $18,000 scheduled debt repayment, and will still fall short of his lifestyle needs by more than $22,000. Ledger 3 Capital Needs Due to Critical Illness or Long term Care The Ledger 3 page shows the projected capital needs in the event the client suffers critical illness and/or needs long term care. Alternative Medical: This is the sum of the amounts you entered into the Medical expenses not insured field and the Temporary food, lodging and travel field of the Critical Illness Assumptions data entry sub-screen. FP Solutions User Manual - Disability Capital Needs Module Page 270 of 473

272 Other Lump-sum: This is the sum of the amounts you entered into the Capital changes to principal residence field and the Miscellaneous capital needs field of the Critical Illness Assumptions data entry sub-screen, plus either all debt or a set amount of debt as indicated on that sub-screen. Income Deficiency: If you checked the Provide necessary capital box on the Critical Illness Assumptions data entry sub-screen, the sum of the amounts from the Lifestyle and Savings columns on the Ledger 2 page will be entered into this column. Other Needs: If you entered amounts in the Other monthly income needs or Key person monthly income fields of the Critical Illness Assumptions data entry subscreen, the result will be entered into this column. Critical Illness: This column is the sum of the first four columns (i.e., Alternative Medical + Other Lump-sum + Income Deficiency + Other Needs). Long Term Care: The amounts in this column result from the data that you entered on the Long Term Care Assumptions data entry sub-screen, adjusted for inflation if you checked the Indexed box. Total Needs: This is the sum of the previous two columns (i.e., Critical Illness + Long Term Care). Ledger 4 Capital Deficiencies Resulting from Critical Illness or Long term Care The Ledger 4 page compares the amount of capital needed if your client suffers a critical illness or needs long term care with the capital available from existing or proposed insurance policies and convertible real estate. Critical Illness: This is the same as the Critical Illness column of the Ledger 3 page. Long Term Care: This is the same as the Long Term Care column of the Ledger 3 page. Total Needs: This is the same as the Total Needs column of the Ledger 3 page. Liquidate Real Estate: This is the projected value of the client s recreational and/or commercial property, if you checked the Liquidate Recreational Property FP Solutions User Manual - Disability Capital Needs Module Page 271 of 473

273 and/or Liquidate Commercial Property boxes on the Disability Assumptions data entry sub-screen. CI Benefits: This is the sum of expected critical illness insurance benefits, based on the information you entered on the Personal CI data entry screen. LTC Benefits: This is the sum of expected long term care insurance benefits, based on the information you entered on the Personal LTC data entry screen. Excess/(Deficiency): This is calculated as (Total Needs (Liquidate Real Estate + CI Benefits + LTC Benefits). FP Solutions User Manual - Disability Capital Needs Module Page 272 of 473

274 Business Asset Modules This section describes how to incorporate business assets in a client s personal financial plan, including operating companies (Opcos) and holding companies (Holdcos). This section also explains how to enter data into the business modules, how the information flows through the various modules, and how to interpret the resulting reports. Preparing a Financial Plan for a Business Owner You can add a business interest to an existing client file, or create a new plan from scratch that includes a business interest. Both methods are described below. Adding a Business to an Existing Client File To add a new business to an existing client file: 1. From the Main Screen, click on Enter Client Data. This will launch the main data entry wizard. 2. Select the Business Data tab. 3. Click on Manually select the data entry step to complete. 4. Click on Step Click on Begin Data Entry. This will launch the Corporate Structure and Assumptions data entry screen. 6. Check the corporation or corporations that you want to add, and enter their names. 7. Click on Finish. 8. Complete the remaining data entry steps as described shortly in the section called Data Entry Screens. FP Solutions User Manual - Business Asset Modules Module Page 273 of 473

275 Creating a New Plan To create a new plan that includes a business interest: 1. From the Main Screen, click on Create a New Financial Plan. This will launch the opening dialogue box. 2. Select Create a new plan. 3. Select Initial Fact Finding Interview. 4. If the plan is for the client and the client s spouse, check the Spouse to be included box. 5. Click on Next>>. This will launch the Default Presets screen, which allows you to choose a default scheme of rates of return for each asset class. 6. Choose the desired default scheme from the drop-down menu. 7. Click on Finish. This will launch the Personal data entry wizard. 8. Complete the Personal data entry wizard as described elsewhere in the FP Solutions Users Guide. 9. Once you are finished with the personal data entry, click on Finish to close the Personal data entry wizard. 10. Click on Yes in response to the question Does the current Financial Plan require data entry for business? This will launch the Business data entry wizard. 11. Complete all screens of the Business data entry wizard as described shortly in the section called Data Entry Screens. 12. Once you are finished with the business data entry, click on Finish to close the Business data entry wizard. 13. Enter a filename when you are prompted to save the plan. 14. Click on Save As to save the file. FP Solutions will build a personal financial plan for your client and spouse, incorporating their business interests. FP Solutions User Manual - Business Asset Modules Module Page 274 of 473

276 Data Entry Screens There are five main steps in the Business data entry wizard. Step 1: Corporate Structure and Assumptions Step 1 includes: a. Corporate Holdings data entry screen b. Assumptions data entry screen Corporate Holdings Data Entry Screen Use this screen to specify the corporations that you want to include in the financial plan. You can specify up to two holding companies and four operating companies. FP Solutions modifies the remainder of the Business data entry wizard to include data collection screens for each of the companies you specify here. Note: Holding companies and operating companies can both have goodwill values, as well as fixed assets such as business assets, investment assets, real estate, debts and loans. In addition, each holding company can hold shares in one or more of the operating companies included in the plan, but this is not a requirement. Assumptions Data Entry Screen Enter the unused capital gains exemption for the client and the client s spouse. Remember that the lifetime limit is $750,000 for each individual. You should reduce this by amounts previously claimed on any other small business, farming or fishing properties, or claimed under the $100,000 personal Lifetime Capital Gains Exemption prior to FP Solutions User Manual - Business Asset Modules Module Page 275 of 473

277 Step 2: Corporate Share Structure and Values Note: From this point on, FP Solutions runs through the remaining four steps in sequence, and then repeats that sequence for each of the corporations you identified in Step 1. Step 2 includes two data entry screens, each with multiple data entry tabs: c. Corporate Share Structure data entry screen d. Corporate Values and Income Distribution data entry screen Corporate Share Structure Data Entry Screen The Corporate Share Structure data entry screen includes two data entry tabs: e. Ownership data entry tab f. Estate Planning data entry tab Ownership Data Entry Tab Use this data entry tab to specify the ownership of each corporation s common and preferred shares. If the financial plan includes both holding and operating companies, the holding companies can own shares in the operating companies. If you are entering data about a holding company, the HoldCo fields on the Ownership data entry tab will not be active. FP Solutions User Manual - Business Asset Modules Module Page 276 of 473

278 Number of Shares: Enter the number of shares owned by each ownership group. Use the Other category for anyone else who doesn t fit into the first five categories, even if those shares are owned by someone related to the client or spouse. FP Solutions assumes that there is only one class of common shares and one class of preferred shares for each corporation. Note: If you don t know the exact number of shares, you can enter the percentage owned by each owner. So, if the client and spouse each own 50% of the shares, you could enter 50 shares for the client and 50 shares for the spouse. ACB: Enter the adjusted cost base of all of the shares in each category. For many small family businesses, this is a nominal amount, such as $1 per share. You should also enter the paid-up capital (PUC) of the common and preferred shares, if applicable, and the fair market value (FMV) of any preferred shares. Note: You cannot enter the FMV of the common shares here because that FMV will be determined by the assets of the company, which you will enter during later steps. Estate Planning Data Entry Tab There are two ways that FP Solutions can handle business shares upon death. 1) By default, the software assumes that all shares will be sold or otherwise disposed for FMV upon the death of the second spouse, which could trigger a capital gain. 2) If you check the Redeem shares at death box, the remaining fields on this data entry tab will be activated. FP Solutions assumes that the corporation will redeem the shares, which could result in a non-taxable capital dividend, subject to the balance of the capital dividend account and the stop-loss rules. Note: FP Solutions will assume that any amount that is not redeemed will be sold for FMV, which could trigger a capital gain. Note: The maximum non-taxable capital dividend relates to the application of the stoploss rules. FP Solutions User Manual - Business Asset Modules Module Page 277 of 473

279 Corporate Values and Income Distribution Data Entry Screen The Corporate Values and Income Distribution data entry screen includes five tabs: g. Values data entry tab h. Regular Dividends data entry tab i. Investment Dividends data entry tab j. Investment Distributions data entry tab k. Shareholder Bonus data entry tab Values Data Entry Tab Asset Values: Use the top portion of this data entry tab to enter basic information about the value of goodwill, fixed assets (e.g., equipment) and other assets. If you prefer to enter the entire corporate value in one asset category, as a catch-all class, enter it into the Other asset value field. Note: On the dividend data entry screens discussed next, you will have the option of choosing whether dividends are paid from this Other asset value amount. You can include a different index rate for each type of asset. You can enter more complex asset value data through the Edit Variables function of the Corporate Values module, discussed later. Notional Account Balances: Use the bottom half of this data entry tab to enter the balances of the refundable dividend tax on hand (RDTOH) account, and the capital dividend account (CDA). Note: You may have to contact the client s accountant to obtain the RDTOH and CDA balances. FP Solutions User Manual - Business Asset Modules Module Page 278 of 473

280 Regular Dividends Data Entry Tab Use this data entry tab to specify the expected amount and distribution of regular dividends (i.e., from after-tax business income). You can further refine this data through the Edit Variables function of the Corporate Values module, discussed later. Total annual dividend from operating income: Enter the expected amount of regular annual dividends in the Amount field. Specify the years that the dividends will be paid by selecting the appropriate range from the From year and To year drop down menus. Enter the annual rate at which dividends are expected to increase in the Index field. Payment allocation: Specify how the dividends are to be allocated. If there is only a single class of shares, this should reflect the share distribution you entered on the Ownership data entry tab. However, if there are different classes of shares, it is possible to direct dividends to certain shareholders. Payment options: FP Solutions does not track the corporation s cash flow, so if you specify a regular dividend, the software assumes that the corporation can and will pay the dividend for the specified time. However, you can specify the nature of the dividend payments by doing one of the following: i. Check the Redeem Shares box if you want to indicate that the corporation is paying those dividends to buy back shares from the shareholders. You must then select either Preferred or Common shares. ii. Check the Draw down Other assets box if you want to indicate that the dividends will be paid out of the corporation s assets. FP Solutions will only pay these dividends as long as a balance remains in the Other Asset Value field that you entered on the Values data entry tab. FP Solutions User Manual - Business Asset Modules Module Page 279 of 473

281 Investment Dividends Data Entry Tab Use this data entry tab to specify the expected amount and distribution of dividends from the corporation s investment account. FP Solutions will only pay these dividends if there are sufficient funds in the account. You can further refine this data through the Edit Variables function of the Corporate Values module, discussed later. Total annual withdrawal from investments to be distributed: Enter the amount the client expects to withdraw as dividends from the corporation s investment account each year in the Amount field. Specify the years that the dividends will be paid by selecting the appropriate range from the From year and To year drop down menus. Enter the annual rate at which the dividends are expected to increase in the Index field. Payment allocation: Specify how the dividends are to be allocated. If there is only a single class of shares, this should reflect the share distribution you entered on the Ownership data entry tab. However, if there are different classes of shares, it is possible to direct dividends to certain shareholders. Payment options: FP Solutions assumes that these dividends are paid from the corporation s investment account, and they will only be paid if there is a balance in that account. Check the Redeem Shares box if you want to indicate that the corporation is paying those dividends to buy back shares from the shareholders. You must then select either Preferred or Common shares. FP Solutions User Manual - Business Asset Modules Module Page 280 of 473

282 Investment Distributions Data Entry Tab If the corporation receives distributions from its investment portfolio, it can pass some or all of those distributions on to shareholders; often a corporation will do so to the extent that it can take advantage of the RDTOH and CDA balances. Use this data entry tab to specify how investment portfolio income should be distributed to shareholders as dividends. You can further refine this data through the Edit Variables function of the Corporate Values module, discussed later. Withdraw annual amounts to do the following: Check the Recapture annual RDTOH box to pay sufficient dividends from investment portfolio income to recapture the RDTOH amount. Note: This will only recapture the new RDTOH amount arising that year, as calculated by FP Solutions; it does not recapture any amounts carried forward from past years. Specify the year those dividend payments should commence by selecting the appropriate year from the Beginning year drop-down menu. Check the Flow through annual capital dividend box to pay a dividend equal to the CDA balance. Specify the year those dividend payments should commence by selecting the appropriate year from the Beginning year drop-down menu. Note: If you check the Recapture annual RDTOH box and/or the Flow through annual capital dividend box on the Investment Distributions data entry tab, FP Solutions will use the greater of: i. the amount entered in the Amount field on the Investment Dividends data entry tab and ii. an amount large enough to recapture the RDTOH balance, plus the available CDA balance. Payment allocation: Specify how the dividends are to be allocated. If there is only a single class of shares, this should reflect the share distribution you entered on the Ownership data entry tab. However, if there are different classes of shares, it is possible to direct dividends to certain shareholders. FP Solutions User Manual - Business Asset Modules Module Page 281 of 473

283 Payment options: FP Solutions assumes that these dividends are paid from the corporation s investment account, and they will only be paid if there is a balance in that account. Check the Redeem Shares box if you want to indicate that the corporation is paying those dividends to buy back shares from the shareholders. You must then select either Preferred or Common shares. Shareholder Bonus Data Entry Tab Use this data entry tab to enter the expected amount of any fully taxable income paid to shareholders. If the shareholder is an employee, you could enter his or her employment income here, or you could enter it in the Employment and Other Income module, but do not enter it in both places. You can further refine both the amount of the income and its allocation through the Edit Variables function of the Corporate Values module, discussed later. Total annual shareholder bonuses paid: Enter the total amount of fully taxable income to be paid from regular business income each year in the Amount field. Specify the years that the income will be paid by selecting the appropriate range from the From year and To year drop down menus. Enter the annual rate at which the bonuses are expected to increase in the Index field. Payment allocation: Specify how the income is to be allocated. These amounts do not have to reflect each shareholder s proportional ownership interest in the corporation. FP Solutions User Manual - Business Asset Modules Module Page 282 of 473

284 Step 3: Corporate Investments and Real Estate Step 3 includes two data entry screens: l. Corporate Investments data entry screen (includes two tabs) m. Corporate Real Estate data entry screen Corporate Investments Data Entry Screen Use these two data entry screens to enter information about the corporation s investment account (excluding real estate, the fixed assets of the corporation, or shares in subsidiary holding companies), as well as planned deposits and withdrawals to the investment account. Asset Value Data Entry Tab Enter the market value and the adjusted cost base (ACB) of the investment account, dividing it into each of the asset categories as of January 1 st of the first plan year. FP Solutions calculates the percentage asset allocation and displays it between the Amount and ACB columns. Deposits and Withdrawals Data Entry Tab Deposit amounts are assumed to be from general corporate revenues (i.e., profits) and withdrawals are for general corporate use, such as paying life insurance premiums or FP Solutions User Manual - Business Asset Modules Module Page 283 of 473

285 other expenses. FP Solutions does not track the corporation s cash flow, so it assumes that there are sufficient funds to make the deposits. Furthermore, the software assumes that any withdrawals are used to fund corporate needs, so they do not increase the client s personal cash flow. In other words, entries on this tab do not directly impact the client and spouse. Select the frequency and enter up to two deposit and withdrawal amounts. If you need to specify more than two amounts, you can enter the additional amounts by using the Edit Variables function in the Corporate Investments module. Corporate Real Estate Data Entry Screen Use this data entry screen to enter property values and mortgage information for any real estate properties owned by the corporation. You can enter information on up to five different properties on the five different tabs (Property 1 through Property 5). You can make further adjustments, including changing the indexing rates, entering rental income or adding information about buying or selling property in the future by using the Edit Variables function in the Corporate Real Estate module. Property Information The ACB and CCA information will determine any deferred capital gains and capital cost allowance recapture in the future, so be as accurate as possible. FP Solutions User Manual - Business Asset Modules Module Page 284 of 473

286 Property: Enter a unique name for the property or leave it as Property 1 or Property 2, etc. Current Value: Enter the current value of the entire property (i.e., building plus land). ACB: Enter the adjusted cost base of the entire property (i.e., building plus land). Cost base of building: Enter the adjusted cost base of the building only. Current CCA: Enter the cumulative amount of capital cost allowance (CCA) that has been claimed on the building to date. This is used to determine the undepreciated capital cost (UCC) of the building. Annual CCA%: Enter the annual CCA rate that is being claimed on the building. Mortgage Information Initial Amount: Enter the outstanding balance as of the date entered in the Mortgage Date field. Life Insured: Check this box if a life insurance policy exists to pay off the balance of the loan if the life insured dies. Mortgage Date: Enter the date that corresponds to the amount entered in the Initial Amount field. Payment: Enter the current mortgage payments (principal plus interest). Payment period: Choose the mortgage payment frequency. Interest rate: Enter the mortgage rate. Compound period: Choose the compounding frequency that applies to the amount you entered in the Interest Rate field (most mortgage rates are compounded semiannually). Step 4: Corporate Debt and Loans Step 4 includes two data entry screens: n. Corporate Debts data entry screen o. Corporate Loans data entry screen FP Solutions User Manual - Business Asset Modules Module Page 285 of 473

287 Corporate Debts Data Entry Screen Use these data entry screens to enter information about any debts (other than the mortgages documented earlier) owed by the corporation. This could include things such as bank loans, lines of credit, or amounts owed to shareholders even if interest is not being charged. You can enter information on up to five different debts on the five different tabs (Debt 1 through Debt 5). Debt: Enter a unique name for the debt, or leave it as Debt 1 or Debt 2, etc. Initial Amount: Enter the outstanding balance as of the date specified in the Loan Date field. Life Insured: Check this box if a life insurance policy exists to pay off the balance of the loan if the life insured dies. Loan Date: Enter the date that corresponds to the amount entered in the Initial Amount field. Payment: Enter the current loan payments (principal plus interest), unless the loan is an interest only loan. Interest-only Payment: Check this box if the debt is an interest-only loan. Payment Period: Choose the loan payment frequency. Interest Rate: Enter the interest rate charged on the loan. Compound Period: Choose the compounding frequency that applies to the amount you entered in the Interest Rate field. Corporate Loans Data Entry Screen Use these data entry screens to enter information about any loans made by the corporation. This could include things such as investment loans to employees or amounts owed by shareholders, even if interest is not being paid. You can enter information on up to five different loans on the five different tabs (Loan 1 through Loan 5). FP Solutions User Manual - Business Asset Modules Module Page 286 of 473

288 Loan: Enter a unique name for the debt, or leave it as Loan 1 or Loan 2, etc. Amount Loaned: Enter the outstanding balance as of the date specified in the Loan Date field. Loan Date: Enter the date that corresponds to the amount entered in the Amount Loaned field. Payment: Enter the current loan payments (principal plus interest), unless the loan is an interest only loan. Interest-only Payment: Check this box if the debt is an interest-only loan. Payment Period: Choose the loan payment frequency. Interest Rate: Enter the interest rate charged on the loan. Compound Period: Choose the compounding frequency that applies to the amount you entered in the Interest Rate field. Step 5: Corporate Life Insurance Step 5 includes four data entry screens, to describe 4 different corporate-owned life insurance policies: p. Individual: Client data entry screen q. Individual: Spouse data entry screen r. Joint First data entry screen s. Joint Last data entry screen The only difference between these screens is the life insured by the policy, so only the Individual: Client data entry screen is described here. FP Solutions User Manual - Business Asset Modules Module Page 287 of 473

289 Individual: Client Data Entry Screen This data entry screen can be used for term life, term-100, whole life and universal life policies. Note: This data entry screen allows you to enter policy values at 10-year intervals. If you want to enter the face amount for each policy year instead of only every 10 years, or for some multiple other than every 10 years, you should use the Edit Variables function of the Life Insurance module to describe the policy. Increasing Death Benefit: If the face amount of the policy increases over time by the amount of the cash surrender value, as is the case with some UL policies, check the Increasing Death Benefit box. If you check this box, FP Solutions adds the amounts entered in the Face Amount and Cash Value fields together. Note: If you leave this box unchecked but manually enter increasing face amounts on the bottom of this data entry screen, FP Solutions assumes that the death benefit is equal to these face amounts (i.e., it does not add the CSV when calculating the death benefit). Annual Premium: Enter the annual premium or deposit required for the policy. It is assumed that this premium is paid by the corporation, so it will not influence the client s cash flow. However, by entering the premiums here, you are reminding your clients that the insurance is not free. Premium Index: Enter the annual rate at which the premiums will be indexed. # of Years to Pay: Select the number of years that the premiums must be paid from the drop-down menu. FP Solutions User Manual - Business Asset Modules Module Page 288 of 473

290 Face Amount: Enter the death benefit for the current year and for every 10-year period. Note: In the case of a term life policy, you must enter the death benefit for each year of coverage on the Variables page. Cash Value: If the policy will build up a cash surrender value (CSV), enter this CSV for the current year and every 10-year period thereafter, referring to the policy illustration. For fixed term and term-100 policies, enter 0. ACB: If the policy will build up a cash surrender value, enter the ACB for the current year and for every 10-year period thereafter, referring to the policy illustration. For fixed term and term-100 policies, enter 0. Withdrawals: If the corporation will be making regular withdrawals from the policy, enter the annual pre-tax amount of those withdrawals. Income Index: If the corporation will be making regular withdrawals from the policy and those withdrawals will increase over time, enter the indexation rate. Start at year: From the drop-down menu, select the plan year at which the corporation will start making withdrawals from the policy. End at year: From the drop-down menu, select the plan year after which the corporation will stop making withdrawals from the policy. FP Solutions User Manual - Business Asset Modules Module Page 289 of 473

291 Business Modules Overview FP Solutions has nine business modules: Corporate Asset Values Corporate Cash Flow Corporate Share Structure Corporate Values Corporate Investments Corporate Real Estate Corporate Life Insurance Corporate Loans Corporate Debts If you have included a business in your client s financial plan, at a minimum the first four of these modules (Corporate Asset Values, Corporate Cash Flow, Corporate Share Structure and Corporate Values) will be included in the plan. Some or all of the remaining modules may also be included, depending on the data you entered via the Business data entry wizards. Each of these nine business modules are discussed later in this section. Information Flow The nine business modules are interconnected and flow into the client s personal financial plan, as shown in the following Information Flow diagram. FP Solutions User Manual - Business Asset Modules Module Page 290 of 473

292 Business Modules Information Flow Diagram HOLDCO 1 HOLDCO 2 OPCO 1 OPCO 2 OPCO 3 OPCO 4 Corporate Investments Module for HOLDCO 1 Corporate Investments Module for HOLDCO 2 Corporate Investments Module for OPCO 1 Corporate Investments Module for OPCO 2 Corporate Investments Module for OPCO 3 Corporate Investments Module for OPCO 4 Corporate Real Estate Module for HOLDCO 1 Corporate Real Estate Module for HOLDCO 2 Corporate Real Estate Module for OPCO 1 Corporate Real Estate Module for OPCO 2 Corporate Real Estate Module for OPCO 3 Corporate Real Estate Module for OPCO 4 Corporate Life Insurance Module for HOLDCO 1 Corporate Life Insurance Module for HOLDCO 2 Corporate Life Insurance Module for OPCO 1 Corporate Life Insurance Module for OPCO 2 Corporate Life Insurance Module for OPCO 3 Corporate Life Insurance Module for OPCO 4 Corporate Loans Module for HOLDCO 1 Corporate Loans Module for HOLDCO 2 Corporate Loans Module for OPCO 1 Corporate Loans Module for OPCO 2 Corporate Loans Module for OPCO 3 Corporate Loans Module for OPCO 4 Corporate Debts Module for HOLDCO 1 Corporate Debts Module for HOLDCO 2 Corporate Debts Module for OPCO 1 Corporate Debts Module for OPCO 2 Corporate Debts Module for OPCO 3 Corporate Debts Module for OPCO 4 Corporate Values Module for HOLDCO 1 Corporate Values Module for HOLDCO 2 Corporate Values Module for OPCO 1 Corporate Values Module for OPCO 2 Corporate Values Module for OPCO 3 Corporate Values Module for OPCO 4 Corporate Share Structure Module for HOLDCO 1 Corporate Share Structure Module for HOLDCO 2 Corporate Share Structure Module for OPCO 1 Corporate Share Structure Module for OPCO 2 Corporate Share Structure Module for OPCO 3 Corporate Share Structure Module for OPCO 4 Corporate Asset Values Modules for Client Corporate Cash Flow Modules for Client FP Solutions User Manual - Business Asset Modules Module Page 291 of 473

293 The Corporate Asset Values and Corporate Cash Flow are catchall modules that compile or summarize the client s ownership values and cash flows to and from all of the corporations included in the plan (up to two holding companies and four operating companies). The information that you entered through the last five modules in the list for each corporation (Corporate Investments, Corporate Real Estate, Corporate Life Insurance, Corporate Loans and Corporate Debts) form the basis for values shown in the Corporate Values module for that specific corporation. The values from the Corporate Values module in turn flow through the Corporate Share Structure module, which determines how the values from that specific corporation flow to the client and/or spouse. The values from the Corporate Share Structure module for each of the six possible corporations (two HOLDCOs and four OPCOs) are compiled in the Corporate Asset Values and Corporate Cash Flow modules. The business data from these two modules is then integrated with the client s personal financial plan. Launching a Business Module You can launch any of the nine business modules as follows: 1) Do one of the following: a. From the Main Screen, click on View Financial Plan, or b. Click on the View icon in the main toolbar. This will launch the Please select a Module window, which will show all of the modules that were created when you saved the financial plan. The Corporate Asset Values and Corporate Cash Flow modules will be always be active, because they summarize the information from all of the other business modules. FP Solutions User Manual - Business Asset Modules Module Page 292 of 473

294 2) To view any of the seven modules for any of the individual corporations, click on the + sign to expand the directory for that corporation. Only those modules for which you have entered data will be active. In the example below, there are five active modules for Holdco 1, and six active modules for Opco 2. 3) Double click on the desired module or select it and click on Go. This will launch the module and the corresponding report. Note: Each module will consist of one or more Summary pages, one or more Ledger pages, and a Spreadsheet page. All modules other than the Corporate Asset Values and Corporate Cash Flow modules will also have a Variables page. FP Solutions User Manual - Business Asset Modules Module Page 293 of 473

295 Printing a Business Module Report To print a business module report: 1. Make sure that the module is on screen (launch the module as described above). 2. Click on File in the main menu bar. 3. Click on Print in the drop down menu. This will launch the Full Print dialogue box, and the Corporate Cash Flow pages will be shown in the Available documents window. 4. Click on the left or right arrows next to the Module Type window to navigate to the desired business module. 5. Once you have navigated to the right module, highlight the documents that you want to print from the Available Documents window by clicking on them. Hold the Shift key to select multiple pages. 6. Click on the right arrow in the middle of the two document windows to transfer your selection to the Documents to be Printed window. 7. Click on Print to print the selected pages. FP Solutions User Manual - Business Asset Modules Module Page 294 of 473

296 Corporate Investments Module The Corporate Investments module documents the activity in the corporation s investment account, including planned deposits, withdrawals and anticipated growth. The results are based on the data you entered via the Corporate Investments data entry screen during Step 3 of the Business data entry wizard. Variable Data To make changes to, or expand upon, the basic data that you entered through the Business data entry wizard, click on the Variables tab at the bottom of the screen. Key variables that you may wish to modify are described below. Portfolio Turnover: By default, FP Solutions assumes that 25% of the portfolio will turn over each year. This could result in realized capital gains that must be recognized by the corporation. To change the portfolio turnover rate, enter the desired value. Administration/Trustee Fee: If the corporation must pay an administration or trustee fee on its investment account, enter the amount in this column. Future Portfolio Allocation: By default, FP Solutions assumes that the allocation of the corporation s investment portfolio will evolve over time, based on the natural growth and turnover of that portfolio. If you want to rebalance the portfolio to a specific allocation, you should enter the desired percentages in the Future Portfolio Allocation columns. If you want to maintain the same allocation every year, you must enter that allocation for each year. Future Investment Deposits: By default, FP Solutions assumes that any deposits or withdrawals that you make will be in proportion to the original asset allocation. However, you can specify a different allocation by deleting the amount from the Portfolio column, and distributing it according to your wishes amongst the Cash, FP Solutions User Manual - Business Asset Modules Module Page 295 of 473

297 Bonds and Equity columns. You can also vary the amount of deposits, perhaps including additional lump sums or stepped increases, by entering the data directly. Documentation The Corporate Investments report consists of a Summary page and a Ledger page. Summary Page The chart and graph at the top of the Summary page show the balance and asset allocation of the corporation s investment account at the beginning of the first plan year. The second graph on the Summary page shows the future projected deposits to and withdrawals from the account (excluding investment income). The final graph on the Summary page shows the projected year-end balance of the investment account, based on the starting value, the projected deposits and withdrawals, and the projected weighted return for the asset mix. Ledger Page The Ledger page tracks the projected deposits to, withdrawals from and growth of the corporation s investment portfolio. FP Solutions User Manual - Business Asset Modules Module Page 296 of 473

298 Annual Deposit: This column records the projected annual deposits to the investment portfolio, based on the information you entered on the Corporate Investments data entry screen, or via the Variables screen for this module. Annual Withdrawal: This column records the projected annual withdrawals from the investment portfolio, based on the information you entered on the Corporate Investments data entry screen, or via the Variables screen for this module. It also includes investment dividends or investment distributions resulting from your entries on the Corporate Values data entry screen. If you turned on the Recapture annual RDTOH and/or the Flow through annual capital dividend options on the Corporate Values data entry screen, the amounts calculated by the software will be included here. Annual Growth: This is the investment income earned by the corporation s investment portfolio, including both realized and unrealized income (i.e., unrealized capital gains). Weighted Return: This is the average return earned by the assets within the investment portfolio, based on the asset allocation and the return for each asset class as specified in the Defaults file. Tax Payable Net of Refund: This is the total tax paid by the corporation on the investment income, taking into account any tax refund resulting from the RDTOH account if dividends are being paid Year End Balance: This is calculated as (Year End Balance from previous year + Annual Deposit Annual Withdrawal + Annual Growth Tax Payable Net of Refund). Deferred Tax: This is the additional tax the corporation would have to pay if it disposed of the investment portfolio at the end of the year, which could trigger any unrealized capital gains. FP Solutions User Manual - Business Asset Modules Module Page 297 of 473

299 Corporate Real Estate Module The Corporate Real Estate module documents the projected values of all real estate (up to five properties) owned by the corporation. The results are based on the data you entered via the Corporate Real Estate data entry screen. Variable Data To make changes to, or expand upon, the basic data that you entered through the Business data entry wizard, click on the Variables tab at the bottom of the screen. Key variables that you may wish to modify are described below. Note: The Variables screen includes sections to adjust the variables for each of the possible five real estate properties. Index: This is the rate at which the property value is expected to increase over time. If you want to change the rate, enter the new values in this column. Adjust Value: You can make a lump-sum adjustment to the property value by entering the amount in this column. You can enter either a positive or a negative amount. For example, if the corporation will be adding an addition to the building, you could increase the value of the property accordingly. Any amount you enter in this column will also be reflected in the adjusted cost base of the property (more specifically, to the cost amount of the building). Maintenance: You can add an annual property maintenance cost in this column. Rental Income: If the property will generate rental income, enter the net rental income in this column. Because rental income is not-business income, any amount you enter here will affect the RDTOH balance, and can result in a tax refund if a dividend is paid. Adjust Mortgage: If the corporation will be making a lump-sum payment against the mortgage, enter the amount in this column as a negative number. If the corporation will be increasing the mortgage amount, enter the increase as a positive number. Interest Rate: If the interest rate is projected to change over time, enter the new values in this column. Payment: If the corporation will be changing its mortgage payments over time, enter the new values in this column. FP Solutions User Manual - Business Asset Modules Module Page 298 of 473

300 Documentation The Corporate Real Estate report consists of a Summary page and up to five Ledger pages, one for each of up to five properties owned by the corporation. Summary Page The chart and graph at the top of the Summary page show the total value of all of the corporation s real estate properties (to a maximum of five) at the beginning of the first plan year, along with the equity amount and outstanding mortgage balance. The second graph on the Summary page shows the total annual mortgage payments for all of the corporation s real estate properties (to a maximum of five) for the first plan year, along with a breakdown of the interest and principal portions of those payments. The final graph on the Summary page shows the projected value of all of the corporation s real estate properties (to a maximum of five) over the planning period. It also shows the outstanding mortgage balance and the estimated deferred taxes for each year. Remember that when a corporation disposes of any capital property, including real estate, 50% of the capital gain is taxable to the corporation, and the remaining 50% will be credited to the corporation s capital dividend account (CDA), which can be paid to shareholders as a tax-free capital dividend. FP Solutions User Manual - Business Asset Modules Module Page 299 of 473

301 Ledger Pages The Ledger pages tracks the projected value and outstanding mortgage balance of the corporation s real estate. There is a Ledger page for each of up to five real estate properties. The columns on each Ledger page are the same, but the data in those columns reflects the different properties. Mortgage Amount: This is the outstanding mortgage balance at the end of the year. Interest Rate: This is the annual mortgage rate. Annual Payment: This is the sum of all mortgage payments made during the year, including principal and interest. It also includes any additional payments that you specified on the Variables screen. Property Value: This is the projected property value at the end of the year. It factors in the annual growth in property values, plus any adjustments you made on the Variables screen. ACB: This is the adjusted cost base of the entire property (land and building). Cumulative CCA: This is the projected total capital cost allowance (CCA) that the corporation has claimed on the building to date. Deferred Tax: This is the additional tax that the corporation would have to pay if it disposed of the real estate at the end of the year and this disposal triggered a capital gain and/or the recapture of capital cost allowance. FP Solutions User Manual - Business Asset Modules Module Page 300 of 473

302 Corporate Life Insurance Module The Corporate Life Insurance module documents the projected values of up to five corporate-owned life insurance policies. The results are based on the data you entered on the Corporate Life Insurance data entry screens during Step 5 of the Business data entry wizard. Variable Data To make changes to, or expand upon, the basic data that you entered through the Business data entry wizard, click on the Variables tab at the bottom of the screen. Key variables that you may wish to modify are described below. Note: The Variables page includes separate sections to adjust the variables for each of the possible five corporate-owned life insurance policies. Premium: Enter the amount of any additional projected premiums or deposits, which will be added to the amount you entered via the Corporate Life Insurance data entry screen. Face Amount: Enter any projected increases in the face amount, which will be added to the face amount you entered via the Corporate Life Insurance data entry screen. Cash Value: Enter any projected changes in the policy s cash surrender value, which will be added to the amount you entered via the Corporate Life Insurance data entry screen. ACB: Enter any projected changes to the policy s adjusted cost basis (ACB, which will be added to the amount you entered via the Corporate Life Insurance data entry screen. Withdrawals: Enter the amount of any additional withdrawals, which will be added to the amount you entered via the Corporate Life Insurance data entry screen. Documentation The Corporate Insurance report consists of a Summary page and up to four Ledger pages. FP Solutions User Manual - Business Asset Modules Module Page 301 of 473

303 Summary Page The chart and graph at the top of the Summary page show the sum of the projected values of all the corporately owned insurance policies (to a maximum of five) at the beginning of the first plan year, including the death benefit and cash surrender value (CSV). The second graph on the Summary page shows the projected deposits to and withdrawals from all of the corporately owned insurance policies (to a maximum of five), for each year of the planning period. The final graph on the Summary page shows the projected cash values and death benefits for all of the corporately owned insurance policies for each year of the planning period. Ledger Pages The Ledger pages track the projected insurance values of each of the life insurance policies owned by the corporation. There are a total of four Ledger pages, one for each of up to three individual policies, and one that combines the data for up to two joint life policies. The columns on each Ledger page are the same, but the data in those columns reflect the unique nature of each policy. FP Solutions User Manual - Business Asset Modules Module Page 302 of 473

304 Annual Premiums: This is the sum of the annual premiums that you entered on the Corporate Life Insurance data entry screen and any additional amounts that you entered on the Variables screen. Death Benefit: This is the sum of the death benefit that you entered on the Corporate Life Insurance data entry screen and any additional amounts that you entered on the Variables screen. CSV: This is the policy s projected cash surrender value, factoring in the information you entered on the Corporate Life Insurance data entry screen and any additional amounts that you entered on the Variables screen. ACB: This is the projected adjusted cost basis of the policy, factoring in the information you entered on the Corporate Life Insurance data entry screen and any additional amounts that you entered on the Variables screen. If the corporation disposes of the policy prior to the death of the life insured, it will realize a policy gain to the extent the CSV exceeds the ACB. Total Withdrawals: This is the total withdrawals from the policy, factoring in the information you entered on the Corporate Life Insurance data entry screen and any additional amounts that you entered on the Variables screen. Dividend Withdrawals: This is the portion of the Total Withdrawals that is being paid out as a capital dividend. Total Benefits: This is the projected death benefit upon the death of the life insured. FP Solutions User Manual - Business Asset Modules Module Page 303 of 473

305 Corporate Loans Module The Corporate Loans module documents up to five loans made by the corporation to shareholders, employees or other parties. The results are based on the data you entered on the Corporate Loans data entry screens in Step 5 of the Business data entry wizard. Variable Data To make changes to, or expand upon, the basic data that you entered through the Business data entry wizard, click on the Variables tab at the bottom of the screen. Key variables that you may wish to modify are described below. Note: The Variables screen includes sections to adjust the variables for each of the possible five loans made by the corporation. Adjust Debt: If the borrower will be increasing the debt, enter the increase as a positive amount in this column. In the example above, the borrower of Loan 1 increased the amount borrowed by $12,000 in Year 4. If the borrower will be making a lump-sum repayment, enter that repayment amount as a negative number. In the example above, the borrower of Loan 2 repaid the full amount of $10,000 in Year 4. Interest Rate: If the interest rate that the corporation will charge on its loans will vary over time, enter the new rate in this column. Payment: To change the monthly loan payments, enter the new payments in this column. Documentation The Corporate Loans report consists of a Summary page and up to five Ledger pages, one for each of up to five different loans. FP Solutions User Manual - Business Asset Modules Module Page 304 of 473

306 Summary Page The graph at the top of the Summary page shows the projected total annual payments made to the corporation on all loans it made to shareholders, employees or other parties (to a maximum of five loans). The annual payments are broken down into interest and principal portions. The second graph on the Summary page shows the projected outstanding balance of all loans made by the corporation (to a maximum of five loans), as well as the total of all annual payments it expects to receive. Ledger Pages The Ledger pages track the projected values of all loans made by the corporation. There is a Ledger page for each of up to five loans. The columns on each Ledger page are the same, but the data in those columns reflect the unique nature of each loan. FP Solutions User Manual - Business Asset Modules Module Page 305 of 473

307 Debt Amount: This is the outstanding balance of the loan at the end of the year. It includes any lump-sum additions or repayments that you specified on the Variables screen. It is calculated as (Debt Amount from previous year Annual Principal). Interest Rate: This is the interest rate that the corporation is charging on the loan. Annual Payment: This is the sum of all payments the corporation receives from the borrower during the year, including the monthly payments you specified on the Corporate Loans data entry screen, and any lump-sum payments you specified on the Variables screen. Annual Principal: This is the portion of the Annual Payment that is a repayment of principal. It reduces the Debt Amount. Total Principal: This is the cumulative amount of principal that the borrower has repaid since the beginning of the planning period. Annual Interest: This is the portion of the Annual Payment that is interest. Total Interest: This is the cumulative amount of interest that the borrower has paid since the beginning of the planning period. FP Solutions User Manual - Business Asset Modules Module Page 306 of 473

308 Corporate Debts Module The Corporate Debts module documents up to five debts of the corporation. The results are based on the data you entered on the Corporate debts data entry screens in Step 5 of the Business data entry wizard. Variable Data To make changes to, or expand upon, the basic data that you entered through the Business data entry wizard, click on the Variables tab at the bottom of the screen. Key variables that you may wish to modify are described below. Note: The Variables screen includes separate sections to adjust the variables for each of the possible five corporate debts. Adjust Debt: If the corporation will be increasing its debt, enter the increase as a positive amount in this column. If the corporation will be making a lump-sum repayment, enter that repayment amount as a negative number. In the example above, the corporation increases the amount it borrowed under Debt 1 by $5,000 in Year 3, and makes a lump-sum repayment of $10,000 in Year 6. Interest Rate: If the interest rate that the corporation will pay on its debt will vary over time, enter the new rate in this column. Payment: To change the monthly loan payments, enter the new payments in this column. FP Solutions User Manual - Business Asset Modules Module Page 307 of 473

309 Documentation The Corporate Debts report consists of a Summary page and up to five Ledger pages, one for each of up to five corporate debts. Summary Page The chart and graph at the top of the Summary page show the portion of all loan payments made by the corporation in the first year that go towards principal versus interest. It represents the cumulative payments on up to five different corporate debts. The example below shows an interest-only loan. The second graph on the Summary page projects the total outstanding loan balance each year on up to five different corporate debts, as well as the total annual payments on those loans (principal plus interest). Ledger Pages The Ledger pages track the projected values of all debts owed by the corporation. There is a Ledger page for each of up to five debts. The columns on each Ledger page are the same, but the data in those columns reflects the unique nature of each debt. FP Solutions User Manual - Business Asset Modules Module Page 308 of 473

310 Debt Amount: This is the outstanding balance of the debt at the end of the year. It includes any lump-sum additions or repayments that you specified on the Variables screen. It is calculated as (Debt Amount from previous year Annual Principal). Life Insurance: If you checked the Life Insured box on the Corporate Debts data entry screen, this column will show the portion of the outstanding Debt Amount that could be paid off using an existing life insurance policy. In the example above, there is more than enough life insurance in place to pay off the debt amount if the life insured dies. Interest rate: This is the interest rate that the corporation is paying on the debt. Annual Payment: This is the sum of all payments the corporation makes to the lender during the year, including the monthly payments you specified on the Corporate Debts data entry screen, and any lump-sum payments you specified on the Variables screen. Annual Principal: This is the portion of the Annual Payment that is a repayment of principal. It will reduce the Debt Amount. Annual Interest: This is the portion of the Annual Payment that is interest. Total Interest: This is the cumulative amount of interest that the corporation has paid since the beginning of the planning period. FP Solutions User Manual - Business Asset Modules Module Page 309 of 473

311 Corporate Values Module The Corporate Values module documents the projected value of the corporation, including shareholders equity, liabilities, and dividend flows. Variable Data To make changes to, or expand upon, the basic data that you entered through the Business data entry wizard, click on the Variables tab at the bottom of the screen. Key variables that you may wish to modify are described below. Asset Values Index: To change the rate at which goodwill, fixed assets or other assets are expected to change over time, enter the new values in the corresponding Index columns. Adjust Value: If the corporation expects a sudden increase in the value of its goodwill, fixed assets or other assets, enter the increase as a positive amount in the corresponding Adjust Value column. If the corporation expects a sudden drop in these values or plans to sell any of these assets, enter that decrease as a negative number. Shareholder Bonuses Amount: This column shows the expected amount of shareholder bonuses, as you specified on the Corporate Values and Income Distribution (Shareholder Bonus) data entry tab. To change the bonus amount, enter a new value in this column. % of Amount: These columns show the distribution of shareholder bonuses, as you specified on the Corporate Values and Income Distribution (Shareholder Bonus) data entry tab. To change the distribution, enter new values in these columns. FP Solutions User Manual - Business Asset Modules Module Page 310 of 473

312 Regular Corporate Dividends Amount: This column shows the amount of regular corporate dividends that you specified on the Corporate Values and Income Distribution (Regular Dividends) data entry tab. To change the dividend amount, enter a new value in this column. % of Amount: These columns show the distribution of shareholder bonuses, as you specified on the Corporate Values and Income Distribution (Regular Dividends) data entry tab. To change the distribution, enter new values in these columns. Investment Dividends Amount: This column shows the amount of investment dividends that you specified on the Corporate Values and Income Distribution (Investment Dividends) data entry screen. To change the dividend amount, enter a new value in this column. Note: If you checked the Recapture annual RDTOH box and/or the Flow through annual capital dividend box on the Corporate Values and Income Distribution (Investment Distributions) data entry tab, FP Solutions will use the greater of: i. the amount shown in the Amount column and ii. an amount large enough to recapture the RDTOH balance, plus the available CDA balance. % of Amount: These columns show the distribution of investment dividends, as you specified on the Corporate Values and Income Distribution (Investment Distributions) data entry tab. To change the distribution, enter new values in these columns. FP Solutions User Manual - Business Asset Modules Module Page 311 of 473

313 Life Insurance Withdrawals t. % of Amount: You may have specified regular withdrawals from a corporate life insurance policy when you completed the Corporate Life Insurance data entry screens. You can use these columns to specify how those withdrawals are to be distributed. Documentation The Corporate Values report consists of a Summary page and three different Ledger pages. Summary Page The graph at the top of the Summary page shows a projection of the future value of the business, broken down into shareholders equity and liabilities. The second graph on the Summary page shows the projected payments of taxable and taxfree dividends, and the RDTOH and CDA balances. FP Solutions User Manual - Business Asset Modules Module Page 312 of 473

314 The capital dividend account (CDA) of a private corporation consists of the non-taxable portion of realized capital gains, capital dividends received from other private corporations, and received life insurance proceeds to the extent they exceed the adjusted cost basis of the policy. A corporation can declare a portion of the dividends that it pays to its shareholders as a non-taxable dividend, to the extent of the balance in the capital dividend account. When a corporation earns and pays tax on investment and other non-business income (such as net rental income), a portion of that tax is credited to the notional refundable dividend tax on hand (RDTOH) account. Dividends subsequently paid to shareholders will result in a tax refund to the corporation, to the extent of the balance in the RDTOH account. Ledger 1 Page The Ledger 1 page tracks the projected shareholders equity over time. The Ledger 1 page for an operating company is shown below. Real Estate: This is the projected year-end value of real estate owned by the corporation, as described in the Corporate Real Estate module. Investment Portfolio: This is the projected year-end value of the corporation s investment portfolio, as described in the Corporate Investments module. Insurance Cash Value: This the projected year-end cash surrender value of any permanent insurance policies owned by the corporation, as described in the Corporate Insurance module. Other Assets: This is the projected year-end value of the corporation s other assets (including goodwill, fixed assets, other assets and corporate loans), based on data you entered on the Corporate Values and Income Distribution (Corporate Values) data entry tab. Debts Outstanding: This is the projected year-end balance of the corporation s outstanding debts, including mortgages as described in the Corporate Real Estate module and other debts as described in the Corporate Debts module. Deferred Taxes: This is the sum of all taxes that would become payable if the corporation wound up at the end of the year, such that it was deemed to have disposed of all real estate and investment assets, as described in the Corporate Real Estate and Corporate Investment modules. FP Solutions User Manual - Business Asset Modules Module Page 313 of 473

315 Shareholders Equity: If the corporation is an operating company, this is calculated as (Real Estate + Investment Portfolio + Insurance Cash Value + Other Assets Debts Outstanding Deferred Taxes). Note: In the case of a holding company, the Insurance Cash Value amount is included in Other Assets, and the Ledger 1 page includes another column that shows the holding company s position in up to four operating companies. Ledger 2 Page The Ledger 2 page tracks the projected distributions from the corporation. Total Payments Bonus: This is the sum of all projected bonuses to be paid out by the corporation to all parties. Taxable Dividends: This is the sum of all projected taxable dividends to be paid out by the corporation to all parties. Tax-free Dividends: This is the sum of all projected tax-free dividends to be paid out by the corporation to all parties. It represents the tax-free portion of realized capital gains and life insurance proceeds received by the corporation. Payments to Client and Spouse Bonus: This is the portion of the total Bonus that is payable to the client and spouse, based on the proportions that you entered on the Corporate Values and Income Distribution (Shareholder Bonus) data entry tab. Taxable Dividends: This is the portion of the total Taxable Dividends that is payable to the client and spouse, based on the proportions that you entered on the Corporate Values and Income Distribution data entry tab. Tax-free Dividends: This is the portion of the total Tax-free Dividends that is payable to the client and spouse, based on the proportions that you entered on the Corporate Values and Income Distribution data entry tab. Total: This is calculated as (Bonus + Taxable Dividends + Tax-free Dividends). Ledger 3 Page The Ledger 3 page tracks the projected activity involving the RDTOH and capital dividend accounts. FP Solutions User Manual - Business Asset Modules Module Page 314 of 473

316 Non-business income: This is the income earned by the corporation on its investment portfolio, rental properties and corporate-owned loans. Refundable Tax: This is the portion of the tax on the non-business income that is credited to the RDTOH account. Tax Refund: This the tax refund that is generated when the corporation pays out the amount listed in the Investment Dividend column (generally calculated as one-third of the investment dividend, up to the balance in the RDTOH account). Investment Dividend: This is the sum of all dividends paid out by the corporation from its investment portfolio. RDTOH Balance: This is calculated as (RDTOH Balance from previous year + Refundable Tax Tax Refund). Note: In the example above, we had entered an RDTOH starting balance of $15,000 via the Corporate Values and Income Distribution (Values) data entry tab, so at the end of Year 1 the RDTOH balance = ($15, $909) = $14,198. Capital Dividend: This column includes the tax-free portion of realized capital gains that will be paid out to shareholders. If you checked the Flow through annual capital dividend box on the Corporate Values and Income Distribution (Investment Distributions) data entry tab and the corporation has a balance in its capital dividend account (CDA), this column will also include any recapture of CDA that occurs when the corporation pays an investment dividend. CDA balance: This is calculated as (CDA Balance from previous year + 50% of capital gains Capital Dividend). Note: In the example above, we had entered a starting CDA balance of $0 via the Corporate Values and Income Distribution (Values) data entry tab, so at the end of Year 1, the CDA balance = ($0 + $93 - $93) = $0. FP Solutions User Manual - Business Asset Modules Module Page 315 of 473

317 Corporate Share Structure Module The Corporate Share Structure module documents the projected total shareholders equity, as well as how that equity is divided between the client, spouse, family trust, holding companies or other shareholders. Variable Data To make changes to, or expand upon, the basic data that you entered through the Business data entry wizard, click on the Variables tab at the bottom of the screen. This Variables screen includes sections for each of the following potential owners: u. client v. client s spouse w. family trust x. Holdco #1 (only if the Corporate Share Structure module is for an Opco) y. Holdco #2 (only if the Corporate Share Structure module is for an Opco) z. other owners Record any projected ownership transactions by entering the value of the transaction in the appropriate columns. In the example above, in Year 3 the client sells common shares worth $200,000 to the family trust, so we entered $200,000 in the Common Shares, Sell column for the client, as well as in the Common Shares, Buy column for the family trust. You should make sure that the transactions balance. Documentation The Corporate Share Structure report consists of a Summary page and four Ledger pages. Summary Page The chart and graph at the top of the Summary page show the share values and ACBs of the various shareholders for the first plan year. It represents all shares, including both common and preferred shares. FP Solutions User Manual - Business Asset Modules Module Page 316 of 473

318 The second graph on the Summary page shows how the value of each shareholder s position is projected to develop in the future, based on the expected rate of growth of the business, as well as any planned changes to the share structure. You will note in the example below, the client s ownership interest drops in Year 3, reflecting the sale of $200,000 of common shares to the family trust, which we entered on the Variables screen. The final graph on the Summary page shows the projected estate value of the client and spouse s holdings, based on their plans for the business interest upon the second person s death. If a shareholders agreement is in place, the chart will reflect the values specified in that agreement. The chart also shows the portion of taxable and tax-free dividends that will result upon share disposition or redemption. Ledger 1 Page The Ledger 1 page tracks the projected equity values for all owners. FP Solutions User Manual - Business Asset Modules Module Page 317 of 473

319 Share Value: These two columns show the total projected value of all preferred and common shares, respectively. Shareholder s Value: These five columns show the projected value of all shares held by each owner, including: i. the client ii. the client s spouse iii. a family trust iv. holding companies (the values are combined if the shares are held by more than one holding company) v. any shareholders other than those listed above Ledger 2 Page The Ledger 2 page tracks the projected changes to the corporation s share structure. Buy/ (Sell) Shares: This column shows the net effect of changes to the share structure, based on the data you entered on the Variables page. In our earlier example, in Year 3 the client sells common shares worth $200,000 to the family trust. In this case, the buy and the sell offset each other, so the result in this column is $0. Estate Freeze: This column shows the value of the assets that are being frozen in an estate freeze, based on information you entered via the detailed data entry screen of Share Structure module. Crystallize Gain: This column shows the value of the assets that any of the owners crystallize to realize the capital gain, based on the information you entered via the detailed data entry screen of the Share Structure module. FP Solutions User Manual - Business Asset Modules Module Page 318 of 473

320 Share Redemptions, Amount: If you selected share redemption as a payment option for any of the dividend distributions, the value of the shares being redeemed is shown here. Share Redemptions, Stated Value: If the corporation has paid up capital (PUC), the portion of the shares being redeemed that is attributed to that PUC is shown here and the PUC is reduced by same amount. Share Redemptions, Dividend: This is the difference between the Amount and the Stated Value of the share redemptions, as shown in the previous two columns. Capital Gain/ (Loss): This column shows any capital gain or loss realized by the client and/or client s spouse during the year. In our example above, they realized a capital gain of $199,977 when they disposed of shares valued at $200,000. Ledger 3 Page The Ledger 3 page tracks the projected estate value of the client and spouse s ownership interest upon the second person s death. In the example below, we indicated that the shares would be redeemed upon death when we completed the Corporate Share Structure (Estate Planning) data entry tab. Deemed Disposition: This is the value of the shares upon disposition or redemption. In our example, the shares of the client and spouse are redeemed at their fair market value as shown under Shareholder s Value on the Ledger 1 page. ACB: This is the adjusted cost base of the client and spouse s shares. Note that dispositions of a portion of the shares prior to death will result in proportional reduction in the ACB, as shown in Year 3 of our example above, when the client sold shares valued at $200,000. Capital gain: This is the capital gain realized on the client s final tax return upon the deemed disposition at death, and it is calculated as (Deemed Disposition ACB). Deemed Dividend: The estate will receive proceeds equal to the Deemed Disposition amount when the shares are redeemed. Capital Loss: This is the capital loss that the estate will realize upon the share redemption. Often this is equal to the capital gain realized on the deceased s final tax return, but it some circumstances it may be reduced by the stop-loss rules. FP Solutions User Manual - Business Asset Modules Module Page 319 of 473

321 Tax-free Dividend: This is the tax-free portion of the Deemed Dividend. The amount depends on the corporation s CDA balance, and the amount of the tax-free death benefit. Taxable Dividend: This is calculated as Deemed Dividend Tax-free Dividend. Ledger 4 Page The Ledger 4 page tracks the projected equity of the surviving shareholders, which could include: aa. a family trust bb. holding companies cc. other shareholders Residual Value: This is the value of the outstanding common shares once the shares of the client and spouse have been redeemed by the corporation. It is calculated as (Share Value of the common and preferred shares as shown on the Ledger 1 page - Deemed Disposition on the Ledger 3 page). Value of RDTOH: If the client and spouse both die and there is a balance in the RDTOH account, it is added back into the survivor s equity value. Life Insurance: This is the sum of all death benefits from all policies on the client s life, including those associated with real estate mortgages and other corporate debts. Trust Value: The sum of (Residual Value + Value of RDTOH + Life Insurance) is allocated to the family trust based on its proportionate ownership interest. Holdco s Value: The sum of (Residual Value + Value of RDTOH + Life Insurance) is allocated to the holding companies based on their proportionate ownership interests. Other Shareholder: The sum of (Residual Value + Value of RDTOH + Life Insurance) is allocated to the other shareholders based on their proportionate ownership interest. Remaining CDA: This is the portion of the CDA that is not distributed to the estate. It is calculated as the CDA prior to death, plus the CDA arising from the deemed dispositions and insurance benefits realized at death, less the capital dividends paid to the estate. FP Solutions User Manual - Business Asset Modules Module Page 320 of 473

322 Corporate Asset Values Module The Corporate Asset Values module documents the projected total equity value of all of the corporations included in the financial plan (i.e., up to four operating companies and two holding companies). It also documents the distribution of these values amongst the following: dd. the client ee. the client s spouse ff. a family trust gg. other shareholders Variable Data There is no Variables screen associated with the Corporate Asset Values module because it is a compilation of information from up to six possible businesses. Documentation The Corporate Asset Values report consists of two Summary pages and two Ledger pages. Summary 1 Page The chart and graph at the top of the Summary 1 page show the total value (including common and preferred shares) of all corporations included in the plan and how that value is distributed amongst the various shareholders. The equity value is the fair market value (FMV) of each shareholder s ownership interest. The deferred tax is the amount of tax that each shareholder would owe if they disposed of that ownership interest, thus triggering a capital gain. It assumes that all capital gains would qualify for the small business capital gains exemption, and that any available exemption would be used to reduce the taxes payable. The data in the first chart and graph on the Summary 1 page represent the first plan year. The second graph projects these same equity values over the planning period. FP Solutions User Manual - Business Asset Modules Module Page 321 of 473

323 Summary 2 Page The chart and graph at the top of the Summary 2 page show the projected estate value of all of the corporate holdings of the client and his or her spouse, either directly or through the family trust, as well as the value of any corporate insurance policies. The values are based on the current share structure and how you specified the shares would be handled upon death when you completed the Corporate Share Structure (Estate Planning) data entry tab. The data in the first chart and graph on the Summary 2 page represents the first plan year. The second chart on the Summary 2 page projects these same estate values over the planning period. Ledger 1 Page The Ledger 1 page tracks the projected asset values of each shareholder, along with the deferred tax on those assets. FP Solutions User Manual - Business Asset Modules Module Page 322 of 473

324 Asset Value: This represents each owner s shareholder s equity in all corporations included in the financial plan, after deferred taxes. Deferred Tax: This is the sum of all taxes that would be payable by the shareholder if they disposed of all corporate ownership interests. Ledger 2 Page The Ledger 2 page tracks the projected estate values of all corporate holdings when the second spouse dies. Estate Distribution: This is calculated as (Asset Value for client from the Ledger 1 page + Asset value for client s spouse from the Ledger 1 page). Capital Gains: This is the portion of the proceeds of disposition of all corporate shares upon death that is considered capital gains. Dividend Payments: This is the portion of the proceeds of disposition of all corporate shares upon death that is considered regular dividends. Tax Payable: This is the total tax payable on the capital gains and dividends. It assumes that all capital gains would qualify for the small business capital gains exemption, and that any available exemption would be used to reduce the taxes payable. Insurance (Less CSV): This is the proceeds of all corporate insurance policies, less the cash surrender value. This amount is not subject to tax. Trust Equity: This is the total equity in the family trust. There is no deemed disposition of family trust assets upon death, so no income taxes have been deducted. The trust continues to the benefit of the surviving family members. Total Estate: This is calculated as (Estate Distribution Tax Payable + Insurance + Trust Equity). FP Solutions User Manual - Business Asset Modules Module Page 323 of 473

325 Corporate Cash Flow Module The Corporate Cash Flow module documents the cash flow that the client and the client s spouse are projected to receive from all of the operating and holding companies included in the financial plan. This includes dividend income, bonuses and the proceeds of share liquidation. Variable Data There is no Variables screen associated with the Corporate Asset Values module because it is a compilation of information from up to six different businesses. Documentation The Corporate Cash Flow report consists of a Summary page and two Ledger pages. Summary Page The graph and chart at the top of the Summary page show the projected cash flows to all shareholders who have an ownership interest in the corporations that are included in the financial plan. It also shows the composition of those cash flows, in terms of how much is dividend income (both taxable and non-taxable), bonuses, or the proceeds of share liquidation. The second graph on the Summary page shows the same projected cash flows. However, this graph shows how those cash flows are distributed amongst the various shareholders. FP Solutions User Manual - Business Asset Modules Module Page 324 of 473

326 Ledger 1 Page The Ledger 1 page tracks the projected income and other cash flows paid to the client and the client s spouse from all of the corporations included in the financial plan. Shareholder Bonus: This is the sum of all shareholder bonuses that the client and spouse are projected to receive from all of the corporations included in the financial plan. Taxable Dividend: This is the sum of all taxable dividends that the client and spouse are projected to receive from all of the corporations included in the financial plan. Capital Dividend: This is the sum of all tax-free capital dividends that the client and spouse are projected to receive from all of the corporations included in the financial plan. Share Redemption: This is the sum of all proceeds from any projected share redemptions made by the client or spouse in any of the corporations included in the financial plan. Crystallize Value: This is the amount the client or spouse is projected to receive upon crystallizing the value of one or more of the corporations included in the plan, as specified in each corporation s Share Structure module. Share Liquidation: This is the sum of all amounts that the client or spouse are projected to receive from the sale of shares in any of the corporations included in the financial plan. Capital Gain/ (Loss): This is the capital gain or loss that the client or spouse will incur upon the projected share liquidation, or upon crystallizing a capital gain. Ledger 2 Page The Ledger 2 page contains the same type of information as the Ledger 1 page, except it tracks the projected income and other cash flows paid to any shareholders other than the client and client s spouse, from all of the corporations included in the financial plan. FP Solutions User Manual - Business Asset Modules Module Page 325 of 473

327 Module: FP Focus This module explains the purpose of the FP Focus interface and how to use it to generate an Executive Summary of all or parts of a financial plan. FP Focus is essentially an interface that provides access to summary reports, depending on the level of FP Solutions there will be four to nine areas summarized: Basic Plus Advanced / Business Personal Information Net Worth Investment Totals (including ledger) Retirement Needs (including ledger) Personal Information Net Worth Investment Totals (including ledger) Retirement Needs (including ledger) Survivor Needs Disability Needs Estate Needs Personal Information Net Worth Investment Totals (including ledger) Cash Flow Income Taxes Retirement Needs (including ledger) Survivor Needs Disability Needs Estate Needs You can combine any or all of these summary reports (as long as you have completed the corresponding module) into a single Executive Summary, complete with a cover page, for distribution to your client. All of the summary reports are prepared for your client and his spouse as a family unit. You cannot generate separate reports for each spouse individually. This module describes how to print and edit the Executive Summary, before taking a closer look at the some of the summary reports that you can include in the Executive Summary. Navigating to the Executive Summary The goal of the FP Focus feature is to make the presentation of the financial plan easier for both the clients and the planner. To achieve this goal a second interface was developed especially for FP Focus this second interface is integrated directly into the FP Solutions User Manual - FP Focus Module 326 of 473

328 Standard interface of FP Solutions making navigating to FP Focus easy. On the main screen of FP Solutions, clicking on the Focus on the plan graphic switches from the standard mode into the FP Focus mode. The FP Focus main page is then displayed, from this screen you can switch back to the Standard mode of FP Solutions by clicking on the Use Standard View graphic. Printing the Executive Summary To compile and print an Executive Summary: 1) From the main menu bar, click on File. 2) From the drop-down menu, click on Print. This will launch the Full Print dialogue box. Only those modules that you have completed for the current client will appear in the Documents window. 3) Check the box beside each report that you wish to include in the Executive Summary. 4) Click on Print. Changing Years When you first launch the summary reports, the pie charts and tables that show data at a single point in time show the data for the first year of the plan. However, as you will learn in the sections describing each summary report, you can change many of these charts and tables to illustrate the situation at a different point in time during the planning FP Solutions User Manual - FP Focus Module 327 of 473

329 horizon. You can use scroll bars imbedded in some of the summary reports to advance the data one year at a time. In addition, for those graphs that show data over a prolonged period, you can change the length of the period being displayed: 1) Click on the graph. This will launch the Set Chart Years dialogue box. 2) Enter the number of years that you wish to have displayed. If you have changed the view to show a different period, this new view is what will be included when you print the Executive Summary. Editing the Executive Summary If you want to make changes to the text of the Executive Summary before printing it for your client, you can use the FP Report Editor to make the necessary changes. The steps involved depend on whether you have already created a report file. Editing a New Report If you have not edited the report before, you must first create a print file. 1) From the main menu bar, click on File. 2) From the drop-down menu, click on Print. This will launch the Full Print dialogue box. Only those modules that you have completed for the current client will appear in the Documents window. 3) Check the box beside each report that you wish to include in the Executive Summary. 4) Click on Print to Excel. This will launch the Please enter a filename dialogue box. FP Solutions User Manual - FP Focus Module 328 of 473

330 5) Enter a file name, and if desired, specify a different location where the file should be saved. 6) Click on Save. A progress bar will appear showing you the progress in printing the report to a file. 7) When you receive a message that says that printing is complete, click on OK. 8) When prompted to enable the FP Report Editor, click on Yes. This will launch the FP Report Editor toolbar. 9) From the FP Report Editor toolbar, click on Unprotect. This will unlock the cells that make up the Excel document. FP Solutions User Manual - FP Focus Module 329 of 473

331 10) Make the desired changes. 11) Click on Save Report (or click on Close Report, and then click on Yes when prompted to save the report). Editing an Existing Report Alternatively, you can launch the FP Report Editor at any time to edit an existing print file as follows: 1) From the main menu bar, click on Tools. 2) From the drop-down menu, click on Report Editor Menu. This will launch the FP Report Editor toolbar. 3) From the FP Report Editor toolbar, click on Open Report. This will open a file selection window. 4) Select the name of the report that you wish to edit, and click on Open. 5) From the FP Report Editor toolbar, click on Unprotect. This will unlock the cells that make up the Excel document. 6) Make the desired changes. 7) Click on Save Report (or click on Close Report, and then click on Yes when prompted to save the report). Personal Information Summary The Personal Information Summary should be included in every financial plan that you give to your client because, in addition to documenting basic contact information, it specifies the effective date of the plan, and it documents the inflation, return and tax assumptions that were used in generating the plan. FP Solutions User Manual - FP Focus Module 330 of 473

332 Pay particular attention to the Index Assumptions section, which describes the overall return assumptions for each asset class, as well as the breakdown of the types of income generated by that asset class (i.e., percentage of interest, dividends, and capital gains). These assumptions are derived from the data contained in your Defaults file. However, if you want to review or change these assumptions: 1) From the main menu bar, click on Data. 2) From the drop-down menu, click on Assumptions. This will launch the Assumptions data entry dialogue box, which includes two data entry screens: Return Assumptions and Earnings Allocation. 3) Make the desired changes, and click on OK. The Personal Information Summary also describes the tax assumptions that were used in generating the plan. Theses assumptions come from two sources, and can be changed as follows: If you want to change either of the assumptions circled above: 1) From the main menu bar, click on Data. 2) From the drop-down menu, click on Tax Rates. This will launch the Tax Settings data entry dialogue box, which includes five data entry screens: Federal, Credits, Benefits, Personal Rates and Corporate Rates. 3) Make the desired changes, and click on OK. FP Solutions User Manual - FP Focus Module 331 of 473

333 If you want to change any of the assumptions circled above: 1) From the main menu bar, click on Data. 2) From the drop-down menu, click on Non-registered Investments. 3) From the drop-down menu, click on Non-registered: Client (or Non-Registered: Spouse, or Non-registered: Joint), to launch the corresponding Non-registered Investments dialogue box. 4) Click on the Taxation tab. 5) Make the desired change to the Marginal tax rate field. 6) Click on OK. Net Worth Statement The Net Worth Statement provides a concise summary of all of your client s assets and liabilities at a specific point in time. When you first access the Net Worth Statement, it is based on your client s current financial situation. However, you can use the scroll bar that is located beneath the Total Liabilities pie chart to advance the data one year at a time. The date that corresponds to the data currently being displayed is listed in the top left corner. By printing the Net Worth Statement for two or more periods, you can show your client how his financial situation will change over time. FP Solutions User Manual - FP Focus Module 332 of 473

334 Investment Summary The Investment Summary describes your client s current asset allocation, projected investment balance and projected deposits and withdrawals over time. It is also accompanied by a ledger that provides a numerical breakdown of the same information. The Investment Allocation section includes three different sets of pie charts, each consisting of 3 charts. To access the different sets, use the scroll bar that is located beneath the right-most pie chart. Note that the investment allocation being illustrated is the client s existing allocation. FP Solutions User Manual - FP Focus Module 333 of 473

335 The first set of three pie charts shows the breakdown of: a) non-registered assets b) unlocked registered assets c) locked-in registered assets The second set of three pie charts shows the breakdown of: a) non-registered assets b) registered assets (including both locked-in and unlocked funds) c) total assets (i.e., non-registered and registered assets) The third set of three pie charts shows the breakdown of: a) the client s assets (including his share of joint assets) b) his spouse s assets (including her share of joint assets) c) total assets (i.e. the client s assets, the spouse s assets and their joint assets) Each pie chart provides a further breakdown in terms of broad asset classes (cash, fixed income or equity), and the bar chart beneath each pie chart shows the breakdown in terms of Canadian and foreign content. The Investment Balance section illustrates the projected total investments over the planning period. Like the pie charts discussed above, this balance is broken down by category, and you can obtain three different views by using the scroll bar shown earlier. The three different breakdowns that you can view include: 1) non-registered assets, locked-in registered assets and unlocked registered assets 2) non-registered assets and total registered assets (including both locked-in and unlocked funds in one category) 3) the client s assets and his spouse s assets The Investment Deposits/Withdrawals section illustrates the projected investment deposits and withdrawals over time, based on the data that you entered in the Registered and Non-registered Investment modules, possibly modified during the Cash Optimization process or the Retirement Income Integration process. FP Solutions User Manual - FP Focus Module 334 of 473

336 Show Details When you first access the Investment Summary page, the Show Details menu will also appear. If you want to view the details of any of the Registered or Non-registered Investment modules, click on the title of that module. Investment Ledger The Investment Ledger provides a numerical breakdown of the projected investment balances over time (broken down into non-registered, locked-in registered and unlocked registered funds), as well as the projected annual deposits and withdrawals from the registered and non-registered accounts. All values are shown at the end of the year. Non-registered: This is the cumulative balance of the non-registered investment accounts (including cash) of your client and his spouse, as entered in the Client, Spouse and Joint Non-registered modules. It does not include the principal residence, personal use assets, commercial real estate or business assets. RRSP & RRIF: This is the cumulative balance of the unlocked registered investment accounts of your client and his spouse. It does not include funds in a defined contribution pension plan account (they are included in the LIRA/LIF totals). LIRA/LIF and LRIF: This is the cumulative balance of all locked-in funds stemming from defined contribution pension plans of your client and his spouse, based on data that you entered via the Defined Contribution Pension modules. It does not include the commuted value of defined benefit pension plans. RRSP & RRIF, Annual Deposits: This is the sum of the annual deposits that you entered via the Registered Investments modules for your client and his spouse, or that you modified on the Deposits data entry screen of the Retirement Capital Needs module. RRSP & RRIF, Annual Withdrawals: This is the sum of the annual withdrawals that you entered via the Registered Investment modules for your client and his spouse, or the modified withdrawals that were calculated by FP Solutions when you used the Retirement Income Integration function. FP Solutions User Manual - FP Focus Module 335 of 473

337 Non-registered, Annual Deposits: This is the sum of the annual deposits that you entered via the Non-registered Investments modules for the client and his spouse, or that you modified on the Deposits data entry screen of the Retirement Capital Needs module. Non-registered, Annual Withdrawals: This is the sum of the annual withdrawals that you entered via the Non-registered Investment modules for your client and his spouse, or the modified withdrawals that were calculated by FP Solutions when you used the Retirement Income Integration function. Cash Flow Summary The Cash Flow Summary provides a comparison of projected cash flow at any two points in time. The default data is for the current year and the year of retirement, but you can adjust the years shown in both the table and the pie charts using the scroll bar located directly underneath each pie chart. The two pie charts provide a breakdown of total cash outflows for two different years. The table summarizes all of the cash inflows and outflows, including planned investment savings. If your client is expected to have additional funds available for investment in any particular year (above the amount already targeted for investment), this will be shown as a positive number in the Unallocated Surplus (Shortfall) line at the bottom of the table. If your client is expected to experience a shortfall of funds, this will be shown as a negative number in the Unallocated Surplus (Shortfall) line at the bottom of the table. The chart at the bottom of the Cash Flow Summary compares the projected after-tax income each year from all sources, with total need (i.e., lifestyle needs plus new investments). Income Tax Summary The Income Tax Summary illustrates how much of the income from all sources is being lost to federal and provincial taxes, clawbacks and CPP premiums. The table and pie chart at the top of the page provide a breakdown of taxable income, taxes payable and after-tax income, for a specific year. You can adjust the year being displayed in the table and the pie chart by using the scroll bar located directly beneath the pie chart. The middle chart provides a breakdown of total pre-tax income from all sources for each year of the planning period, while the bottom chart illustrates the percentage of that total income that is lost to taxes, clawbacks and premiums. Note that the bottom graph also shows how those taxes payable are distributed between your client and his spouse. If there is a large discrepancy between the two amounts, income-splitting strategies may be appropriate. FP Solutions User Manual - FP Focus Module 336 of 473

338 Retirement Income Summary The Retirement Income Summary compares total needs (i.e., lifestyle expenses plus planned investments) with projected income from all sources. The chart at the top of the page illustrates total income needs on an annual basis, and provides a breakdown of how that income need will be met (i.e., employment income, pension income, investment income, or investment withdrawals). If the available after-tax income from all sources is insufficient to meet the total needs, a shortfall is indicated. If a shortfall exists in one or more years, it indicates that further planning is required. This could include: limiting lifestyle expenses in retirement so that less capital needs to be accumulated; delaying retirement; limiting lifestyle expenses now so that more can be devoted to retirement savings; or developing new investment strategies to try to maximize returns while maintaining an acceptable level of risk. The table in the middle of the page summarizes the results of the Retirement Capital Needs analysis. The interpretation of this table is best illustrated with an example, below. Available Capital: Based on the planned deposits to the client s and spouse s registered and non-registered accounts, and their existing asset allocation, they are expected to be able to accumulate capital of $1,501,064 by retirement. Lifestyle Goal: The client and his spouse expect to need after-tax income of $154,107 in their first year of retirement in order to sustain their desired retirement lifestyle. FP Solutions User Manual - FP Focus Module 337 of 473

339 Current Savings: The client and his spouse are planning to deposit a total of $36,869 to their registered and non-registered investment accounts during the first year of the financial plan. Investment Assets: If they follow a conservative investment strategy during retirement, they will need to accumulate $2,133,551 by retirement in order to be able to sustain their desired retirement lifestyle of $154,107, which is $632,488 more than they are expected to have. However, if they follow an aggressive investment strategy during retirement, they would only need to accumulate $1,454,152 in order to sustain their desired lifestyle, which is $46,912 less than they are expected to have. Lifestyle Goal: If they manage to accumulate $1,501,064 by retirement and they follow a conservative investment strategy during retirement, they will be able to sustain retirement lifestyle expenditures of $123,435, which is $30,672 less than their desired retirement lifestyle of $154,107. However, if they follow an aggressive investment strategy during retirement, they would be able to sustain retirement lifestyle expenditures of $157,198, which is $3,091 more than they need to have. Investment Savings: They are currently investing $36,869 each year for retirement. If they follow a conservative investment strategy during retirement and they want to be able to sustain their desired retirement lifestyle expenditures of $154,107, they should be investing $56,482 each year, meaning that they are under-investing by $19,613 per year. However, if they follow an aggressive investment strategy during retirement, they should be able to sustain their desired retirement lifestyle expenditures if they invest $16,978 each year, which is $19,891 less than what they are currently investing. Note: These examples all demonstrate how important an accurate estimate of investment return is in retirement planning, and why it is so important to review progress regularly. Retirement Income Ledger The Retirement Income Ledger provides a numerical breakdown of income, investment deposits and withdrawals, tax and lifestyle needs over the course of the entire planning period. Employment, Pension and Other Income: This is the sum of your client s and spouse s income from all non-investment or government sources. It includes employment income and pension income from defined benefit pension plans. Government Benefits: This is the sum of your client s and spouse s CPP retirement pensions and OAS pensions. Investment Income/Withdrawals: This is the sum of the net investment income generated by your client s and spouse s non-registered investments (calculated as investment income reinvested investment income), less any withdrawals of capital from their nonregistered investment accounts. FP Solutions User Manual - FP Focus Module 338 of 473

340 RRSP & RRIF Withdrawals: This is the sum of all withdrawals that your client and his spouse will make from their unlocked and locked-in registered investment accounts (i.e., RRSPs, RRIFs, LIRAs, LIFs, LRIFs). Income Tax Payable: This is the sum of all federal and provincial income taxes payable by your client and his spouse, plus their CPP/EI premiums and any OAS clawbacks. Lifestyle Needs: This is the sum of the lifestyle needs of your client and his spouse, both before and after retirement, based on the information that you entered in the Lifestyle Needs module, plus amounts devoted to debt service. Excess (Deficiency): This amount is calculated as ((Employment Pension & Other Income + Government Benefits + Investment Income &Withdrawals + RRSP & RRIF Withdrawals) (Income Tax Payable + Lifestyle Needs)). This amount is available for investment towards retirement savings. Survivor Income Summary The Survivor Income Summary compares the total survivor needs with available assets and life insurance benefits, to determine if additional life insurance is needed. The survivor analysis is shown separately for both the client and his spouse. The table and upper two charts illustrate the survivor needs at a specific point in time. You can adjust the year being displayed in the table and the charts by using the scroll bar located directly beneath the charts. The charts compare the total amount of life insurance needed with the amount of life insurance already in place. The table provides a breakdown of the projected survivor needs and the assets and benefits available to satisfy those needs. The Additional Life Insurance Required, shown at the bottom of the table, is calculated as ((NPV of Income Deficiency + Lump Sum Needs) (Total Available Capital + Total Life Insurance Benefits)). The chart at the bottom of the Survivor Income Summary shows the projected amount of life insurance needed upon the death of either the client or his spouse in order to satisfy the survivor s needs. This includes the life insurance already in force. This chart also shows the total amount of life insurance needed upon both of their deaths to satisfy the estate needs. By examining how the need for insurance changes over time, you may be better able to determine the type of insurance most suitable (e.g. term versus permanent, increasing versus level death benefit, etc.). FP Solutions User Manual - FP Focus Module 339 of 473

341 Estate Summary The Estate Summary compares the projected value of the estate assets upon the death of both your client and his spouse, with the obligations of that estate, to determine the final value of the estate available for distribution to their heirs. The table and pie chart at the top of the page provide a breakdown of what the estate s expenses would be if your client and his spouse died during the year being illustrated. You can adjust the year being displayed in the table and the pie chart by using the scroll bar located directly beneath the pie chart. The amount remaining after all estate expenses have been paid and specific bequests have been made is shown as the Estate Worth at the bottom of the table. This amount does not include the death benefits of insurance policies already in force. The Estate Worth is the amount that would be available for distribution to the estate s heirs, and it is calculated as the (Projected Value of Assets (Estate Adjustments + Debts + Deferred Taxes + Probate and Legal Fees + Other Needs)), where Other Needs includes charitable bequests and other specific lump-sum bequests. The middle chart shows the total value of the assets of the client and his spouse on a yearby-year basis, and it compares this with the estate value that would be available for transfer to the estate s heirs. If there is a significant difference between the total assets and the estate value and the objective is to transfer the full amount of the assets to the heirs, then additional insurance will be required to make up the difference. The final chart provides a more detailed breakdown of the estate costs, using three different views. Use the scroll bar directly underneath the bottom graph to switch between these three views. The first view provides a breakdown of the projected total estate costs on a year-by-year basis, including adjustments for the difference between living and estate values of certain assets, deferred taxes, debts and final expenses. Final expenses include funeral expenses, probate and legal fees, charitable bequests and other specific lump-sum bequests. The second view shows these total estate costs as a percentage of total assets (excluding the principal residence and personal-use assets), to show how these costs erode the estate worth. It also shows the extent to which insurance is being used to offset this erosion. The final view is the same as the second view, with the exception that the total assets include the principal residence and personal-use assets. In both the second and final charts, if the Life Insurance Offset is at 0%, then there is enough life insurance in place to offset the erosion from the estate costs. FP Solutions User Manual - FP Focus Module 340 of 473

342 Module: Debt Consolidation Planning Concept The Debt Consolidation planning concept creates a report that compares the client s existing debt management strategy to consolidating some or all of those debts. This module explains how to use the Debt Consolidation planning concept, and how to interpret the resulting Debt Consolidation report. Launching the Debt Consolidation Planning Concept From within an Existing Plan To launch the Debt Consolidation planning concept from within an existing plan: 1. Do one of the following: a. From the Main Screen, click on Open a Planning Concept, or b. Click on the Concepts icon in the main toolbar, or 2. You will be prompted to save the existing file. Click on Yes or No. This will launch the Planning Concept selection box. 3. Double click on Debt Consolidation or select this title and click OK. This will launch the Debt Consolidation report and the Debt Consolidation dialogue box. Creating a New Plan To create a new concept focused on debt consolidation: 10. Launch FP Solutions. 11. From the start-up screen, click on Concept. This will activate the Concept dropdown menu. 12. Choose Debt Consolidation from the drop-down menu. 13. Click on Next >>. This will launch the Default Presets screen, which allows you to choose a default scheme of rates of return for each asset class. 14. Click on your desired default scheme in the drop-down menu. 15. Click on Finish. This will launch the Review Client Data dialogue box. 16. At a minimum, complete Step 9, Real Estate and Step 10, Personal Use Assets and Liabilities. FP Solutions User Manual - Debt Consolidation Planning Concept Module 341 of 473

343 17. Click on Close to close the data entry wizard. You will be prompted to enter a file name. 18. Enter the file name and click on Save As, then click on OK. This will launch the Debt Consolidation report and the Debt Consolidation dialogue box. Data Entry The Debt Consolidation dialogue box includes two data entry screens: a. Open Planning Concept data entry screen b. Consolidation Assumptions data entry screen Once you have completed both screens, click on Finish to perform the consolidation. Open Planning Concept Data Entry Screen You can choose which of your client s debts you want to consolidate. Some of the strategies you could examine, for example, include: c. using a homeowner s line of credit to consolidate all non-mortgage debts under one umbrella, usually at a significantly lower rate than most credit cards d. using the introductory financing rate of a new credit card to pay off higher-interest debts hh. renegotiating a higher mortgage and using the proceeds to pay off other higher-interest debts To use the Open Planning Concept screen: 1. Click on the debts you want to consolidate. FP Solutions User Manual - Debt Consolidation Planning Concept Module 342 of 473

344 2. If the current financial plan does not already contain all the data needed about your client s debts, click on Enter Client Data. This will launch the Review Client Data dialogue box, which you should complete as follows: a. Click on Manually select the data entry step to complete. b. Click on the desired step. At a minimum, complete Step 9, Real Estate and Step 10, Personal Use Assets and Liabilities. c. Click on Begin data entry to open the desired data entry wizard. d. Once you have completed data entry for that step, click on Finish to return to the Review Client Data dialogue box. e. Repeat (b) through (d) for as many steps as needed. f. Click on Close to finish the data entry and return to the Open Planning Concept screen. 3. Click on Next to proceed to the Consolidation Assumptions data entry screen, described below. Consolidation Assumptions Data Entry Screen Use the Consolidation Assumptions data entry screen to describe the proposed consolidated debt. FP Solutions User Manual - Debt Consolidation Planning Concept Module 343 of 473

345 e. Payment amount: Enter the assumed payment. The payment can be the same as the total amount currently being paid, or a lesser or greater amount as needed. You may want to use the Loan Calculator function, described below, to help you determine a suitable payment. f. Payment period: Choose a payment frequency from the drop-down menu. The frequency can be greater or less than the payment frequency of the current debts. g. Interest rate: Enter the interest rate of the proposed consolidated debt. Make sure this is the correct rate for the compound period. h. Compound period: Enter the compound period of the loan. It should represent the type of loan you are recommending. For example, a mortgage is normally compounded semi-annually, while a line of credit is normally compounded monthly. Loan Calculator To help you determine an appropriate payment or to calculate how long it will take to repay the debt given the payment amount, click on Loan Calculator. This will launch the FP Solutions Mortgage Calculator. To use the calculator: 1) Enter three of the four variables (interest rate, amortization, payment or balance). 2) Select the radio button next to the unknown variable. 3) Click on Solve for selection. FP Solutions User Manual - Debt Consolidation Planning Concept Module 344 of 473

346 In the example above, the client can consolidate debts of $80,000 using a line of credit at 6.9%, and he can afford monthly payments of $1,500. By entering these three variables, you can use the calculator to solve for the amortization, which in this example results in 5.32 years. Saving the Concept All of the Concepts in FP Solutions make use of the data that you have already entered through the regular FP Solutions modules. When you save the client file, you are saving that regular data. When you reopen the client file, all you need to do is reopen and rerun the Concept and you will see the same results. If you want to save the results of a Debt Consolidation scenario to a separate Excel file: 90. Make sure that the Debt Consolidation report is on screen (access the report as described in Documentation, below). 91. Click on File in the main menu bar. 92. Click on Print in the drop-down menu. This will launch the Full Print dialogue box. 93. If the Documents to be Printed window is already populated with documents that you do not wish to print, you can clear the window by selecting the (Select Package) option in the Print Package drop-down menu. 94. Select all of the pages of the Debt Consolidation report by holding the Ctrl key, and clicking on the title of each page in the Available Documents window. 95. Click on the right arrow key to transfer those pages to the Documents to be Printed window. 96. Click on Print to Excel. 97. Enter an appropriate file name, and click on Save. Documentation To access the documentation for the Debt Consolidation planning concept if it is not currently on screen: 1. Click on Goto in the main menu bar. 2. Click on Concepts in the drop-down menu. 3. You will be prompted to save the existing file. Click on Yes or No. This will launch the Planning Concept selection box. 4. Double click on Debt Consolidation or select this title and click OK. FP Solutions User Manual - Debt Consolidation Planning Concept Module 345 of 473

347 This will launch the Debt Consolidation report, which is suitable for distribution to your client. It consists of a summary page, three ledger pages that provide numeric information about the concept, and a disclosure page. Printing the Report To print the Debt Consolidation report: 1. Make sure that the Debt Consolidation report is on screen (access the report as described above). 2. Click on File in the main menu bar. 3. Click on Print in the drop-down menu. This will launch the Full Print dialogue box. 4. If the Documents to be Printed window is already populated with documents that you do not wish to print, you can clear the window by selecting the (Select Package) option in the Print Package drop-down menu. 5. Select the pages of the Debt Consolidation report that you want to print by holding the Ctrl key, and clicking on the title of each desired page in the Available Documents window. 6. Click on the right arrow key to transfer those pages to the Documents to be Printed window. 7. Click on Print. Summary Page The tables and graphs at the top of the Summary page compare the interest and principal payable under the current repayment scheme for the debts you selected, with the interest and principal payable once the debts are consolidated. These tables and graphs are for the first year of the consolidation period. The interest rate specified for the existing annual payments is a weighted average of all debts being considered for consolidation. FP Solutions User Manual - Debt Consolidation Planning Concept Module 346 of 473

348 The graph at the bottom of the page shows the effects of the consolidation on a year-byyear basis. The bars in this graph compare the existing and consolidated annual payments, while the lines represent the cumulative interest paid under the existing and consolidated scenarios. Ledger 1 Page The Ledger 1 page shows how quickly the debts are repaid under the existing and consolidated scenarios, as well as the interest savings over time. i. Starting Balance: These columns show the outstanding principal at the beginning of the year under either scenario. j. Monthly Payment: These columns show the monthly payment, including principal and interest, under each scenario. k. Cumulative Interest: These columns show the total interest paid over time under each scenario, from the beginning of the planning period. l. Interest Savings: This is calculated as [Cumulative Interest (existing debt) Cumulative Interest (consolidated debt)]. Ledger 2 Page The Ledger 2 page provides a more detailed breakdown of the payments made under the existing scenario. Starting Balance: This column shows the outstanding principal at the beginning of the year. It is calculated as (Starting Balance from the previous year Principal Portion from the previous year). Monthly Payment: This column shows the monthly payment, including principal and interest. Because some debts may be repaid before others, the monthly payment under the existing debt repayment scenario may decrease over time. FP Solutions User Manual - Debt Consolidation Planning Concept Module 347 of 473

349 Effective Annual Rate: This column shows the weighted annual interest rate of all of the selected debts in combination. The software takes into account the relative size of each debt as it changes over time, its interest rate and its payment and compounding frequencies. Annual Payment: This is calculated as (Monthly Payment 12). Principal Portion: This is the portion of total annual payments that represents a repayment of loan principal. Interest Portion: This is the portion of total annual payments that represents interest. Cumulative Interest: This is the total interest paid over time, from the beginning of the planning period. Ledger 3 Page The Ledger 3 page provides a more detailed breakdown of the payments made under the consolidated scenario. The columns are the same as those described for the Ledger 2 page, but as applied to the consolidated debt. Disclosure Page The top section of the Disclosure page provides an overview of the Debt Consolidation concept. The bottom section requires the client to acknowledge that he or she understands that the information contained in the module is a projection only, and that the actual results may vary from this projection if interest rates change, if he or she fails to make the scheduled repayments, or if he or she uses additional credit in the future. There is space for both the client and the planner to sign the acknowledgement. FP Solutions User Manual - Debt Consolidation Planning Concept Module 348 of 473

350 Module: Investment Income Comparison Planning Concept The Investment Income Comparison planning concept creates a report that compares the annual after-tax income from the client s existing portfolio with the after-tax income that would result if the full amount of investment income was in the form of interest, dividends, or capital gains. This module explains how to use the Investment Income Comparison planning concept, and how to interpret the resulting Investment Income Comparison report. Launching the Investment Income Comparison Planning Concept From within an Existing Plan To launch the Investment Income Comparison planning concept from within an existing plan: 1. Do one of the following: a. From the Main Screen, click on Open a Planning Concept, or b. Click on the Concepts icon in the main toolbar. 2. You will be prompted to save the existing file. Click on Yes or No. This will launch the Planning Concept selection box. 3. Double click on Investment Income Comparison or select this title and click OK. This will launch the Investment Income Comparison report and the Investment Income Comparison dialogue box. Creating a New Plan To create a new concept focusing on comparing types of investment income: 19. Launch FP Solutions. 20. From the start-up screen, click on Concept. This will activate the Concept dropdown menu. 21. Choose Investment Income Comparison from the drop-down menu. FP Solutions User Manual - Investment Income Comparison Planning Concept Module 349 of 473

351 22. Click on Next >>. This will launch the Default Presets screen, which allows you to choose a default scheme of rates of return for each asset class. 23. Click on your desired default scheme in the drop-down menu. 24. Click on Finish. This will launch the Review Client Data dialogue box. 25. At a minimum, complete Step 5: Non-registered investments and education savings, particularly the Asset Value screens for the client, spouse and joint nonregistered accounts. For more information on how to complete these data entry screens, refer to the Non-registered Investments module. 26. Click on Close to close the data entry wizard. You will be prompted to enter a file name. 27. Enter the file name and click on Save As, then click on OK. This will launch the Investment Income Comparison report and the Investment Income Comparison dialogue box. Data Entry The Investment Income Comparison dialogue box consists of a single data entry screen that allows you to choose the investment account(s) to be used in the comparison. To perform the comparison: 1. Check the account(s) that you want to use. 2. If the current financial plan does not already contain all the data needed about these non-registered accounts, click on Enter Client Data. This will launch the Review Client Data dialogue box. a. Click on Manually select the data entry step to complete. b. Click on the desired step. At a minimum, complete Step 5: Non-registered investments and education savings, particularly the Asset Value screens for the individual and joint non-registered accounts of the client and spouse. For more information on how to complete these data entry screens, refer to the Non-registered Investments module. c. Click on Finish to return to the Review Client Data dialogue box. FP Solutions User Manual - Investment Income Comparison Planning Concept Module 350 of 473

352 d. Click on Close to finish the data entry and return to the Investment Income Comparison screen. 3. Click on Finish to perform the comparison. Default Assumptions There are three default assumptions that FP Solutions uses when applying this concept that you may want to modify. Marginal Tax Rate The marginal tax rate for the client and spouse is assumed to be 45%. If you want to change this amount: 1. While the concept is on-screen, click on Data in the main menu bar. 2. Click on Non-registered investments in the drop-down menu. 3. Click on Non-registered: Client (or Spouse, or Joint-owned) in the drop-down menu. This will launch the corresponding Non-registered investments dialogue box. 4. Click on the Taxation tab. 5. Enter the desired marginal tax rate in the marginal tax rate field. 6. Click on OK. The concept results will be modified accordingly. Annual Portfolio Turnover Capital gains are not taxable until the capital assets are sold or otherwise disposed of. The rate of portfolio turnover will determine the portion of capital growth that must be reported for the year. The default assumption for portfolio turnover is 50%. If you want to change this amount: 1. While the concept is on-screen, click on Data in the main menu bar. 2. Click on Non-registered investments in the drop-down menu. 3. Click on Non-registered: Client (or Spouse, or Joint-owned) in the drop-down menu. This will launch the corresponding Non-registered investments dialogue box. 4. Click on the Taxation tab. 5. Enter the desired turnover rate in the Annual Portfolio Turnover field. 6. Click on OK. The concept results will be modified accordingly. FP Solutions User Manual - Investment Income Comparison Planning Concept Module 351 of 473

353 Provincial Dividend Tax Credit If you are running this concept as a stand-alone concept, or if you did not enter the client s province of residence when you completed the initial data entry for an existing plan, FP Solutions assumes that the client resides in Ontario, and that Ontario s dividend tax credit applies. If you want to change to a different province: 1. While the concept is on-screen, click on Data in the main menu bar. 2. Click on Client Information in the drop-down menu. 3. Click on Personal Information in the drop-down menu. This will launch the Personal Information dialogue box. 4. Click on the Address tab. 5. Select the province of residence from the Province drop-down menu. 6. Click on OK. The concept results will be modified accordingly. Saving the Concept All of the Concepts in FP Solutions make use of the data that you have already entered through the regular FP Solutions modules. When you save the client file, you are saving that regular data. When you reopen the client file, all you need to do is reopen and rerun the Concept and you will see the same results. If you want to save the results of an Investment Income Comparison scenario to a separate Excel file: 98. Make sure that the Investment Income Comparison report is on screen (access the report as described in Documentation, below). 99. Click on File in the main menu bar Click on Print in the drop-down menu. This will launch the Full Print dialogue box If the Documents to be Printed window is already populated with documents that you do not wish to print, you can clear the window by selecting the (Select Package) option in the Print Package drop-down menu Select all of the pages of the Investment Income Comparison report by holding the Ctrl key, and clicking on the title of each page in the Available Documents window Click on the right arrow key to transfer those pages to the Documents to be Printed window Click on Print to Excel Enter an appropriate file name, and click on Save. FP Solutions User Manual - Investment Income Comparison Planning Concept Module 352 of 473

354 Documentation To access the documentation for the Investment Income Comparison planning concept if it is not currently on screen: 5. Click on Goto in the main menu bar. 6. Click on Concepts in the drop-down menu. 7. You will be prompted to save the existing file. Click on Yes or No. This will launch the Planning Concept selection box. 8. Double click on Investment Income Comparison or select this title and click OK. This will launch the Investment Income Comparison report, which is suitable for distribution to your client. It consists of a summary page, two ledger pages that provide numeric information about the concept, and a disclosure page. Printing the Report To print the Investment Income Comparison report: 8. Make sure that the Investment Income Comparison report is on screen (access the report as described above). 9. Click on File in the main menu bar. 10. Click on Print in the drop-down menu. This will launch the Full Print dialogue box. 11. If the Documents to be Printed window is already populated with documents that you do not wish to print, you can clear the window by selecting the (Select Package) option in the Print Package drop-down menu. 12. Select the pages of the Investment Income Comparison report that you want to print by holding the Ctrl key, and clicking on the title of each desired page in the Available Documents window. 13. Click on the right arrow key to transfer those pages to the Documents to be Printed window. 14. Click on Print. Summary Page The tables and graphs at the top of the Summary page compare the after-tax income produced by the existing selected portfolios with the after-tax income that would result if the investment income consisted of 100% interest, dividends or capital gains. These tables and graphs are for the first year of the planning period only. FP Solutions User Manual - Investment Income Comparison Planning Concept Module 353 of 473

355 In the example above, the existing portfolio produces income of $8,320 in the first year. The income consists of a mix of interest, dividends and capital gains, based on the portfolio allocation. The resulting after-tax income of the existing portfolio is $5,465. In contrast, if the investment income of $8,320 is 100% interest, the after-tax income will be only $4,576, or 84% of the after-tax income that results from the existing portfolio. Similar calculations apply to the 100% dividends and 100% capital gains scenarios. The graph at the bottom of the page shows the comparison on a year-by-year basis. Because of the effect of compounding over time, you can see that the spread between interest-only income and the tax-preferred dividend or capital gains income increases over time. Ledger 1 Page The Ledger 1 page summarizes the comparison of the predicted after-tax investment income based on the existing allocation, and the after-tax income that would result if that investment income were 100% interest, dividends or capital gains. ii. Year-end Balance: This is the balance of the investment account(s) at the end of the year, after adding in the after-tax investment income based on the existing asset allocation. It is calculated as (Year-end Balance from the previous year + Annual Growth for the current year Existing Allocation Tax Payable for the current year). Note: If you recorded planned deposits and withdrawals when you completed the Non-registered Investments data entry screens, these will be reflected in the year-end balance. jj. Annual Growth: This is the annual growth generated by the non-registered account(s) during the year, before tax. It is based on the assumed rates of return for each asset class specified by the Default Presets that you selected when you initiated the plan. kk. Existing Allocation, Tax Payable: This is the amount of income tax that is payable based on the existing asset allocation, portfolio turnover rate, and marginal tax rate. ll. Existing Allocation, After-tax: This is calculated as (Annual Growth Existing Allocation Tax Payable). FP Solutions User Manual - Investment Income Comparison Planning Concept Module 354 of 473

356 mm. After-tax Income Comparison: These three columns (Interest, Dividend, Capital Gain) predict what the after-tax income would be if the amount in the Annual Growth column consisted of 100% interest, dividends or capital gains, respectively. Note that in the case of capital gains, the portfolio turnover for this calculation is assumed to be 100%, so that 100% of the capital gains are realized. Ledger 2 Page The Ledger 2 page shows the annual difference in after-tax income that would result if the amount in the Annual Growth column as specified on the Ledger 1 page consisted of 100% interest, dividends or capital gains, respectively. nn. Existing After-tax: This is the same as the Existing Allocation, After-tax column on the Ledger 1 page. oo. Interest Only, After-tax: This is the same as the After-tax Income Comparison, Interest column on the Ledger 1 page. pp. Interest Only, Change: This is calculated as (Interest Only, After-tax Existing, After-tax). qq. Dividend Only, After-tax: This is the same as the After-tax Income Comparison, Dividend column on the Ledger 1 page. rr. Dividend Only, Change: This is calculated as (Dividend Only, After-tax Existing, After-tax). ss. Capital Gain Only, After-tax: This is the same as the After-tax Income Comparison, Capital Gain column on the Ledger 1 page. tt. Capital Gain Only, Change: This is calculated as (Capital Gain Only, After-tax Existing, After-tax). Disclosure Page The top section of the Disclosure page provides an overview of the Investment Income Comparison concept. The bottom section requires the client to acknowledge that he or she understands that the information contained in the module is a projection only, and that the actual results may vary from this projection, based on changes in investment performance, federal and provincial tax laws, or the timing and amounts of future investment deposits or withdrawals. There is space for both the client and the planner to sign the acknowledgement. FP Solutions User Manual - Investment Income Comparison Planning Concept Module 355 of 473

357 Module: Investment Leverage Planning Concept The Investment Leverage planning concept compares a regular deposit strategy to borrowing a lump sum to invest. The concept produces two scenarios. The first scenario demonstrates the results of making a lump-sum investment with the proceeds of a loan. The second scenario demonstrates the results of making regular deposits in the amount of the after-tax cost of that same loan. All other assumptions, including asset allocation and tax rates, are the same for both scenarios. This module explains how to use the Investment Leverage planning concept, and how to interpret the resulting Investment Leverage report. Running the Investment Leverage Planning Concept as a Standalone Plan To create a new concept focused on investment leverage: 28. Launch FP Solutions. 29. From the start-up screen, click on Concept. This will activate the Concept dropdown menu. 30. Choose Investment Leverage from the drop-down menu. 31. Click on Next >>. This will launch the Default Presets screen, which allows you to choose a default scheme of rates of return for each asset class. 32. Click on your desired default scheme in the drop-down menu. 33. Click on Finish. This will launch the data entry wizards for this concept. 34. Complete the data entry wizards as described under Data Entry, below. 35. Click on Finish to close the last data entry wizard. You will be prompted to enter a file name. 36. Enter an appropriate name, and click on Save As. 37. Click on OK to run the Investment Leverage concept and view the Investment Leverage report. Data Entry Three data entry wizards will guide you through the data entry process if you are creating a new plan. FP Solutions User Manual - Investment Leverage Planning Concept Module 356 of 473

358 Personal Information, Goals and Objectives Data Entry Wizard The first data entry wizard will lead you through three screens to collect the client s personal information, goals and objectives. At a minimum, you should complete the following: 1. On the Plan Information data entry screen, enter the current date, as well as the calendar year for which the concept is being prepared. 2. On the Personal Information data entry screen, enter: a. the client s first and last names, birthday and anticipated date of retirement on the Name and Date of Birth tab b. the client s province of residence on the Address tab 3. Click on Next>> to proceed to the next data entry wizard. Risk Tolerance Data Entry Wizard When doing anything that deals with investments, FP Solutions will prompt you to enter information regarding your client s risk tolerance. This data entry wizard consists of two main tabs. The first is called Risk Tolerance, which in turn is broken down into a risk profile screen plus seven additional pages. The second tab focuses on Areas of Concern and Miscellaneous Information. At a minimum, you should complete the Risk Tolerance tab. The Risk Tolerance tab starts with a Risk Profile page, which allows you to either do an individual risk assessment by completing a detailed questionnaire (which is included on the seven additional pages of the screen), or to manually enter the risk tolerance using a drop-down menu. In this section, we will focus on manually entering the risk tolerance. 1. On the Risk Profile page, click on Manually select risk tolerance. This will activate the risk tolerance dropdown menus. 2. Choose the appropriate level of risk tolerance from the Non-registered drop-down menu. 3. Choose the appropriate level of risk tolerance from the Registered drop-down menu. 4. Click on Next>> to advance to the next data entry wizard. Investment Leverage Data Entry Wizard When you are running the Investment Leverage concept as a stand-alone plan, the Investment Leverage data entry wizard includes three screens that allow you to specify the details of the loan that will be created as part of the leverage strategy, including: FP Solutions User Manual - Investment Leverage Planning Concept Module 357 of 473

359 uu. Set Up Leverage Debt data entry screen vv. Investment Allocation data entry screen ww. Investment Taxation data entry screen If you are launching the Investment Leverage concept within an existing client file, these three screens are preceded by the Open Planning Concept data entry screen, which is discussed later in this module. Set Up Leverage Debt Data Entry Screen The Setup Leverage Debt data entry screen allows you to enter information on how the investment loan is structured. Complete this screen as follows: 1. Enter a unique name for the debt in the Debt field. 2. Enter the amount being borrowed into the Amount Leveraged field. 3. Specify the portion of the debt that is in the client s name and in the name of the client s spouse in the Owed by Client and Owed by Spouse fields, respectively. 4. To specify a blended payment (i.e., principal plus interest) enter an amount in the Payment field. You can use the Loan Calculator to estimate an appropriate payment, as described shortly. 5. To specify interest-only payments, check the Interest-only Payment box, and the payments will automatically be set to the loan interest, and the Age Debt is Repaid field will be enabled. 6. Select the age at which the loan will be repaid in full from the Age Debt is Repaid drop-down menu. 7. Enter the interest rate on the loan in the Interest rate field. 8. Select the compounding frequency that applies to that interest rate from the Compound Period drop-down menu. 9. If the loan interest is not deductible, clear the checkmark from the Interest taxdeductible box (FP Solutions automatically sets the interest on the loan as being FP Solutions User Manual - Investment Leverage Planning Concept Module 358 of 473

360 deductible because in most cases the interest expense on an investment loan is deductible). 10. Enter the portion of the loan interest that is deductible in the Deductible Portion field. 11. If the client s spouse will be claiming some or all of the interest tax deduction, enter the appropriate portion that is deductible to each spouse in the by Client and by Spouse fields (FP Solutions automatically assumes that the client is the person claiming 100% of the deduction.) 12. If the loan is insured on the life of the client or spouse, check the appropriate boxes. 13. Click on Next> to advance to the Investment Allocation data entry screen. Using the Loan Calculator To help you determine an appropriate payment or to calculate how long it will take to repay the debt given the payment amount, you can click on Loan Calculator. This will launch the FP Solutions Mortgage Calculator. To use the calculator: 4) Enter any three of the four variables (interest rate, amortization, payment and balance). 5) Select the radio button next to the unknown variable. 6) Click on Solve for selection. In the example above, the client wants to borrow $150,000 for investment purposes. He can borrow this amount at 7% and wants to repay it in equal amounts over five years. By FP Solutions User Manual - Investment Leverage Planning Concept Module 359 of 473

361 entering these three variables, you can use the calculator to solve for the payment, which in this example results in $2, Investment Allocation Data Entry Screen The Investment Allocation data entry screen allows you to enter the balance and allocation of the client s existing investments, as well as the allocation of future deposits. Complete this screen as follows: 1. Enter the current values and adjusted cost base of the client s existing investment portfolio in the appropriate fields for each asset category. FP Solutions calculates the existing allocation percentages and displays this information between the Amount and ACB columns. Alternatively, you can use the Allocator function to specify the existing holdings, as follows: a) Click on Allocator to launch the Allocator dialogue box. b) Enter the account balance in the Amount to Allocate field. c) Select the client s risk tolerance to specify the preferred allocation. You can also enter or adjust the allocations manually. Note: FP Solutions sets the ACB to be equal to the values entered by the Allocator, but you can change these amounts manually if desired. d) Click on OK to complete the allocation and return to the Investment Allocation data entry screen. FP Solutions User Manual - Investment Leverage Planning Concept Module 360 of 473

362 2. Enter the asset allocation for all future deposits, including the loan proceeds, in the appropriate fields at the bottom of the screen. Note: Any amount you enter in the Portfolio Average field will be allocated in the same proportions as those entered in the Current Investment Balance section, as described in Step Click on Next> to advance to the Investment Taxation data entry screen. Investment Taxation Data Entry Screen This tab allows you to set the annual turnover of the portfolio, which is the percentage of the portfolio that the client will reposition each year. A low portfolio turnover will result in low realized capital gains. FP Solutions assumes that there are no cash distributions and that 100% of the investment income will be reinvested after-tax, based on the marginal tax rate specified. For the purpose of this planning concept, FP Solutions also assumes that any resulting income tax is paid out of investment earnings. Complete the screen as follows: 1. Enter the annual turnover rate in the Annual portfolio turnover field (e.g., a turnover of 5% to 20% represents a buy and hold strategy). FP Solutions User Manual - Investment Leverage Planning Concept Module 361 of 473

363 2. If your client has an unused net capital loss that can be used to offset future taxable capital gains, enter the amount in the Carry forward losses field. 3. Enter the average marginal tax rate that will apply over the holding period in the Marginal tax rate field. 4. Click on Finish to run the Investment Leverage concept. If you are running a standalone concept, you will be prompted to enter a filename and save the file. 5. Enter a filename and click on Save As. FP Solutions will automatically create two scenarios: one will show the results of the leverage strategy, and the other will show the results of a regular deposit strategy, where the deposits equal the cost of the leverage. Launching the Investment Leverage Concept from within an Existing Plan To launch the Investment Leverage planning concept from within an existing plan: 1. Do one of the following: a. From the Main Screen, click on Open a Planning Concept, or b. Click on the Concepts icon in the main toolbar. 2. You will be prompted to save the existing file. Click on Yes or No. This will launch the Planning Concept selection box. 3. Double click on Investment Leverage or select this title and click OK. This will launch the Investment Leverage data entry wizard described earlier, with the addition of the Open Planning Concept data entry screen, discussed below. Open Planning Concept Data Entry Screen When you launch the Investment Leverage planning concept from within an existing client file, the Investment Leverage data entry wizard described earlier in this module includes one additional data entry screen. This Open Planning Concept data entry screen also appears if you reopen a client file after having previously run an Investment Leverage scenario (see Saving the Concept, later in this module). FP Solutions User Manual - Investment Leverage Planning Concept Module 362 of 473

364 When you open any planning concept that can have multiple scenarios, you can choose between View Planning Concept and Apply Planning Concept. View Planning Concept If you have run the concept before and simply want to review the results: 1) Selected View Planning Concept. 2) Select the scenario without leverage that you want to review from the first dropdown menu. 3) Select the scenario with leverage that you want to review from the second dropdown menu. 4) Select the account that you want to apply the concept to from the third drop-down menu. 5) Select the debt area being used in the leveraged from the fourth drop-down menu. 6) Click on FINISH to refresh the analysis. Apply Planning Concept If you have never run the concept before, or if you have run the concept but want to add or modify a scenario: 1) Select Apply Planning Concept. FP Solutions User Manual - Investment Leverage Planning Concept Module 363 of 473

365 2) Check the Clear existing deposits and withdrawals box. Note: If you do not check this box and you have previously run the concept, the software will double up the amount being borrowed. 3) Do one of the following: a. If you are modifying a previous scenario without leverage, choose Select the Scenario that has No Leverage Concept and then select the desired scenario from the corresponding drop-down menu. b. If you want to develop a new scenario, select Add New Scenario that has no Leverage Concept. Note: Each time you add a new scenario, FP Solutions automatically names and numbers the scenario for you, as Regular Deposit Strategy 2, Regular Deposit Strategy 3, etc. 4) Do one of the following: a. If you are modifying a previous scenario with leverage, choose Select the Scenario that has a Leverage Concept, and then select the desired scenario from the corresponding drop-down menu. b. If you want to develop a new scenario, select Add New Scenario that has a Leverage Concept. 5) Select the account that you want to apply the concept to from the Select the investment that includes the leverage concept drop-down menu. 6) Select the debt area being used in the leveraged from the Select the debt that is part of the leverage concept drop-down menu. 7) Click on Next> to proceed to the Setup Leverage Debt data entry screen, as described earlier. FP Solutions User Manual - Investment Leverage Planning Concept Module 364 of 473

366 Saving the Concept The various investment leverage strategies that you create when using the Investment Leverage planning concept are saved when you save the client file. When you reopen the client file, you will be prompted to load either the basic client data or one of the leveraged strategies scenarios created when you used the concept. Once you reopen the client file (regardless of which investment strategy you loaded when you reopened the file), you can review any of the Investment Leverage scenarios again by launching the concept and following the steps for View Planning Concept as described earlier. Documentation To access the documentation for the Investment Leverage planning concept if it is not currently on screen: 9. Click on Goto in the main menu bar. 10. Click on Concepts in the drop-down menu. 11. You will be prompted to save the existing file. Click on Yes or No. This will launch the Planning Concept selection box. 12. Double click on Investment Leverage or select this title and click OK.. This will launch the Investment Leverage report for the last leverage concept scenario that you ran. If you want to create a report for another scenario, you must first view it as described under Saving the Concept. The Investment Leverage report is suitable for distribution to your client. It consists of a summary page, four ledger pages that provide numeric information about the concept, and a disclosure page. Printing the Report To print the Investment Leverage report: 15. Make sure that the Investment Leverage report is on screen (access the report as described above). 16. Click on File in the main menu bar. 17. Click on Print in the drop-down menu. This will launch the Full Print dialogue box. 18. If the Documents to be Printed window is already populated with documents that you do not wish to print, you can clear the window by selecting the (Select Package) option in the Print Package drop-down menu. FP Solutions User Manual - Investment Leverage Planning Concept Module 365 of 473

367 19. Select the pages of the Investment Leverage report that you want to print by holding the Ctrl key, and clicking on the title of each desired page in the Available Documents window. 20. Click on the right arrow key to transfer those pages to the Documents to be Printed window. 21. Click on Print. Summary Page FP Solutions automatically creates two scenarios when you run the Investment Leverage planning concept. The first scenario is called Leverage Strategy and it documents all the components of the leveraged investment. The second scenario is called the Regular Deposit strategy and it illustrates what would happen if regular deposits were made in the amount of the after-tax cost of the loan, instead of investing the lump-sum investment. The first graph on the Summary 1 page shows the investment balance of both scenarios. The bars represent the results of the Leverage Strategy, while the line represents the results of the Regular Deposit Strategy. Note that the bars include the amount of debt that has to be repaid. In the example below, for instance, the investment account balance is predicted to be about $250,000 at age 44, but $150,000 of this amount is the debt that must be repaid. This particular client borrowed $150,000 with interest payments only, to be repaid after 10 years, so the net investment balance at age 44 is only $100,000, calculated as ($250,000 - $150,000). The second graph shows the debt balance and the annual payments for the Leverage Strategy. If this graph is flat and then drops abruptly to zero, as in the example below, it shows that the debt is an interest-only loan and that it is paid off in a lump sum once the client reaches a particular age. FP Solutions User Manual - Investment Leverage Planning Concept Module 366 of 473

368 Ledger 1 Page The Ledger 1 page summarizes the comparison of the Leverage and Regular Deposit strategies. xx. Year-end Balance: This is the account balance at the end of the year, including the value of investments that were purchased with the loan. yy. Deferred Tax: This is the additional amount of tax that would result if the client disposed of the portfolio at the end of the year, and it results from the unrealized portion of capital gains. zz. Outstanding Debt: This is the amount of the investment loan under the Leverage strategy that must still be repaid. aaa. After-tax value: This is calculated as (Year-end Balance Deferred Tax Outstanding Debt). Ledger 2 Page The Ledger 2 page provides investment projections when the Leverage strategy is used. bbb. Annual Deposit: The amount being leveraged is shown as a deposit in the first year of the plan. ccc. Annual Withdrawal: This column shows how and when the debt will be repaid. In the case of an interest-only loan, this will appear as a lump-sum withdrawal at the age FP Solutions User Manual - Investment Leverage Planning Concept Module 367 of 473

369 specified for the client. Annual Growth: This is the investment income earned within the account, prior to income taxes or cash distributions. It is calculated as [(Year-end Balance from previous year + Annual Deposit for current year Total Withdrawals for current year) Weighted Return]. ddd. Weighted Return: This is the overall return for the portfolio, taking into account the asset allocation and the default rates of return for each asset class. eee. Allowance for Tax: This calculation takes into account the expected interest income, dividends and capital gains, based on the asset allocation and the default rates of return for each asset class. Only a portion of the capital appreciation is realized as a capital gain, depending on the portfolio turnover rate you specified on the Taxation data entry screen. The resulting taxable income is multiplied by the marginal tax rate that you specified on the Taxation data entry screen, to determine the Allowance for Tax. fff. Year-end Balance: This is calculated as (Year-end balance from previous year + Annual Deposit Total Withdrawals + Annual Growth Allowance for Tax). ggg. Deferred Tax: This is the additional amount of tax that would result if the client disposed of the portfolio at the end of the year, and it results from the unrealized portion of capital gains. Ledger 3 Page The Ledger 3 page provides details about the outstanding loan that was created as part of the Leverage strategy. hhh. Debt Amount: This is the amount of the investment loan that remains outstanding at the end of the year. iii. Interest Rate: This is the interest rate charged on the investment loan. jjj. Annual Payment: This is the total payment due each year, including both principal and interest for blended payments, or only interest in the case of an interest-only loan. kkk. Interest Portion: This is the interest component of the Annual Payment. If it is an interest-only loan, the Annual Payment and the Interest Portion will be the same. lll. Cumulative Interest: This is the total amount of interest paid to date on the investment loan. mmm. Tax Savings: This is calculated as (Interest Portion the client s marginal tax rate). FP Solutions User Manual - Investment Leverage Planning Concept Module 368 of 473

370 nnn. After-tax payment: This is calculated as (Annual Payment Tax Savings), and it represents the client s out-of-pocket expense when using the Leverage strategy. Ledger 4 Page The Ledger 4 page provides investment projections when the Regular Deposit strategy is used. ooo. Annual Deposits: In this strategy, the regular deposits equal the out-of-pocket costs associated with the Leverage strategy, which were displayed as the After-tax payment on the Ledger 3 page. The remaining columns on the Ledger 4 page are the same as described for the Ledger 2 page. Disclosure Page The top section of the Disclosure page provides an overview of the Investment Leverage concept. The bottom section requires the client to acknowledge that he or she understands that the information contained in the module is a projection only, and that the actual results may vary from this projection, based on changes in investment performance, federal and provincial tax laws, or the timing and amounts of future investment deposits or withdrawals. There is space for both the client and the planner to sign the acknowledgement. FP Solutions User Manual - Investment Leverage Planning Concept Module 369 of 473

371 Module: Lost Opportunity Cost Planning Concept When your client earns investment income outside of a tax-sheltered plan, he or she loses some of that investment income to taxes. The taxes payable are not available for reinvestment, so the opportunity for growth on that amount is also lost. The Lost Opportunity Cost planning concept creates a report that shows the opportunity cost of paying income tax on investment earnings, including the lost growth on those taxes. This module explains how to use the Lost Opportunity Cost planning concept, and how to interpret the resulting Lost Opportunity Cost report. Launching the Lost Opportunity Cost Planning Concept From within an Existing Plan To launch the Lost Opportunity Planning concept from within an existing plan: 4. Do one of the following: a. From the Main Screen, click on Open a Planning Concept, or b. Click on the Concepts icon in the main toolbar, or 5. You will be prompted to save the existing file. Click on Yes or No. This will launch the Planning Concept selection box. 6. Double click on Lost Opportunity Cost or select this title and click OK. This will launch the Lost Opportunity Cost report and the Lost Opportunity Cost dialogue box. Creating a New Plan To create a new concept focused on determining the lost opportunity cost: 38. Launch FP Solutions. 39. From the start-up screen, click on Concept. This will activate the Concept dropdown menu. 40. Choose Lost Opportunity Cost from the drop-down menu. 41. Click on Next >>. This will launch the Default Presets screen, which allows you to choose a default scheme of rates of return for each asset class. FP Solutions User Manual - Lost Opportunity Cost Planning Concept Module 370 of 473

372 42. Click on your desired default scheme in the drop-down menu. 43. Click on Finish. This will launch the main data entry wizard. 44. At a minimum, complete Step 5: Non-registered investments and education savings, particularly the Asset Value screens for the client, spouse and joint nonregistered accounts. For more information on how to complete these data entry screens, refer to the Non-registered Investments module. 45. Click on Close to close the data entry wizard. You will be prompted to enter a file name. 46. Enter the file name and click on Save As, then click on OK. This will launch the Lost Opportunity Cost report and the Lost Opportunity Cost dialogue box. Data Entry The Lost Opportunity Cost dialogue box consists of a single data entry screen that allows you to choose the investment account(s) to be used in the analysis. To perform the comparison: 4. Check the account(s) that you want to use. 5. If the current financial plan does not already contain all the data needed about these non-registered accounts, click on Enter Client Data. This will launch the Review Client Data dialogue box, which you should complete as follows: FP Solutions User Manual - Lost Opportunity Cost Planning Concept Module 371 of 473

373 e. Click on Manually select the data entry step to complete. f. Click on the desired step. At a minimum, complete Step 5: Non-registered investments and education savings, particularly the Asset Value screens for the individual and joint non-registered accounts of the client and spouse. For more information on how to complete these data entry screens, refer to the Non-registered Investments module. g. Click on Begin data entry to open the desired data entry wizard. h. Once you have completed data entry for that step, click on Finish to return to the Review Client Data dialogue box. i. Repeat (b) through (d) for as many steps as needed. j. Click on Close to finish the data entry and return to the Lost Opportunity Cost screen. 6. As well as showing year-by-year results, the Lost Opportunity Cost report summarizes the cumulative lost opportunity cost at a specific point in time. Choose that point in time by selecting the desired age from the Life expectancy (age) field. 7. Click on Finish to run the analysis. Default Assumptions There are three default assumptions that FP Solutions uses when applying this concept that you may want to modify. FP Solutions User Manual - Lost Opportunity Cost Planning Concept Module 372 of 473

374 Marginal Tax Rate The marginal tax rate for the client and spouse is assumed to be 45%. If you want to change this amount: 7. While the concept is on-screen, click on Data in the main menu bar. 8. Click on Non-registered investments in the drop-down menu. 9. Click on Non-registered: Client (or Spouse, or Joint-owned) in the drop-down menu. This will launch the corresponding Non-registered investments dialogue box. 10. Click on the Taxation tab. 11. Enter the desired marginal tax rate in the Marginal tax rate field. 12. Click on OK. The concept results will be modified accordingly. Annual Portfolio Turnover Capital gains are not taxable until the capital assets are sold or otherwise disposed of. The rate of portfolio turnover will determine the portion of capital growth that must be reported for the year. The default assumption for portfolio turnover is 50%. If you want to change this amount: 7. While the concept is on-screen, click on Data in the main menu bar. 8. Click on Non-registered investments in the drop-down menu. 9. Click on Non-registered: Client (or Spouse, or Joint-owned) in the drop-down menu. This will launch the corresponding Non-registered investments dialogue box. 10. Click on the Taxation tab. 11. Enter the desired turnover rate in the Annual portfolio turnover field. 12. Click on OK. The concept results will be modified accordingly. Provincial Dividend Tax Credit If you are running this concept as a stand-alone financial plan, or if you did not enter the client s province of residence when you completed the initial data entry for an existing plan, FP Solutions assumes that the client resides in Ontario, and that Ontario s dividend tax credit applies. If you want to change to a different province: 7. While the concept is on-screen, click on Data in the main menu bar. 8. Click on Client Information in the drop-down menu. 9. Click on Personal Information in the drop-down menu. This will launch the Personal Information dialogue box. FP Solutions User Manual - Lost Opportunity Cost Planning Concept Module 373 of 473

375 10. Click on the Address tab. 11. Select the province of residence from the Province drop-down menu. 12. Click on OK. The concept results will be modified accordingly. Saving the Concept All of the Concepts in FP Solutions make use of the data that you have already entered through the regular FP Solutions modules. When you save the client file, you are saving that regular data. When you reopen the client file, all you need to do is reopen and rerun the Concept and you will see the same results. If you want to save the results of a Lost Opportunity Cost scenario to a separate Excel file: 106. Make sure that the Lost Opportunity Cost report is on screen (access the report as described in Documentation, below) Click on File in the main menu bar Click on Print in the drop-down menu. This will launch the Full Print dialogue box If the Documents to be Printed window is already populated with documents that you do not wish to print, you can clear the window by selecting the (Select Package) option in the Print Package drop-down menu Select all of the pages of the Lost Opportunity Cost report by holding the Ctrl key, and clicking on the title of each page in the Available Documents window Click on the right arrow key to transfer those pages to the Documents to be Printed window Click on Print to Excel Enter an appropriate file name, and click on Save. Documentation To access the documentation for the Lost Opportunity Cost planning concept if it is not currently on screen: 13. Click on Goto in the main menu bar. 14. Click on Concepts in the drop-down menu. 15. You will be prompted to save the existing file. Click on Yes or No. This will launch the Planning Concept selection box. 16. Double click on Lost Opportunity Cost or select this title and click OK. FP Solutions User Manual - Lost Opportunity Cost Planning Concept Module 374 of 473

376 This will launch the Lost Opportunity Cost report, which is suitable for distribution to your client. It consists of a summary page, a ledger page that provides numeric information about the concept, and a disclosure page. Printing the Report To print the Lost Opportunity Cost report: 22. Make sure that the Lost Opportunity Cost report is on screen (access the report as described above). 23. Click on File in the main menu bar. 24. Click on Print in the drop-down menu. This will launch the Full Print dialogue box. 25. If the Documents to be Printed window is already populated with documents that you do not wish to print, you can clear the window by selecting the (Select Package) option in the Print Package drop-down menu. 26. Select the pages of the Lost Opportunity Cost report that you want to print by holding the Ctrl key, and clicking on the title of each desired page in the Available Documents window. 27. Click on the right arrow key to transfer those pages to the Documents to be Printed window. 28. Click on Print. Summary Page The tables and graphs at the top of the Summary1 page compare the lost opportunity cost with the investment account balance at the future point in time you specified on the Lost Opportunity Cost data entry screen. In the example above, the investment balance at age 65 is only 62.37% of what it could have been if the same investments had been made within a tax shelter, such as an RRSP. FP Solutions User Manual - Lost Opportunity Cost Planning Concept Module 375 of 473

377 Of the remainder, 19.41% was lost in income tax, and 18.22% was lost growth on the funds that were used to pay that income tax. The graph at the bottom of the page shows the results of the analysis on a year-by-year basis. Because of the effect of compounding over time, you can see that the lost opportunity cost increases exponentially over time. Ledger 1 Page The Ledger 1 page shows the opportunity cost of paying income tax on investment earnings, including the lost growth on the funds that were used to pay those taxes. ppp. Annual Growth: This is the annual growth generated by the non-registered account(s) during the year, before tax. It is based on the assumed rates of return for each asset class specified by the Default Presets that you selected when you initiated the plan. qqq. Weighted Return: This is the average return for the whole portfolio, based on the asset allocation and the assumed rates of return for each asset class. rrr. Allowance For Tax: This is the amount of income tax that is payable, based on the existing asset allocation, rates of return, portfolio turnover rate, and marginal tax rate. sss. Year-end Balance: This is the balance of the investment account(s) at the end of the year. It is calculated as (Year-end Balance from the previous year + Annual Growth for the current year Allowance For Tax for the current year). Note: If you recorded planned deposits and withdrawals when you completed the Non-registered Investments data entry screens, these will be reflected in the year-end balance. FP Solutions User Manual - Lost Opportunity Cost Planning Concept Module 376 of 473

378 ttt. Lost Opportunity Cost, Taxes: This is calculated as the cumulative sum of the amounts in the Allowance for Tax column. uuu. Lost Opportunity Cost, Growth: This is the growth that could have been realized if the amount lost to income taxes had been available for reinvestment. It is calculated as (Lost Opportunity Cost, Taxes from the previous year Weighted Return for the current year). vvv. Lost Opportunity Cost, Total Cost: This is calculated as (Lost Opportunity Cost, Taxes + Lost Opportunity Cost, Growth). Disclosure Page The top section of the Disclosure page provides an overview of the Lost Opportunity Cost concept. The bottom section requires the client to acknowledge that he or she understands that the information contained in the module is a projection only, and that the actual results may vary from this projection, based on changes in investment performance, federal and provincial tax laws, or the timing and amounts of future investment deposits or withdrawals. There is space for both the client and the planner to sign the acknowledgement. FP Solutions User Manual - Lost Opportunity Cost Planning Concept Module 377 of 473

379 Module: Investment Strategies Planning Concept Whether you are recommending that your client change his or her contributions to nonregistered savings or simply change the asset allocation, you can use the Investment Strategies planning concept to show how the predicted outcome of their existing strategy compares to an alternative or recommended strategy. You can also compare two different recommended strategies against each other. This module explains how to use the Investment Strategies planning concept, and how to interpret the resulting Investment Strategies report. Running the Investment Strategies Planning Concept as a Stand-alone Plan To create a new concept focused on comparing different investment strategies: 47. Launch FP Solutions. 48. From the start-up screen, click on Concept. This will activate the Concept dropdown menu. 49. Choose Investment Strategies from the drop-down menu. 50. Click on Next >>. This will launch the Default Presets screen, which allows you to choose a default scheme of rates of return for each asset class. 51. Click on your desired default scheme in the drop-down menu. 52. Click on Finish. This will launch the data entry wizards for this concept. 53. Complete the data entry wizards as described below, and click on Finish. You will be prompted to enter a file name. 54. Enter an appropriate name, and click on Save As. 55. Click on OK to view the Investment Strategies report. Data Entry Three data entry wizards will guide you through the data entry process if you are creating a new plan. Personal Information, Goals and Objectives Data Entry Wizard The first data entry wizard will lead you through three screens to collect the client s personal information, goals and objectives. At a minimum, you should complete the following: FP Solutions User Manual - Investment Strategies Planning Concept Module 378 of 473

380 4. On the Plan Information data entry screen, enter the current date, as well as the calendar year for which the concept is being prepared. 5. On the Personal Information data entry screen, enter: a. the client s first and last names, birthday and anticipated date of retirement on the Name and Date of Birth tab b. the client s province of residence on the Address tab 6. Click on Next>> to proceed to the next data entry wizard. Risk Tolerance Data Entry Wizard When doing anything that deals with investments, FP Solutions will prompt you to enter information regarding your client s risk tolerance. This data entry wizard consists of two main tabs. The first is called Risk Tolerance, which in turn is broken down into a risk profile screen plus seven additional pages. The second tab focuses on Areas of Concern and Miscellaneous Information. At a minimum, you should complete the Risk Tolerance tab. The Risk Tolerance tab starts with a Risk Profile page, which allows you to either do an individual risk assessment by completing a detailed questionnaire (which is included on the seven additional pages of the screen), or to manually enter the risk tolerance using a drop-down menu. In this section, we will focus on manually entering the risk tolerance. 5. On the Risk Profile page, click on Manually select risk tolerance. This will activate the risk tolerance dropdown menus. 6. Choose the appropriate level of risk tolerance from the Non-registered drop-down menu. 7. Choose the appropriate level of risk tolerance from the Registered drop-down menu. 8. Click on Next>> to advance to the next data entry wizard. Investment Strategies Data Entry Wizard When you are running the Investment Strategies concept as a stand-alone plan, the Investment Strategies data entry wizard includes five screens that allow you to define the two strategies to be used in the comparison, including: m. Asset Values data entry screen n. Allocation data entry screen o. Deposit/Withdraw data entry screen p. Taxation data entry screen FP Solutions User Manual - Investment Strategies Planning Concept Module 379 of 473

381 q. Charges data entry screen If you are launching the Investment Strategies concept within an existing client file, these five screens are preceded by the Open Planning Concept data entry screen, which is discussed later in this module. Note about the Data Entry Screens Each of the first five data entry screens includes two tabs, and you must review and/or complete both of them. The Current Strategies tab details the client s existing strategy, based either on the data currently loaded (if you have already completed a financial plan), or data that you enter when you add a new scenario without strategies. The Recommended Strategies tab details the strategy that is to be compared to the base strategy which, depending on your choice on the Open Planning Concept data entry screen (discussed later), is one of the following: r. a new strategy s. the strategy you chose from the Scenario With Recommended Strategies drop-down menu. Asset Values Data Entry Screen Note: These instructions apply to both the Current Strategies and Recommended Strategies tabs. Use the Asset Values data entry screen to enter the current values and adjusted cost bases (ACBs) of the current and recommended investment portfolios. You can use one of two methods. Manual Data Entry You can enter the current value of each asset class in the Amount column; and the corresponding ACB column will automatically be filled in with the same amount. However, if you know the adjusted cost base, you should enter the real ACB manually. FP Solutions automatically calculates the percentage of the portfolio that is allocated to each asset class, and displays this allocation between the Amount column and the ACB column. FP Solutions User Manual - Investment Strategies Planning Concept Module 380 of 473

382 Using the Allocator Function Alternatively, you can use the Allocator function to specify the desired allocation: 26. Click on Allocator. This will launch the Allocator data entry screen. 27. Enter the total value of your client s investment portfolio in the Amount to be Allocated field. 28. Choose your client s risk tolerance by clicking on Conservative, Moderate, Moderate Growth, Moderate Aggressive or Aggressive; each one will result in a different allocation as shown in the % field for each asset class. You can further fine-tune these allocations manually if you wish. 29. Click on OK. The Allocator data entry screen will close and you will be returned to the Asset Values data screen, with the portfolio allocated according to your choice. By default, the ACB of each asset class will be set to the allocated value when you use the Allocator, but you can adjust these amounts manually. FP Solutions User Manual - Investment Strategies Planning Concept Module 381 of 473

383 Allocation Data Entry Screen Note: These instructions apply to both the Current Strategies and Recommended Strategies tabs. Use the Allocation data entry screen to specify how often the portfolio should be rebalanced, and what the new asset allocation should be. Choose Method You can choose one of the following three ways to rebalance the portfolio: t. Use current allocation: Select this option if you want the portfolio to be rebalanced to the allocation that you specified on the Asset Values data entry screen. u. Use recommended allocation: Select this option only if you have previously completed the Risk Tolerance Questionnaire. FP Solutions will then use a default allocation depending on the client s risk tolerance. v. Set allocation manually: Select this option if you want to specify the new asset allocation. This will activate the remaining data entry fields and you can enter a percentage for each asset class. Click on Reset Asset Allocation Data to enter the new information and overwrite any existing asset allocations you may have specified earlier. FP Solutions User Manual - Investment Strategies Planning Concept Module 382 of 473

384 Frequency Choose how often the portfolio is rebalanced by selecting an option from the Frequency drop-down menu. Remember that rebalancing a portfolio can trigger the realization of capital gains. Deposit/Withdraw Data Entry Screen Note: These instructions apply to both the Current Strategies and Recommended Strategies tabs. Use the Deposit/Withdraw data entry screen to record your client s planned deposits or withdrawals from his or her non-registered account. You can specify two different deposit rates, with changes to take place when the client reaches a specified age. Similarly, you can specify two different withdrawal rates, based on age. The Deposits and Withdrawals sections each include the following fields: FP Solutions User Manual - Investment Strategies Planning Concept Module 383 of 473

385 w. Annual or Monthly: In the Deposits section, click on either Annual or Monthly to specify whether your client will be making deposits annually or monthly. Repeat for the Withdrawals section. x. Beginning of period: In the Deposits section, check the Beginning of period box if your client will be making deposits at the beginning of each compounding period, and clear the box if your client will be making deposits at the end of each period. Repeat for the Withdrawals section. Most clients tend to make their deposits at the end of the period, because it gives them the time necessary to accumulate the necessary funds to make their deposits. Withdrawals are generally made at the beginning of the period, because clients need to have the funds in hand before they can spend those funds during the period. However, you can choose whichever method best suits your client s needs. y. Amount: In the Deposits section, enter the amount that your client plans to deposit each period for the first age bracket, and repeat for the second age bracket. In the Withdrawals section, enter the amount that your client plans to withdraw each period for the first age bracket, and repeat for the second age bracket. z. From age: In the Deposits section, enter the age at which your client will start making the specified deposit. In the Withdrawals section, enter the age at which your client will start making the specified withdrawal. aa. To age: In the Deposits section, enter the age after which your client will cease making the specified deposits. In the Withdrawals section, enter the age after which your client will cease making the specified withdrawals. Example: In the screen capture above, the client will make deposits of $200 at the beginning of each month (indexed at 2%), beginning in January of the year in which he turns 40 years old, and ending in December of the year in which he turns 50. In January of the year in which he turns 51, the deposits will increase to $400 at the beginning of each month (indexed at 2.5%), up to and including December of the year in which he turns 64. bb. Index: In the Deposits section, enter the annual rate at which deposits are expected to increase, for each age bracket. In the Withdrawals section, enter the annual rate at which withdrawals are expected to increase, for each age bracket. If deposits or withdrawals are expected to decrease over time, enter the rate as a negative number. Note: Each amount is only indexed until the end of the specified age bracket. At the beginning of the second age bracket, the new amount, without indexation, serves as the starting point. In other words, the amounts that you enter into the Amount fields are future dollars, not current dollars. Taxation Data Entry Screen Note: These instructions apply to both the Current Strategies and Recommended Strategies tabs. FP Solutions User Manual - Investment Strategies Planning Concept Module 384 of 473

386 Use the Taxation data entry screen to enter a variety of parameters that will affect the growth and taxation of your client s non-registered investment portfolio. Distributions The rate at which an investment portfolio grows depends in part on the extent to which investment returns are reinvested, instead of being paid out to the investor in cash. The Distribution section of the Taxation data entry screen allows you to specify when and how much investment income is distributed to your client in cash. FP Solutions assumes that any amounts that are not distributed will be reinvested in the same asset class. For the purpose of this data entry screen, FP Solutions classifies all non-registered investments in one of three categories: Cash & Equivalents, Bonds and Equities. If all investment income is to be reinvested, make sure that all three checkboxes are clear. If the client will receive some or all of the investment income from a particular asset category in cash: 4. Check the appropriate box (Cash & Equivalents, Bonds or Equities). 5. Enter the percentage of investment income from that asset class that will be distributed to the client in the % in cash field. 6. Specify the age at which the cash distributions are to commence by selecting the appropriate age from the Starting at age drop-down menu. Note that once these distributions start, FP Solutions assumes that they will continue for the duration of your client s planning horizon. Taxation The taxation of investment income varies with the type of income and when it is recognized. For example: interest income is generally fully taxable annually, even if it is not distributed; dividends paid by a Canadian taxable corporation are eligible for a dividend tax credit; and capital appreciation is generally only taxable upon disposition of the capital asset, and then only 50% of the capital gain is included in income. FP Solutions User Manual - Investment Strategies Planning Concept Module 385 of 473

387 FP Solutions estimates the investment return that your client s investment portfolio is likely to generate, based upon the return assumptions included in your Defaults file and the asset allocations that you specified on the Asset Values and Allocation data entry screens. However, to determine the income tax effects of this investment return, you need to complete the following fields: cc. Annual portfolio turnover: Enter the percentage of the non-registered portfolio that your client will turnover each year. Capital gains are only realized for tax purposes upon disposition of an appreciated capital asset. If your client uses a buy-and-hold strategy, realized capital gains will be minimal, but as the portfolio turnover rate increases, so will the potential for realized capital gains. dd. Fund income tax from growth: If your client will use a portion of his non-registered investment income to pay the income tax liability resulting from that investment income, then check this box. If your client will use funds from other sources, such as employment income, to pay these taxes, then clear this box. ee. Carry forward losses: Enter the amount of any unused net capital losses that your client has carried forward from previous years. These can be used to offset taxable capital gains. ff. Marginal tax rate: Enter your client s average marginal tax rate for the planning period. This rate is used for determining the potential taxes on the income earned by the investment portfolio. Charges Data Entry Screen Note: These instructions apply to both the Current Strategies and Recommended Strategies tabs. FP Solutions assumes that all non-registered investments are made through mutual funds. Use the Charges data entry screen to describe the fees associated with your client s nonregistered investment account, and the source of funds used to pay those fees. FP Solutions User Manual - Investment Strategies Planning Concept Module 386 of 473

388 gg. New deposit sales charge: Enter the average front-end charge that your client will pay on new investments. FP Solutions assumes that these sales charges will be deducted from the investment account. hh. Annual administration/trustee fee: Enter any flat annual fees associated with your client s non-registered investment account. Enter this as a dollar amount (e.g., $100). ii. Managed/Wrap Account expense: Enter any percentage fees associated with your client s non-registered investment account. Enter this as a percentage of total assets (e.g. 2%). jj. Pay account charges outside of investment until age: If your client will use other sources of funds (e.g., employment income) to pay the annual administration fee or the percentage management fee, check this box. Then choose the age at which your client will start paying these fees from the investment account by selecting the appropriate age from the drop-down menu. If your client will always pay the account charges with outside funds, select the age that corresponds to the end of your client s planning horizon. If your client wants to pay the account charges from the investment income, clear the checkbox. Assumptions FP Solutions uses default assumptions for the management expense ratios and the portions of capital gains that are realized by each type of mutual fund. The Index Assumptions portion of this data entry screen is automatically populated with these default values, but you can change any of them simply by entering a new value. FP Solutions User Manual - Investment Strategies Planning Concept Module 387 of 473

389 Launching the Investment Strategies Concept from within an Existing Plan To launch the Investment Strategies planning concept from within an existing plan: 7. Do one of the following: a. From the Main Screen, click on Open a Planning Concept, or b. Click on the Concepts icon in the main toolbar. 8. You will be prompted to save the existing file. Click on Yes or No. This will launch the Planning Concept selection box. 9. Double click on Investment Strategies or select this title and click OK. This will launch the Investment Strategies data entry wizard described earlier, with the addition of the Open Planning Concept data entry screen, discussed below. Open Planning Concept Data Entry Screen When you launch the Investment Strategies planning concept from within an existing client file, the Investment Strategies data entry wizard described earlier in this module includes one additional data entry screen. This Open Planning Concept data entry screen also appears if you reopen a client file after having previously run an Investment Strategies scenario (see Saving the Concept, later in this module). When you open any planning concept that can have multiple scenarios, you can choose between View Planning Concept and Apply Planning Concept. View Planning Concept If you have run the concept before and simply want to review the results: 7) Selected View Planning Concept. 8) Select the scenario without strategies that you want to review from the first dropdown menu. FP Solutions User Manual - Investment Strategies Planning Concept Module 388 of 473

390 9) Select the scenario with strategies that you want to review from the second dropdown menu. 10) Select the account that you want to apply the concept to from the third drop-down menu. 11) Click on FINISH to refresh the analysis. Apply Planning Concept If you have never run the concept before, or if you have run the concept but want to add or modify a scenario: 8) Select Apply Planning Concept. 9) Do one of the following: a. If you are modifying a previous scenario without strategies, choose Select scenario without strategies and then select the desired scenario from the corresponding drop-down menu. b. If you want to develop a new scenario, select Add new scenario without strategies. Note: Each time you add a new scenario, FP Solutions automatically names and numbers the scenario for you, as Current Strategies 2, Current Strategies 3, etc. 10) Do one of the following: FP Solutions User Manual - Investment Strategies Planning Concept Module 389 of 473

391 a. If you are modifying a previous scenario with strategies, choose Select scenario with strategies, and then select the desired scenario from the corresponding drop-down menu. b. If you want to develop a new scenario, select Add new scenario with strategies. Note: Each time you add a new scenario, FP Solutions automatically names and numbers the scenario for you, as Recommended Strategies 2, Recommended Strategies 3, etc. 11) Select the account that you want to apply the concept to from the third drop-down menu. 12) Click on Next> to proceed to the Asset Values data entry screen, as described earlier. Saving the Concept The various investment strategies that you create when using the Investment Strategies planning concept are saved when you save the client file. When you reopen the client file, you will be prompted to load either the basic client data or one of the recommended strategies scenarios created when you used the concept. Once you reopen the client file (regardless of which investment strategy you loaded when you reopened the file), you can review any of the Investment Strategies scenarios again by launching the concept and following the steps for View Planning Concept as described earlier. Documentation To access the documentation for the Investment Strategies planning concept if it is not currently on screen: 17. Click on Goto in the main menu bar. 18. Click on Concepts in the drop-down menu. 19. You will be prompted to save the existing file. Click on Yes or No. This will launch the Planning Concept selection box. 20. Double click on Investment Strategies or select this title and click OK. FP Solutions User Manual - Investment Strategies Planning Concept Module 390 of 473

392 This will launch the Investment Strategies report for the last comparison you ran. This report, which is suitable for distribution to your client, consists of a summary page, four ledger pages that provide numeric information about the concept, and a disclosure page. Printing the Report To print the Investment Strategies report: 29. Make sure that the Investment Strategies report is on screen (access the report as described above). 30. Click on File in the main menu bar. 31. Click on Print in the drop-down menu. This will launch the Full Print dialogue box. 32. If the Documents to be Printed window is already populated with documents that you do not wish to print, you can clear the window by selecting the (Select Package) option in the Print Package drop-down menu. 33. Select the pages of the Investment Strategies report that you want to print by holding the Ctrl key, and clicking on the title of each desired page in the Available Documents window. 34. Click on the right arrow key to transfer those pages to the Documents to be Printed window. 35. Click on Print. Summary Page The graphs at the top of the Summary 1 page compare the composition of the recommended investment portfolio (on the left) with the base or existing investment portfolio (on the right). These graphs represent the portfolios at the end of the first year of the financial plan. The pie charts show the relative composition of each portfolio, in terms of cash, bonds and equities. The bar graphs below each pie chart show the relative proportions of Canadian and Foreign content in each portfolio. FP Solutions User Manual - Investment Strategies Planning Concept Module 391 of 473

393 The graph at the bottom of the page shows the predicted after-tax portfolio value for each strategy on a year-by-year basis. The blue line represents the base or existing investment strategy, while the bars represent the recommended investment strategy. Note that the deferred taxes can build up over time if the portfolio is not rebalanced frequently. Ledger 1 Page The Ledger 1 page shows the growth in the chosen investment account using the recommended investment strategy, as well as the existing or base strategy. The data is provided separately for both strategies, and the difference is summarized in the final column. kk. Deposit/(Withdraw): This shows the client s planned deposits to or withdrawals from the account, which you entered on the Deposit/Withdraw data entry screen. ll. Net Growth: This is calculated as the Annual Growth (shown on the Ledger 2 and Ledger 3 pages), less the carrying charges that you specified on the Charges data entry screen. If you specified that the carrying charges be paid from outside the investment account, they will not be deducted in the calculation of Net Growth. mm. After-tax Value: This is calculated as the (Year-end Balance Deferred Tax), both of which are shown on the Ledger 2 and Ledger 3 pages. nn. Change in Value: This is calculated as (After-tax Value of the Recommended Strategies After-tax Value of the Current Strategies). Ledger 2 and Ledger 3 Pages These two ledger pages provide more detail about the investment accounts under the recommended (Ledger 2) and current (Ledger 3) strategies, respectively. FP Solutions User Manual - Investment Strategies Planning Concept Module 392 of 473

394 oo. Annual Deposit: This shows the client s planned deposits to the account that you specified on the Deposit/Withdraw data entry screen. pp. Total Withdrawals: This is the sum of the withdrawals that you specified on the Deposit/Withdraw data entry screen, and the carrying charges that you specified on the Charges data entry screen. qq. Annual Growth: This is the investment income earned within the account, prior to income taxes or cash distributions. It is calculated as [(Year-end Balance from previous year + Annual Deposit for current year Total Withdrawals for current year) Weighted Return]. rr. Weighted Return: This is the overall return for the portfolio, taking into account the asset allocation and the default rates of return for each asset class. ss. Allowance For Tax: This calculation takes into account the expected interest income, dividends and capital gains, based on the asset allocation and the default rates of return for each asset class. Only a portion of the capital appreciation is realized as a capital gain, depending on the portfolio turnover rate you specified on the Taxation data entry screen. The resulting taxable income is multiplied by the marginal tax rate that you specified on the Taxation data entry screen, to determine the Allowance For Tax. tt. Year-end Balance: This is calculated as (Year-end Balance from previous year + Annual Deposit Total Withdrawals + Annual Growth Cash Distributions Allowance For Tax). The Cash Distributions may or may not be zero, depending on the assumptions you made on the Distributions section of the Taxation data entry screen. The Allowance For Tax will only be included in the calculation if you checked the Fund income tax from growth box on the Taxation data entry screen. uu. Deferred Tax: This is the additional amount of tax that would result if the client disposed of the portfolio at the end of the year, and it results from the unrealized portion of capital gains. Ledger 4 Page The Ledger 4 page shows the difference between the Recommended and Current strategies for all of the parameters presented on the Ledger 2 and Ledger 3 pages. For example, the Annual Deposit on the Ledger 4 page is calculated as (Annual Deposit on Ledger 2 page Annual Deposit on Ledger 3 page). FP Solutions User Manual - Investment Strategies Planning Concept Module 393 of 473

395 Disclosure Page The top section of the Disclosure page provides an overview of the Investment Strategies concept and the various factors that are included in an investment strategy, including asset allocation and rebalancing, deposit and withdrawal amounts and frequencies, portfolio turnover rates, and Management Expense Ratios. The bottom section requires the client to acknowledge that he or she understands that the information contained in the module is a projection only, and that the actual results may vary from this projection, based on changes in investment performance, federal and provincial tax laws, or the timing and amounts of future investment deposits or withdrawals. There is space for both the client and the planner to sign the acknowledgement. FP Solutions User Manual - Investment Strategies Planning Concept Module 394 of 473

396 Module: Potential Tax Return Planning Concept The Potential Tax Return planning concept creates a simulated tax return, similar to Canada Revenue Agency s 4-page T1 tax return, for any current or future year. This powerful planning tool can help you illustrate the need for proper tax planning. This module explains how to use the Potential Tax Return planning concept. Launching the Potential Tax Return Planning Concept From within an Existing Plan To launch the Potential Tax Return planning concept from within an existing plan: 10. Do one of the following: a. From the Main Screen, click on Open a Planning Concept, or b. Click on the Concepts icon in the main toolbar, or 11. You will be prompted to save the existing file. Click on Yes or No. This will launch the Planning Concept selection box. 12. Double click on Potential Tax Return or select this title and click OK. This will launch the Potential Tax Return report and the Potential Tax Return dialogue box. Creating a New Plan Because it draws upon data from so many different modules, you will usually launch the Potential Tax Return planning concept from within an existing financial plan. You can use this planning concept to launch a new financial plan, but you will need to perform a considerable amount of data entry. 56. Launch FP Solutions. 57. From the start-up screen, click on Concept. This will activate the Concept dropdown menu. 58. Choose Potential Tax Return from the drop-down menu. 59. Click on Next >>. This will launch the Default Presets screen, which allows you to choose a default scheme of rates of return for each asset class. 60. Click on your desired default scheme in the drop-down menu. FP Solutions User Manual - Potential Tax Return Planning Concept Module 395 of 473

397 61. Click on Finish. This will launch the main data entry wizard. 62. Complete all steps of the data entry wizard. 63. Click on Close to close the data entry wizard. You will be prompted to enter a file name. 64. Enter the file name and click on Save As, then click on OK. This will launch the Potential Tax Return report and the Potential Tax Return dialogue box. Data Entry The Potential Tax Return dialogue box consists of a single data entry screen. Client or Spouse: Click on either Client or Spouse, to create a simulated tax return for the client or spouse, respectively. At age: Select an age from the At age drop down menu, to specify the year of the simulated tax return. By running this concept several times at different ages, you can demonstrate how the tax burden will change as the client moves through his or her working life and retirement years. Show in today s dollars indexed at: If you would prefer the simulated tax return to show the tax liability in current dollars, check this box, and enter the inflation rate to be used when calculating the present value of the future tax liability in the % field. Marital status: Select the appropriate marital status from the drop-down menu. Saving the Concept All of the Concepts in FP Solutions make use of the data that you have already entered through the regular FP Solutions modules. When you save the client file, you are saving that regular data. When you reopen the client file, all you need to do is reopen and rerun the Concept and you will see the same results. FP Solutions User Manual - Potential Tax Return Planning Concept Module 396 of 473

398 If you want to save the results of a Potential Tax Return simulation to a separate Excel file: 114. Make sure that the Potential Tax Return report is on screen (access the report as described in Documentation, below) Click on File in the main menu bar Click on Print in the drop-down menu. This will launch the Full Print dialogue box If the Documents to be Printed window is already populated with documents that you do not wish to print, you can clear the window by selecting the (Select Package) option in the Print Package drop-down menu Select all of the pages of the Potential Tax Return report by holding the Ctrl key, and clicking on the title of each page in the Available Documents window Click on the right arrow key located between the two document windows to transfer those pages to the Documents to be Printed window Click on Print to Excel Enter an appropriate file name, and click on Save. Documentation To access the documentation for the Potential Tax Return planning concept if it is not currently on screen: 21. Click on Goto in the main menu bar. 22. Click on Concepts in the drop-down menu. 23. You will be prompted to save the existing file. Click on Yes or No. This will launch the Planning Concept selection box. 24. Double click on Potential Tax Return or select this title and click OK. This will launch the Potential Tax Return report, which is suitable for distribution to your client. It consists of four summary pages (simulating the 4 main pages of a T1 tax return) and a disclosure page. Printing the Report To print the Potential Tax Return report: 36. Make sure that the Potential Tax Return report is on screen (access the report as described above). 37. Click on File in the main menu bar. FP Solutions User Manual - Potential Tax Return Planning Concept Module 397 of 473

399 38. Click on Print in the drop-down menu. This will launch the Full Print dialogue box. 39. If the Documents to be Printed window is already populated with documents that you do not wish to print, you can clear the window by selecting the (Select Package) option in the Print Package drop-down menu. 40. Select the pages of the Potential Tax Return report that you want to print by holding the Ctrl key, and clicking on the title of each desired page in the Available Documents window. 41. Click on the right arrow key located between the two document windows to transfer those pages to the Documents to be Printed window. 42. Click on Print. Summary Pages The four summary pages simulate the four main pages of a T1 tax return. The year for which the concept was run is shown in upper right corner of the Summary 1 page. Note: This is a simulated tax return only. It is NOT suitable for submission to Canada Revenue Agency. Disclosure Page The top section of the Disclosure page provides an overview of the Potential Tax Return concept. The bottom section requires the client to acknowledge that he or she understands that the information contained in the module is a projection only, and that the actual results may vary from this projection, based on changes in investment performance, federal and provincial tax laws, or the timing and amounts of future investment deposits or withdrawals. There is space for both the client and the planner to sign the acknowledgement. FP Solutions User Manual - Potential Tax Return Planning Concept Module 398 of 473

400 Module: RRSP Leverage Planning Concept The RRSP Leverage planning concept compares borrowing a lump sum to invest in an RRSP with a regular deposit strategy. The first scenario demonstrates the results of making a lump-sum investment with the proceeds of a loan. The second scenario demonstrates the results of making regular deposits in the amount of the after-tax cost of that same loan. All other assumptions, including asset allocation and tax rates, are the same for both scenarios. This module explains how to use the RRSP Leverage planning concept, and how to interpret the resulting RRSP Leverage report. Running the RRSP Leverage Planning Concept as a Stand-alone Plan To create a new concept focused on RRSP leverage: 65. Launch FP Solutions. 66. From the start-up screen, click on Concept. This will activate the Concept dropdown menu. 67. Choose RRSP Leverage from the drop-down menu. 68. Click on Next>>. This will launch the Default Presets screen, which allows you to choose a default scheme of rates of return for each asset class. 69. Click on your desired default scheme in the drop-down menu. 70. Click on Finish. This will launch the =data entry wizards for this concept. 71. Complete the data entry wizards as described under Data Entry, below. 72. Click on Finish to close the last data entry wizard. You will be prompted to enter a file name. 73. Enter an appropriate file name, and click on Save As. 74. Click on OK to run the RRSP Leverage concept and display the resulting RRSP Leverage report. Data Entry Three data entry wizards will guide you through the data entry process if you are creating a new plan. FP Solutions User Manual - RRSP Leverage Planning Concept Module 399 of 473

401 Personal Information, Goals and Objectives Data Entry Wizard The first data entry wizard will lead you through three screens to collect the client s personal information, goals and objectives. At a minimum, you should complete the following: 7. On the Plan Information data entry screen, enter the current date, as well as the calendar year for which the plan is being prepared. 8. On the Personal Information data entry screens, enter: a. the client s first and last names, birthday and anticipated date of retirement on the Name and Date of Birth tab b. the client s province of residence on the Address tab 9. Click on Next>> to proceed to the next data entry wizard. Risk Tolerance Data Entry Wizard When doing anything that deals with investments, FP Solutions will prompt you to enter information regarding your client s risk tolerance. This data entry wizard consists of two main tabs. The first is called Risk Tolerance, which in turn is broken down into a risk profile screen plus seven additional pages. The second tab focuses on Areas of Concern and Miscellaneous Information. At a minimum, you should complete the Risk Tolerance tab. The Risk Tolerance tab starts with a Risk Profile page, which allows you to either do an individual risk assessment by completing a detailed questionnaire (which is included on the seven additional pages of the tab), or to manually enter the risk tolerance using a drop-down menu. In this section, we focus on manually entering the risk tolerance. 9. On the Risk Profile page, click on Manually select risk tolerance. This will activate the risk tolerance drop-down menus. 10. Choose the appropriate level of risk tolerance from the Non-registered drop-down menu. 11. Choose the appropriate level of risk tolerance from the Registered drop-down menu. 12. Click on Next>> to advance to the next data entry wizard. RRSP Leverage Data Entry Wizard When you are running the RRSP Leverage concept as a stand-alone plan, the RRSP Leverage data entry wizard includes three screens that allow you to specify the details of the loan that will be created as part of the leverage strategy, including: FP Solutions User Manual - RRSP Leverage Planning Concept Module 400 of 473

402 www. xxx. yyy. Set Up the Leverage Debt data entry screen Investment Allocation data entry screen Investment Taxation data entry screen If you are launching the RRSP Leverage concept within an existing client file, these three screens are preceded by the Open Planning Concept data entry screen, which is discussed later in this module. Setup Leverage Debt Data Entry Screen The Setup Leverage Debt data entry screen allows you to enter information on how the investment loan is structured. Complete this screen as follows: 14. Enter a unique name for the debt in the Debt field. 15. Enter the amount being borrowed into the Amount Leveraged field. 16. Specify the portion of the debt that is in the client s name and in the name of the client s spouse in the Owed by Client and Owed by Spouse fields, respectively. 17. To specify a blended payment (i.e., principal plus interest) enter an amount in the Payment field. You can use the Loan Calculator to estimate an appropriate payment, as described shortly. 18. Select the payment frequency from the Payment Period drop-down menu. 19. To specify interest-only payments, check the Interest-only Payment box, and the payments will automatically be set to the loan interest, and the Age Debt is Repaid field will be enabled. FP Solutions User Manual - RRSP Leverage Planning Concept Module 401 of 473

403 20. Select the age at which the loan will be repaid in full from the Age Debt is Repaid drop-down menu. 21. Enter the interest rate on the loan in the Interest rate field. 22. Select the compounding frequency that applies to that interest rate from the Compound Period drop-down menu. 23. If the loan interest is not deductible, clear the checkmark from the Interest taxdeductible box (FP Solutions automatically sets the interest on the loan as being not deductible because in most cases the interest expense on an RRSP loan is not deductible). 24. If the loan interest is deductible, check the Interest tax deductible box and: a. Enter the portion of the loan interest that is deductible in the Deductible Portion field. b. If the client s spouse will be claiming some or all of the interest tax deduction, enter the appropriate portion that is deductible to each spouse in the by Client and by Spouse fields (FP Solutions automatically assumes that the client is the person claiming 100% of the deduction.) 25. If the loan is insured on the life of the client or spouse, check the appropriate boxes. 26. Click on Next> to advance to the RRSP Allocation data entry screen. Using the Loan Calculator To help you determine an appropriate payment or to calculate how long it will take to repay the debt given the payment amount, you can click on Loan Calculator. This will launch the FP Solutions Mortgage Calculator. FP Solutions User Manual - RRSP Leverage Planning Concept Module 402 of 473

404 To use the calculator: 7) Enter any three of the four variables (interest rate, amortization, payment and balance). 8) Select the radio button next to the unknown variable. 9) Click on Solve for selection. In the example above, the client wants to borrow $30,000 to make an RRSP contribution. He can borrow this amount at 6% and wants to repay it in equal amounts over ten years. By entering these three variables, you can use the calculator to solve for the payment, which in this example results is $ Note: FP Solutions assumes that the client will use the tax refund that results from the RRSP contribution to pay down the RRSP loan immediately, so you may want to enter this reduced debt as the mortgage balance. RRSP Allocation Data Entry Screen The RRSP Allocation data entry screen allows you to enter the balance and allocation of the client s existing investments. Note that this allocation will be maintained throughout the planning period for both the leveraged and non-leveraged scenarios. If the client does not have any existing investments, FP Solutions assumes that the allocation of future deposits is 100% cash. Complete this screen as follows: 4. Enter the current values and adjusted cost base of the client s existing RRSP portfolio in the appropriate fields for each asset category. FP Solutions calculates the existing allocation percentages and displays this information between the Amount and ACB columns. Note: The Book Value fields default to the current value for the RRSP Leverage planning concept for the following reasons: Because RRSP withdrawals are fully taxable, there is no need to track the difference between current value and book value. FP Solutions User Manual - RRSP Leverage Planning Concept Module 403 of 473

405 There is no longer any need to track book values for the purpose of measuring foreign content either, now that the foreign content limit has been eliminated. Alternatively, you can use the Allocator function to specify the existing holdings, as follows: a. Click on Allocator to launch the Allocator dialogue box. b. Enter the account balance in the Amount to Allocate field. c. Select the client s risk tolerance to specify the preferred allocation. You can also enter or adjust the allocations manually. d. Click on OK to complete the allocation and return to the RRSP Allocation data entry screen. FP Solutions User Manual - RRSP Leverage Planning Concept Module 404 of 473

406 5. Specify how future deposits, including the RRSP loan proceeds, are to be split between the client s personal and spousal RRSPs by entering the percentages in the Personal contributions and Spousal contributions fields. 6. Click on Next> to advance to the RRSP Taxation data entry screen. RRSP Taxation Data Entry Screen The first half of this screen allows you to set the annual turnover of the portfolio, which is the percentage of the portfolio that the client will reposition each year. Turnover can change the balance between Foreign and Canadian content. This was important when the Foreign content was limited to 30%, but now that the foreign content limit has been eliminated, these fields no longer affect the outcome and you can ignore them. The second half of this data entry screen allows you to specify the client s RRSP contribution room. 6. Enter the client s unused RRSP contribution room in the Unused contribution amount field. If the amount that you entered includes the new contribution room that arose on January 1 of the first planning year because of your client s employment last year, check the Includes 1 st year maximum box. Note: The amount borrowed as you specified on the Setup Leverage Debt data entry screen cannot exceed this amount. 7. If you are running the RRSP Leverage planning concept as a stand-alone plan, you must check the Set maximum contribution limit at box, and enter the client s annual FP Solutions User Manual - RRSP Leverage Planning Concept Module 405 of 473

407 current contribution limit in the corresponding field, based on his or her past employment and pension plan participation. If you are running the RRSP Leverage planning concept within an existing financial plan, and you have completed the Employment and Pension modules for the client, you can leave this section blank and FP Solutions will calculate the maximum contribution limit. 8. Enter the average tax rate that will apply to the client s contributions in the Average rate of tax for contributions field. FP Solutions uses this amount to calculate the value of the RRSP deduction. 9. Click on Finish to run the RRSP Leverage concept. If you are running a stand-alone concept, you will be prompted to enter and filename and save the file. 10. Enter a filename and click on Save As. FP Solutions will automatically create two scenarios: one will show the results of the leverage strategy, and the other will show the result of a regular deposit strategy, where the deposits equal the cost of the leverage. Launching the RRSP Leverage Concept from within an Existing Plan To launch the RRSP Leverage planning concept from within an existing plan: 4. Do one of the following: a. From the Main Screen, click on Open a Planning Concept, or b. Click on the Concepts icon in the main toolbar, 5. You will be prompted to save the existing file. Click on Yes or No. This will launch the Planning Concept selection box. 6. Double click on RRSP Leverage or select this title and click OK. This will launch the RRSP Leverage data entry wizard described earlier, with the addition of the Open Planning Concept data entry screen, discussed below. Open Planning Concept Data Entry Screen When you launch the RRSP Leverage planning concept from within an existing client file, the RRSP Leverage data entry wizard described earlier in this module includes one additional data entry screen. This Open Planning Concept data entry screen also appears if you reopen a client file after having previously run a stand-alone RRSP Leverage scenario (see Saving the Concept, later in this module). When you open any planning concept that can have multiple scenarios, you can choose between View Planning Concept and Apply Planning Concept. FP Solutions User Manual - RRSP Leverage Planning Concept Module 406 of 473

408 View Planning Concept If you have run the concept before and simply want to review the results: 12) Selected View Planning Concept. 13) Select the scenario without leverage that you want to review from the first dropdown menu. 14) Select the scenario with leverage that you want to review from the second dropdown menu. 15) Select the account that you want to apply the concept to from the third drop-down menu. 16) Select the debt area being used in the leveraged from the fourth drop-down menu. 17) Click on FINISH to refresh the analysis. Apply Planning Concept If you have never run the concept before, or if you have run the concept but want to add or modify a scenario: 13) Select Apply Planning Concept. 14) Check the Clear existing deposits and withdrawals box. Note: If you do not check this box and you have previously run the concept, the software will double up the amount being borrowed. FP Solutions User Manual - RRSP Leverage Planning Concept Module 407 of 473

409 15) Do one of the following: a. If you are modifying a previous scenario without leverage, choose Select the Scenario that has No Leverage Concept and then select the desired scenario from the corresponding drop-down menu. b. If you want to develop a new scenario, select Add New Scenario that has no Leverage Concept. Note: Each time you add a new scenario, FP Solutions automatically names and numbers the scenario for you, as Current Strategies 2, Current Strategies 3, etc. 16) Do one of the following: a. If you are modifying a previous scenario with leverage, choose Select the Scenario that has a Leverage Concept, and then select the desired scenario from the corresponding drop-down menu. b. If you want to develop a new scenario, select Add New Scenario that has a Leverage Concept. 17) Select the account that you want to apply the concept to from the Select the investment that includes the leverage concept drop-down menu. 18) Select the debt area being used in the leverage from the Select the debt that is part of the leverage concept drop-down menu. 19) Click on Next> to proceed to the Setup Leverage Debt data entry screen, as described earlier. Saving the Concept The various RRSP leverage strategies that you create when using the RRSP Leverage planning concept are saved when you save the client file. When you reopen the client file, you will be prompted to load either the basic client data or one of the leveraged strategies scenarios created when you used the concept. FP Solutions User Manual - RRSP Leverage Planning Concept Module 408 of 473

410 Once you reopen the client file (regardless of which investment strategy you loaded when you reopened the file), you can review any of the RRSPP Leverage scenarios again by launching the concept and following the steps for View Planning Concept as described earlier. Documentation To access the documentation for the RRSP Leverage planning concept if it is not currently on screen: 25. Click on Goto in the main menu bar. 26. Click on Concepts in the drop-down menu. 27. You will be prompted to save the existing file. Click on Yes or No. This will launch the Planning Concept selection box. 28. Double click on RRSP Leverage or select this title and click OK. This will launch the RRSP Leverage report for the last leverage concept scenario that you ran. If you want to create a report for another scenario, you must first view it as described under Saving the Concept. The RRSP Leverage report is suitable for distribution to your client. It consists of a summary page, four ledger pages that provide numeric information about the concept, and a disclosure page. Printing the Report To print the RRSP Leverage report: 43. Make sure that the RRSP Leverage report is on screen (access the report as described above). 44. Click on File in the main menu bar. 45. Click on Print in the drop-down menu. This will launch the Full Print dialogue box. 46. If the Documents to be Printed window is already populated with documents that you do not wish to print, you can clear the window by selecting the (Select Package) option in the Print Package drop-down menu. 47. Select the pages of the RRSP Leverage report that you want to print by holding the Ctrl key, and clicking on the title of each desired page in the Available Documents window. 48. Click on the right arrow key to transfer those pages to the Documents to be Printed window. FP Solutions User Manual - RRSP Leverage Planning Concept Module 409 of 473

411 49. Click on Print. Summary Page FP Solutions automatically creates two scenarios when you run the RRSP Leverage planning concept. The first scenario is called RRSP Leverage Strategy and it documents all the components of the leveraged investment. The second scenario is called the Regular Deposit Strategy and it illustrates what would happen if regular deposits were made in the amount of the after-tax cost of the loan, instead of investing the borrowed lump-sum. The first graph on Summary 1 page shows the investment balance of both scenarios. The bars represent the results of the RRSP Leverage Strategy, while the line represents the results of the Regular Deposit Strategy. The bars include the amount of debt that has to be repaid. In the example below, for example, the investment account balance is predicted to be about $87,000 at age 44, but a portion of this amount is the debt that must be repaid. This particular client borrowed $20,000 with interest payments only, to be repaid after 10 years. FP Solutions assumes that the tax refund generated by the $20,000 contribution is immediately applied against the loan. In this case, with an assumed marginal tax rate of 40%, this reduced the outstanding loan balance to $12,000. So, the net investment balance at age 44 is only $75,000, calculated as ($87,000 - $12,000). The second graph shows the debt balance and the annual loan payments for the RRSP Leverage Strategy. If this graph is flat and then drops abruptly to zero, as in the example below, it shows that the debt is an interest-only loan and that it is paid off in a lump sum once the client reaches a particular age. Remember that this shows the amount of debt remaining after the tax refund resulting from the RRSP contribution. FP Solutions User Manual - RRSP Leverage Planning Concept Module 410 of 473

412 Ledger 1 Page The Ledger 1 page summarizes the comparison of the RRSP Leverage and Regular Deposit strategies. zzz. Year-end Balance, Leverage RRSP Strategy: This is the account balance at the end of the year, including the value of investments that were purchased with the loan. aaaa. Debt Amount: This is the amount of the investment loan under the RRSP Leverage strategy that must still be repaid with after-tax dollars. In the example above, the client borrowed $20,000 to deposit to his RRSP, and he had a marginal tax rate of 40%, so he received a refund of $8,000, which was immediately used to reduce the debt outstanding to $12,000. bbbb. Debt/Tax Gross-up: This is the extra amount the client would have to withdraw from his RRSP, in addition to the Debt Amount, to have enough left after-tax to repay the debt. In the example above, the client has a Debt Amount of $12,000 and a marginal tax rate of 40%. He would have to withdraw $20,000 from his RRSP in order to have enough remaining after-tax to repay that $12,000, calculated as [Debt Amount (1 marginal tax rate)] or [$12,000 (1 40%)]. The difference between the Debt Amount and the amount that would have to be withdrawn from the RRSP to pay that Debt Amount is the Debt/Tax Gross-up, or $8,000 in this case, calculated as ($20,000 - $12,000). cccc. Net RRSP: This is calculated as (Year-end Balance Debt Amount Debt/Tax Gross-up). dddd. Year-end Balance, Regular Deposit Strategy: This is the account balance at the end of the year, including deposits in the amount of the after-tax cost of the loan, if the Regular Deposit Strategy is used. eeee. Dollar Difference: This is calculated as (Year-end Balance, Regular Deposit Strategy Net RRSP) ffff. Percentage Difference: This is calculated as [(Year-end Balance, Regular Deposit Strategy Net RRSP) 100 Year-end Balance, Regular Deposit Strategy]. Ledger 2 Page The Ledger 2 page provides investment projections when the RRSP Leverage strategy is used. FP Solutions User Manual - RRSP Leverage Planning Concept Module 411 of 473

413 gggg. Annual Deposit: The amount being leveraged is shown as a deposit in the first year of the plan. hhhh. Annual Withdrawal: This column shows total withdrawals from the account, including: the greater of the scheduled withdrawals you specified in the RRSP/RRIF module and the minimum RRIF withdrawal required by the Income Tax Act; plus the loan repayments. In the case of an interest-only loan, this column will include a lump-sum withdrawal at the age specified for the client. If the loan is amortized over a period of time, this column will include the grossed-up amount of the blended principal and interest payments for the duration of the amortization period. iiii. Minimum Withdrawal: this is the minimum RRIF withdrawal required by the Income Tax Act. jjjj. Annual Growth: This is the investment income earned within the account. It is calculated as [(Year-end Balance from previous year + Annual Deposit Annual Withdrawal) Weighted Return]. kkkk. Weighted Return: This is the overall return for the portfolio, taking into account the asset allocation and the default rates of return for each asset class. llll. Year-end Balance: This is calculated as (Year-end balance from previous year + Annual Deposit Annual Withdrawal + Annual Growth). mmmm. Deferred Tax: This is the tax that would result if the client withdrew the entire registered account balance during the year. It is calculated as (Year-end Balance highest marginal tax rate for the client s province of residence). Ledger 3 Page The Ledger 3 page provides details about the outstanding loan that was created as part of the Leverage strategy. FP Solutions User Manual - RRSP Leverage Planning Concept Module 412 of 473

414 nnnn. Debt Amount: This is the amount of the investment loan that remains outstanding at the end of the year. oooo. Interest Rate: This is the interest rate charged on the investment loan. pppp. Annual Payment: This is the total payment due each year, including both principal and interest for blended payments, or only interest in the case of an interest-only loan. qqqq. Interest Portion: This is the interest component of the Annual Payment. If it is an interest-only loan, the Annual Payment and the Interest Portion will be the same. rrrr. Interest Cumulative: This is the total amount of interest paid to date on the investment loan. ssss. Tax Gross-up: This is the extra amount the client would have to earn, in addition to the Annual Payment, to have enough after-tax funds to make the payment. In the example above, the client has an Annual Payment in Year 1 of $720 and a marginal tax rate of 40%, so he would have to earn $1,200 to have enough remaining after-tax to make that $720 payment, calculated as [($720 (1 40%)]. This is the amount in the Pre-tax Payment column. The difference between the Annual Payment and the Pre-tax Payment is the Tax Gross-up, or $480 in this case, calculated as ($1,200 - $720). tttt. Pre-tax Payment: This is the amount that the client would have to earn to have enough remaining after-tax to be able to make the Annual Payment. It is calculated as [(Annual Payment (1 marginal tax rate)]. Ledger 4 Page The Ledger 4 page provides investment projections of the RRSP account balance when the Regular Deposit strategy is used. uuuu. Annual Deposits: In this strategy, the regular deposits are equal to RRSP contributions that could be made at an after-tax cost that is equal to the Pre-tax Payment as shown on the Ledger 3 page. For example, on the Ledger 3 page, we determined that the client would have to earn $1,200 before-tax at his marginal tax rate of 40% in order to make the Annual Payment of $720 on his RRSP loan. With a 40% marginal tax rate, the client could make an RRSP contribution of $2,000 at an after-tax cost of only $1,200, calculated as [($1,200 (1 40%)], so this is the amount of the Annual Deposit under the Regular Deposit Strategy. The remaining columns on the Ledger 4 page are the same as described for the Ledger 2 page. FP Solutions User Manual - RRSP Leverage Planning Concept Module 413 of 473

415 Disclosure Page The top section of the Disclosure page provides an overview of the RRSP Leverage planning concept, and warns the client that a leverage strategy magnifies losses as well as gains, so it represents higher risk than using cash resources only. The bottom section requires the client to acknowledge that he or she understands that the information contained in the module is a projection only, and that the actual results may vary from this projection, based on changes in investment performance, federal and provincial tax laws, or the timing and amounts of future investment deposits or withdrawals. There is space for both the client and the planner to sign the acknowledgement. FP Solutions User Manual - RRSP Leverage Planning Concept Module 414 of 473

416 Module: RRSP Strategies Planning Concept Whether you are recommending that your client change the amount of his or her RRSP contributions or simply change the asset allocation, you can use the RRSP Strategies planning concept to show how the predicted outcome of their existing strategy compares to an alternative or recommended strategy. You can compare any number of strategies or just one, such as the effect that choosing a more aggressive asset allocation or maximizing foreign content will have on future growth. This module explains how to use the RRSP Strategies planning concept, and how to interpret the resulting RRSP Strategies report. Running the RRSP Strategies Planning Concept as a Standalone Plan To create a new concept focused on comparing different RRSP strategies: 75. Launch FP Solutions. 76. From the start-up screen, click on Concept. This will activate the Concept dropdown menu. 77. Choose RRSP Strategies from the drop-down menu. 78. Click on Next >>. This will launch the Default Presets screen, which allows you to choose a default scheme of rates of return for each asset class. 79. Click on your desired default scheme in the drop-down menu. 80. Click on Finish. This will lead you through the data entry wizards for this concept. 81. Complete the data entry wizards as described under Data Entry, below. 82. Click on Finish to close the last data entry wizard. You will be prompted to enter a file name. 83. Enter an appropriate file name, and click on Save As. 84. Click on OK to run the RRSP Strategies concept and display the resulting RRSP Strategies report. Data Entry Three data entry wizards will guide you through the data entry process if you are creating a new plan. FP Solutions User Manual - RRSP Strategies Planning Concept Module 415 of 473

417 Personal Information, Goals and Objectives Data Entry Wizard The first data entry wizard will lead you through three screens to collect the client s personal information, goals and objectives. At a minimum, you should complete the following: 10. On the Plan Information data entry screen, enter the current date, as well as the calendar year for which the plan is being prepared. 11. On the Personal Information data entry screens, enter: a. the client s first and last names, birthday and anticipated date of retirement on the Name and Date of Birth tab b. the client s province of residence on the Address tab 12. Click on Next>> to proceed to the next data entry wizard. Risk Tolerance Data Entry Wizard When doing anything that deals with investments, FP Solutions will prompt you to enter information regarding your client s risk tolerance. This data entry wizard consists of two main tabs. The first is called Risk Tolerance, which in turn is broken down into a risk profile screen plus seven additional pages. The second tab focuses on Areas of Concern and Miscellaneous Information. At a minimum, you should complete the Risk Tolerance tab. The Risk Tolerance tab starts with a Risk Profile page, which allows you to either do an individual risk assessment by completing a detailed questionnaire (which is included on the seven additional pages of the tab), or to manually enter the risk tolerance using a drop-down menu. In this section, we focus on manually entering the risk tolerance. 13. On the Risk Profile page, click on Manually select risk tolerance. This will activate the risk tolerance drop-down menus. 14. Choose the appropriate level of risk tolerance from the Non-registered drop-down menu. 15. Choose the appropriate level of risk tolerance from the Registered drop-down menu. 16. Click on Next>> to advance to the next data entry wizard. RRSP Strategies Data Entry Wizard When you are running the RRSP Strategies concept as a stand-alone plan, the RRSP Strategies data entry wizard includes five screens that allow you to define the two strategies to be used in the comparison. These screens include: FP Solutions User Manual - RRSP Strategies Planning Concept Module 416 of 473

418 vvvv. wwww. xxxx. yyyy. zzzz. Asset Values data entry screen Allocation data entry screen Deposit/Withdraw data entry screen Taxation data entry screen Charges data entry screen If you are launching the RRSP Strategies concept within an existing client file, these five screens are preceded by the Open Planning Concept data entry screen, which is discussed later in this module. Notes about the Data Entry Screens Each of the first five data entry screens includes two tabs, and you must review and/or complete both of them. The Current Strategies tab details the client s existing strategy, based either on the data currently loaded (if you have already completed a financial plan), or data that you enter when you add a new scenario without strategies. The Recommended Strategies tab details the strategy that is to be compared to the base strategy which, depending on your choice on the Open Planning Concept data entry screen (discussed later), is one of the following: vv. a new strategy ww. the strategy you chose from the Scenario With Recommended Strategies drop-down menu. Asset Values Data Entry Screen Note: These instructions apply to both the Current Strategies and Recommended Strategies tabs. Use the Asset Values data entry screen to enter the current values and adjusted cost bases (ACBs) of the current and recommended investment portfolios. You can use one of two methods. Manual Data Entry You can enter the current value of each asset class in the Personal and Spousal columns. FP Solutions automatically fills in the corresponding ACB column with the same amount. However, if you know the adjusted cost base, you should enter the real ACB manually. FP Solutions automatically calculates the percentage of the portfolio that is allocated to each asset class, and displays this allocation between the Spousal column and the ACB column. FP Solutions User Manual - RRSP Strategies Planning Concept Module 417 of 473

419 Using the Allocator Function Alternatively, you can use the Allocator function to specify the desired allocation: 30. For either the Personal or Spousal accounts, Click on Allocator. This will launch the Allocator data entry screen for that account. 31. Enter the total value of your client s Personal or Spousal RRSP funds in the Amount to be Allocated field. 32. Choose your client s risk tolerance by clicking on Conservative, Moderate, Moderate Growth, Moderate Aggressive or Aggressive; each one will result in a different allocation as shown in the % field for each asset class. You can further fine-tune these allocations manually if you wish. FP Solutions User Manual - RRSP Strategies Planning Concept Module 418 of 473

420 33. Click on OK. The Allocator data entry screen will close and you will be returned to the Asset Values data screen, with the portfolio allocated according to your choice. By default, the ACB of each asset class will be set to the allocated value when you use the Allocator, but you can adjust these amounts manually. Allocation Data Entry Screen Note: These instructions apply to both the Current Strategies and Recommended Strategies tabs. Use the Asset Allocation data entry screen to specify how often the portfolio should be rebalanced, and what the new asset allocation should be. Choose Method You can choose one of the following three ways to rebalance the portfolio: xx. Use current allocation: Select this option if you want the portfolio to be rebalanced to the allocation that you specified on the Asset Values data entry screen. yy. Use recommended allocation: Select this option only if you have previously completed the Risk Tolerance Questionnaire. FP Solutions will then use a default allocation depending on the client s risk tolerance. zz. Set allocation manually: Select this option if you want to specify the new asset allocation. This will activate the remaining data entry fields and you can enter a percentage for each asset class. Click on Reset Asset Allocation Data to enter the new information and overwrite any existing asset allocations you may have specified earlier. FP Solutions User Manual - RRSP Strategies Planning Concept Module 419 of 473

421 Frequency Choose how often the portfolio is rebalanced by selecting an option from the Frequency drop-down menu. While rebalancing a portfolio can trigger the realization of capital gains in a non-registered portfolio, this is not a concern in an RRSP. Deposit/Withdraw Data Entry Screen Note: These instructions apply to both the Current Strategies and Recommended Strategies tabs. Use the Deposit/Withdraw data entry screen to record your client s planned deposits to or withdrawals from his or her personal and/or spousal RRSP. Deposit Maximum Check the Deposit maximum box if you want FP Solutions to calculate the greatest deposit allowed by the Income Tax Act. Because the client s RRSP contribution room depends on earned income, you can only use this option if you have previously completed the Employment module, as well as the Pension module if your client is a member of a registered pension plan. You can also choose how that maximum deposit is allocated between personal and spousal RRSPs by entering the relative proportions in the Personal and Spousal fields. You can specify two different deposit rates, with changes to take place when the client reaches a specified age. Similarly, you can specify two different withdrawal rates, based on age. Deposits Other Than Maximum To specify deposits other than the maximum amount allowed by the Income Tax Act, make sure the Deposit maximum box is cleared. FP Solutions User Manual - RRSP Strategies Planning Concept Module 420 of 473

422 Then complete the remainder of this section as follows: aaa. Annual or Monthly: Click on either Annual or Monthly to specify whether your client will be making deposits annually or monthly. bbb. Beginning of period: Check the Beginning of period box if your client will be making deposits at the beginning of each compounding period, and clear the box if your client will be making deposits at the end of each period. Most clients tend to make their deposits at the end of the period, because it gives them the time necessary to accumulate the necessary funds to make their deposits. However, you can choose whichever method best suits your client s needs. ccc. Amount: Enter the amount that your client plans to deposit each period to his or her personal and spousal RRSPs. Do this for each age bracket. ddd. From age: Enter the age at which your client will start making the specified deposits. eee. To age: Enter the age after which your client will cease making the specified deposits. Example: In the screen capture above, the client will make deposits of $300 to his personal RRSP and $100 to a spousal RRSP at the end of each month (indexed at 2%), beginning with January of the year in which he turns 40 years, and ending with December of the year in which he turns 50. In January of the year in which he turns 51, the deposits will increase to $500 for his personal RRSP and $150 for a spousal RRSP at the end of each month (indexed at 2%), up to and including December of the year in which he turns 64. fff. Index: Enter the annual rate at which deposits are expected to increase, for each age bracket. If deposits are expected to decrease over time, enter the rate as a negative number. Note: Each amount is only indexed until the end of the specified age bracket. At the beginning of the second age bracket, the new amount, without indexation, serves as the starting point. In other words, the amounts that you enter into the Amount fields are future dollars, not current dollars. FP Solutions User Manual - RRSP Strategies Planning Concept Module 421 of 473

423 RRIF Minimum Withdrawals Once your client converts his or her RRSP to a RRIF, FP Solutions automatically calculates the minimum required RRIF withdrawal. If your client only wants the minimum withdrawals, all you have to do is complete the following: ggg. Begin RRIF at age: While an RRSP must be collapsed no later than the end of the year in which the annuitant turns 71 years of age, the client can choose to transfer the funds to a RRIF at an earlier age. Choose the desired age from the Begin RRIF at age drop-down menu. hhh. Base RRIF minimum on Spouse s age: To maintain maximum flexibility over withdrawals, a RRIF can be based on the age of the younger spouse. Check this box if the spouse is younger than the client and you want the RRIF withdrawals to be based on the younger age. Withdrawals Other Than Minimum If your client wants withdrawals in excess of the minimum, complete the following fields. Note: If you specify withdrawals less than the required minimum amount, FP Solutions will apply the minimum amount. iii. Annual or Monthly: Click on either Annual or Monthly to specify whether your client will be making withdrawals annually or monthly. jjj. Beginning of period: Check the Beginning of period box if your client will be making withdrawals at the beginning of each compounding period, and clear the box if your client will be making withdrawals at the end of each period. Withdrawals are generally made at the beginning of the period, because clients need to have the funds in hand before they can spend those funds during the period. However, you can choose whichever method best suits your client s needs. kkk. Amount: Enter the amount that your client plans to withdraw each period for the first age bracket, and repeat for the second age bracket. FP Solutions User Manual - RRSP Strategies Planning Concept Module 422 of 473

424 lll. From age: Enter the age at which your client will start making the specified withdrawals. mmm. To age: Enter the age after which your client will cease making the specified withdrawals. nnn. Index: Enter the annual rate at which withdrawals are expected to increase, for each age bracket. If withdrawals are expected to decrease over time, enter the rate as a negative number. Note: Each amount is only indexed until the end of the specified age bracket. At the beginning of the second age bracket, the new amount, without indexation, serves as the starting point. In other words, the amounts that you enter into the Amount fields are future dollars, not current dollars. Taxation Data Entry Screen Note: These instructions apply to both the Current Strategies and Recommended Strategies tabs. Use the Taxation data entry screen to enter a variety of parameters that will affect the growth and taxation of your client s registered investment portfolio, or that will limit contributions to that portfolio. Annual Portfolio Turnover Turnover can change the balance between foreign and Canadian content. This was important when the foreign content limit was limited to 30%, but now that the foreign content limit has been eliminated, these fields no longer affect the outcome and you can ignore them. Contribution Limits 11. Enter the client s unused RRSP contribution room in the Unused contribution amount field. If the amount that you entered includes the new contribution room that arose on FP Solutions User Manual - RRSP Strategies Planning Concept Module 423 of 473

425 January 1 of the first planning year because of your client s employment last year, check the Includes 1 st year maximum box. 12. If you are running the RRSP Strategies planning concept as a stand-alone plan, you must check the Set maximum contribution limit at box, and enter the client s annual current contribution limit in the corresponding field, based on his or her past employment and pension plan participation. If you are running the RRSP Strategies planning concept within an existing financial plan, and you have completed the Employment and Pension modules for the client, you can leave this section blank and FP Solutions will calculate the maximum contribution limit. Charges Data Entry Screen Note: These instructions apply to both the Current Strategies and Recommended Strategies tabs. FP Solutions assumes that all registered investments are made through mutual funds. Use the Charges data entry screen to describe the fees associated with your client s RRSP, and the source of funds used to pay those fees. ooo. New deposit sales charge: Enter the average front-end charge that your client will pay on new investments. FP Solutions assumes that these sales charges will be deducted from the investment account. ppp. Annual administration/trustee fee: Enter any flat annual fees associated with your client s RRSP. Enter this as a dollar amount (e.g., $100). qqq. Managed/Wrap Account expense: Enter any percentage fees associated with your client s registered account. Enter this as a percentage of total assets (e.g., 2%). rrr. Pay account charges outside of investment until age: If your client will use other sources of funds (e.g., employment income) to pay the annual administration fee or the percentage management fee, check this box. Then choose the age at which your client will start paying these fees from the investment account by selecting the appropriate age from the drop-down menu. If your client will always pay the account charges with outside funds, select the age that corresponds to the end of your client s planning horizon. FP Solutions User Manual - RRSP Strategies Planning Concept Module 424 of 473

426 If your client wants to pay the account charges from the investment income, clear the checkbox. Assumptions FP Solutions uses default assumptions for the management expense ratios and the portions of capital gains that are realized by each type of mutual fund. The Index Assumptions portion of this data entry screen is automatically populated with these default values, but you can change any of them simply by entering a new value. Launching the Retirement Strategies Planning Concept from within an Existing Plan To launch the RRSP Strategies planning concept from within an existing plan: 13. Do one of the following: a. From the Main Screen, click on Open a Planning Concept, or b. Click on the Concepts icon in the main toolbar. 14. You will be prompted to save the existing file. Click on Yes or No. This will launch the Planning Concept selection box. 15. Double click on RRSP Strategies or select this title and click OK. This will launch the RRSP Strategies report and the RRSP Strategies data entry wizard, with the addition of the Open Planning Concept data entry screen, discussed below. FP Solutions User Manual - RRSP Strategies Planning Concept Module 425 of 473

427 Open Planning Concept Data Entry Screen When you launch the RRSP Strategies planning concept from within an existing client file, the RRSP Strategies data entry wizard described earlier in this module includes one additional data entry screen. This Open Planning Concept data entry screen also appears if you reopen a client file after having previously run an RRSP Strategies scenario (see Saving the Concept, later in this module). When you open any planning concept that can have multiple scenarios, you can choose between View Planning Concept and Apply Planning Concept. View Planning Concept If you have run the concept before and simply want to review the results: 18) Selected View Planning Concept. 19) Select the scenario without strategies that you want to review from the first dropdown menu. 20) Select the scenario with strategies that you want to review from the second dropdown menu. 21) Select the account that you want to apply the concept to from the third drop-down menu. Your choices might include: sss. RRSP/RRIF: Client ttt. RRSP/RRIF: Spouse uuu. RRSP/RRIF: Joint-owned FP Solutions User Manual - RRSP Strategies Planning Concept Module 426 of 473

428 Only those registered modules that you have completed will appear in this dropdown menu. 22) Click on FINISH to refresh the analysis. Apply Planning Concept If you have never run the concept before, or if you have run the concept but want to add or modify a scenario: 20) Select Apply Planning Concept. 21) Do one of the following: a. If you are modifying a previous scenario without strategies, choose Select scenario without strategies and then select the desired scenario from the corresponding drop-down menu. b. If you want to develop a new scenario, select Add new scenario without strategies. Note: Each time you add a new scenario, FP Solutions automatically names and numbers the scenario for you, as Current Strategies 2, Current Strategies 3, etc. 22) Do one of the following: a. If you are modifying a previous scenario with strategies, choose Select scenario with strategies, and then select the desired scenario from the corresponding drop-down menu. b. If you want to develop a new scenario, select Add new scenario with strategies. Note: Each time you add a new scenario, FP Solutions automatically names and numbers the scenario for you, as Recommended Strategies 2, Recommended Strategies 3, etc. FP Solutions User Manual - RRSP Strategies Planning Concept Module 427 of 473

429 23) Select the account that you want to apply the concept to from the third drop-down menu. Your choices might include: vvv. RRSP/RRIF: Client www. RRSP/RRIF: Spouse xxx. RRSP/RRIF: Joint-owned Only those registered modules that you have completed will appear in this dropdown menu. 24) Click on Next> to proceed to the Asset Values data entry screen, as described earlier. Saving the Concept The various investment strategies that you create when using the RRSP Strategies planning concept are saved when you save the client file. When you reopen the client file, you will be prompted to load either the basic client data or one of the recommended strategies scenarios created when you used the concept. Once you reopen the client file (regardless of which RRSP strategy you loaded when you reopened the file), you can review any of the RRSP Strategies scenarios again by launching the concept and following the steps for View Planning Concept as described earlier. Documentation To access the documentation for the RRSP Strategies planning concept if it is not currently on screen: 29. Click on Goto in the main menu bar. 30. Click on Concepts in the drop-down menu. 31. You will be prompted to save the existing file. Click on Yes or No. This will launch the Planning Concept selection box. 32. Double click on RRSP Strategies or select this title and click OK.. This will launch the RRSP Strategies report for the last comparison you ran. This report, which is suitable for distribution to your client, consists of a summary page, four ledger pages that provide numeric information about the concept, and a disclosure page. FP Solutions User Manual - RRSP Strategies Planning Concept Module 428 of 473

430 Printing the Report To print the RRSP Strategies report: 50. Make sure that the RRSP Strategies report is on screen (access the report as described above). 51. Click on File in the main menu bar. 52. Click on Print in the drop-down menu. This will launch the Full Print dialogue box. 53. If the Documents to be Printed window is already populated with documents that you do not wish to print, you can clear the window by selecting the (Select Package) option in the Print Package drop-down menu. 54. Select the pages of the RRSP Strategies report that you want to print by holding the Ctrl key, and clicking on the title of each desired page in the Available Documents window. 55. Click on the right arrow key to transfer those pages to the Documents to be Printed window. 56. Click on Print. Summary Page The graphs at the top of the Summary 1 page compare the composition of the recommended investment portfolio (on the left) with the base or existing investment portfolio (on the right). These graphs represent the portfolios at the end of the first year of the financial plan. The pie charts show the relative composition of each portfolio, in terms of cash, bonds and equities. The bar graphs below each pie chart show the relative proportions of Canadian and Foreign content in each portfolio. The graph at the bottom of the page shows the predicted account balance for each strategy on a year-by-year basis. The blue line represents the base or existing investment strategy, while the bars represent the recommended investment strategy. Note that the balance will begin to decline no later than the year after the client reaches 71 years of FP Solutions User Manual - RRSP Strategies Planning Concept Module 429 of 473

431 age, when RRIF withdrawals must begin. Also, remember that the full amount of the withdrawals are taxable. Ledger 1 Page The Ledger 1 page shows the growth in the chosen investment account using the recommended investment strategy, as well as the existing or base strategy. The data is provided separately for both strategies, and the difference is summarized in the final column. yyy. Deposit/(Withdraw): This shows the client s planned deposits to or withdrawals from the account, which you entered on the Deposit/Withdraw data entry screen. zzz. Net Growth: This is calculated as the Annual Growth (shown on the Ledger 2 and Ledger 3 pages), less the sales charges and account fees that you specified on the Charges data entry screen. aaaa. Year-end Balance: This is the account balance at the end of the year, after factoring in deposits, withdrawals, sales and account charges if applicable, and investment growth. bbbb. Change in Value: This is calculated as (Year-end Balance of the Recommended Strategies Year-end Balance of the Current Strategies). Ledger 2 and Ledger 3 Pages These two ledger pages provide more detail about the investment accounts under the recommended (Ledger 2) and current (Ledger 3) strategies, respectively. FP Solutions User Manual - RRSP Strategies Planning Concept Module 430 of 473

432 cccc. Annual Deposit: This shows the client s planned deposits to the account, which you specified on the Deposit/Withdraw data entry screen. dddd. Annual Withdrawal: This is the sum of the withdrawals that you specified on the Deposit/Withdraw data entry screen, and the carrying charges and account fees that you specified on the Charges data entry screen. If you specified that the account fees be paid from outside of the account, they will not be included in this column. eeee. Minimum Withdrawal: This is the minimum RRIF withdrawal required by the Income Tax Act. If this amount is greater than the annual withdrawal you specified in the previous column, the software will use the minimum withdrawal amount. ffff. Annual Growth: This is the investment income and unrealized capital growth earned within the account. It is calculated as [(Year-end Balance from previous year + Annual Deposit the greater of the Annual Withdrawal and Minimum Withdrawal) Weighted Return]. gggg. Weighted Return: This is the overall return for the portfolio, taking into account the asset allocation and the default rates of return for each asset class. hhhh. Year-end Balance: This is calculated as [Year-end balance from previous year + Annual Deposit (greater of the Annual Withdrawal and Minimum Withdrawal) + Annual Growth]. iiii. Deferred Tax: This is the tax that would result if the client withdrew the entire registered account balance during the year. It is calculated as (Year-end Balance highest marginal tax rate for the client s province of residence). Ledger 4 Page The Ledger 4 page shows the difference between the Recommended and Current strategies for all of the parameters presented on the Ledger 2 and Ledger 3 pages. For example, the Annual Deposit on the Ledger 4 page is calculated as (Annual Deposit on Ledger 2 page Annual Deposit on Ledger 3 page). Disclosure Page The top section of the Disclosure page provides an overview of the RRSP Strategies concept and the various factors that are included in an investment strategy, including asset allocation and rebalancing, deposit and withdrawal amounts and frequencies, management fees, etc. FP Solutions User Manual - RRSP Strategies Planning Concept Module 431 of 473

433 The bottom section requires the client to acknowledge that he or she understands that the information contained in the module is a projection only, and that the actual results may vary from this projection, based on changes in investment performance, federal and provincial tax laws, or the timing and amounts of future investment deposits or withdrawals. There is space for both the client and the planner to sign the acknowledgement. FP Solutions User Manual - RRSP Strategies Planning Concept Module 432 of 473

434 Module: Tax Freedom Day Planning Concept Tax freedom day represents the day each year when your client s total income to that date exceeds the projected income taxes payable for the year. Although tax freedom day is a theoretical calculation, the Tax Freedom Day planning concept helps put your client s income taxes into perspective. You can also use it to show the impact of the tax planning strategies that you are proposing to your clients. This module explains how to use the Tax Freedom Day planning concept, and how to interpret the resulting Tax Freedom Day report. Launching the Tax Freedom Day Planning Concept To use the Tax Freedom Day planning concept, you must have already completed an initial fact finding interview. If you attempt to launch the concept as a stand-alone plan, you will first be directed to the main FP Solutions data entry wizard. So, in most cases you will launch the Tax Freedom Day planning concept from within a completed financial plan. To do this: 7. Do one of the following: a. From the Main Screen, click on Open a Planning Concept, or b. Click on the Concepts icon in the main toolbar. 8. You will be prompted to save the existing file. Click on Yes or No. This will launch the Planning Concept selection box. 9. Double click on Tax Freedom Day or select this title and click OK. This will launch the Tax Freedom Day dialogue box. Data Entry Because you will generally only run the Tax Freedom Day planning concept on a completed financial plan, there is very little data entry to perform on the single dialogue box. FP Solutions User Manual - Tax Freedom Day Planning Concept Module 433 of 473

435 1. Choose whether the Summary 1 Page of the Tax Freedom Day report should highlight the client s income only, the spouse s income only, or both of their incomes in combination by clicking on the appropriate option. Note: FP Solutions will automatically complete tax freedom day calculations for the client, the spouse, and the client and spouse in combination, and this data will be included in the ledger pages of the Tax Freedom Day report. The only thing this option allows you to specify is which set of data (client, spouse or combination) is shown on the Summary 1 Page. 2. If you feel that the existing financial plan may not be complete, you can click on Enter Client Data. This will launch the FP Solutions data entry wizard, and you can review your client s data and modify it if necessary before running the concept. 3. Click on Finish to run the concept. Saving the Concept Because there is no specific data entry required for the Tax Freedom Day planning concept, you cannot save the concept. However, you can easily duplicate your results simply by launching the concept as described earlier. Documentation To access the documentation for the Tax Freedom Day planning concept if it is not currently on screen: 33. Click on Goto in the main menu bar. 34. Click on Concepts in the drop-down menu. 35. You will be prompted to save the existing file. Click on Yes or No. This will launch the Planning Concept selection box. 36. Double click on Tax Freedom Day or select this title and click OK. This will launch the Tax Freedom Day report, which is suitable for distribution to your client. It consists of a summary page, three ledger pages that provide numeric information about the concept, and a disclosure page. FP Solutions User Manual - Tax Freedom Day Planning Concept Module 434 of 473

436 Printing the Report To print the Tax Freedom Day report: 57. Make sure that the Tax Freedom Day report is on screen (access the report as described above). 58. Click on File in the main menu bar. 59. Click on Print in the drop-down menu. This will launch the Full Print dialogue box. 60. If the Documents to be Printed window is already populated with documents that you do not wish to print, you can clear the window by selecting the (Select Package) option in the Print Package drop-down menu. 61. Select the pages of the Tax Freedom Day report that you want to print by holding the Ctrl key, and clicking on the title of each desired page in the Available Documents window. 62. Click on the right arrow key to transfer those pages to the Documents to be Printed window. 63. Click on Print. Summary Page The first graph on the Summary 1 page the date each year when the clients begin working for themselves. If you chose to run the concept on the client and spouse s income, their combined tax freedom day will be shown on the Summary 1 page, but both combined and individual data will be provided in the ledger pages. The second graph projects your client s total income taxes payable as a percentage of total income each year. FP Solutions User Manual - Tax Freedom Day Planning Concept Module 435 of 473

437 Ledger 1 Page The Ledger 1 page summarizes the tax freedom day calculations for the client and spouse in combination. aaaaa. Annual Income: This is the combined total income of the client and spouse. bbbbb. Tax Payable: This is the sum of all federal and provincial income taxes payable by the client and spouse. ccccc. After-tax Income: This is calculated as (Annual Income Tax Payable). ddddd. Average Tax Rate: This is calculated as [(Tax Payable Annual Income) 100%]. eeeee. Number of Days: This is calculated as (total number of days in the year Average Tax Rate), rounded up to the next whole number. fffff. Income Tax Freedom Day: This is the first day of the year that the combined income of the client and spouse to date will exceed their projected income taxes for the year. Ledger 2 Page The Ledger 2 page summarizes the tax freedom day calculations for the client only. The columns have the same general meaning as those on the Ledger 1 page. Ledger 3 Page The Ledger 3 page summarizes the tax freedom day calculations for the client s spouse only. The columns have the same general meaning as those on the Ledger 1 page. FP Solutions User Manual - Tax Freedom Day Planning Concept Module 436 of 473

438 Disclosure Page The top section of the Disclosure page provides an overview of the Tax Freedom Day planning concept. The bottom section requires the client to acknowledge that he or she understands that the information contained in the module is a projection only, and that the actual results may vary from this projection, based on changes in investment performance, federal and provincial tax laws, or their ability to earn income. There is space for both the client and the planner to sign the acknowledgement. FP Solutions User Manual - Tax Freedom Day Planning Concept Module 437 of 473

439 Module: Tax Funding Alternatives (Business) Planning Concept Many family business owners want to pass their business intact to their heirs. However, income taxes on the deemed disposition at death can be significant, particularly upon the death of the second spouse when the spousal rollover is no longer available. The Tax Funding Alternatives (Business) planning concept creates a report that compares various methods of funding the taxes owing on business assets at the second death. The four methods that are compared are: Pay Cash Forced Sale Borrow Funds Insured Funding See the section called Funding Assumptions Data Entry Screen for a description of these alternatives. This module explains how to use the Tax Funding Alternatives (Business) planning concept, and how to interpret the resulting Tax Funding Alternatives (Business) report. Launching the Tax Funding Alternatives (Business) Planning Concept To use the Tax Funding Alternatives (Business) planning concept, you must have already completed an initial fact finding interview. If you attempt to launch the concept as a stand-alone plan, you will first be directed to the main FP Solutions data entry wizard. So, in most cases you will launch the Tax Funding Alternatives (Business) planning concept from within a completed financial plan. To do this: 10. Do one of the following: a. From the Main Screen, click on Open a Planning Concept, or b. Click on the Concepts icon in the main toolbar 11. You will be prompted to save the existing file. Click on Yes or No. This will launch the Planning Concept selection box. FP Solutions User Manual - Tax Funding Alternatives (Business) Planning Concept Module 438 of 473

440 12. Double click on Tax Funding Alternatives (Business) or select this title and click OK. This will launch the Tax Funding Alternatives (Business) data entry wizard. Data Entry Because you will generally only run the Tax Funding Alternatives (Business) planning concept on a completed financial plan, there is very little data entry to perform before you can run this concept. Open Planning Concept Data Entry Screen In the Tax Funding Alternatives planning concept for personal assets, you have to identify which of the client s personal assets to protect from tax erosion. In the Tax Funding Alternatives (Business) planning concept, FP Solutions automatically includes all corporate assets owned by the both the client and spouse in the calculations. The Open Planning Concept data entry screen allows you to identify any existing personal or corporate insurance policies that can be used to fund the tax liability upon death, as follows: 4. Choose the corporate owned life insurance contract(s) that will be used for the insured funding portion of this planning concept by clicking on the appropriate option(s). 5. Choose the personally owned life insurance contract(s) that will be used for the insured funding portion of this planning concept by clicking on the appropriate options(s). FP Solutions User Manual - Tax Funding Alternatives (Business) Planning Concept Module 439 of 473

441 6. Click on Next> to proceed to the Funding Assumptions data entry screen. Funding Assumptions Data Entry Screen FP Solutions compares different ways of funding the deferred taxes that will become due at death because of the deemed disposition of the corporate assets. These options are as follows: Pay Cash: This assumes that cash will be used to pay the deferred tax liability on the corporate assets. FP Solutions calculates the amount of cash that would need to be in the estate. Forced Sale: This assumes that the estate will have to sell other estate assets at a discount (i.e., at fire sale prices), to raise funds to pay the deferred tax liability on the corporate assets. FP Solutions calculates the value of assets that will have to be sold. Borrow Money: This assumes that the estate will borrow funds to pay the deferred tax liability on the corporate assets. FP Solutions calculates the total cost of the loan, including principal and interest. Insured Funding: This assumes that the estate is named as the beneficiary of one or more existing life insurance policies, so that the proceeds can be used to pay the deferred tax liability on the corporate assets. FP Solutions calculates the future value of the premiums on these policies, plus or minus any excess or deficiency in the benefits paid. The Funding Assumptions data entry screen allows you to set a variety of parameters that will affect the comparison of these funding options. FP Solutions User Manual - Tax Funding Alternatives (Business) Planning Concept Module 440 of 473

442 Life expectancy (age): FP Solutions will perform the comparison for each year of the client s planning horizon. However, the graphs at the top of the Summary 1 page highlight a single year. Choose the year that you want to have highlighted on the Summary 1 page by selecting the appropriate age from the Life expectancy (age) drop-down menu. Forced sale discount rate: Enter the portion of the full value of the liquidated assets that your client could expect to receive if he or she had to sell them within a short time frame (i.e., at fire sale prices). Borrow funds interest rate: Enter the interest rate that would apply to any funds borrowed by the estate to pay the deferred taxes upon death. Borrow funds term (years): Enter the amortization period for the loan. Insured funding after-tax compound rate: Enter the interest rate that FP Solutions should use to project the future value cost of all premiums paid for the life insurance that will be used to pay the deferred taxes upon death. Saving the Concept You cannot save your results after running the Tax Funding Alternatives (Business) planning concept. However, you can easily duplicate your results simply by launching the concept and reentering the small amount of data described earlier Documentation To access the documentation for the Tax Funding Alternatives (Business) planning concept if it is not currently on screen: 37. Click on Goto in the main menu bar. 38. Click on Concepts in the drop-down menu. 39. You will be prompted to save the existing file. Click on Yes or No. This will launch the Planning Concept selection box. 40. Double click on Tax Funding Alternatives (Business) or select this title and click OK. This will launch the Tax Funding Alternatives (Business) report, which is suitable for distribution to your client. It consists of a summary page, three ledger pages that provide numeric information about the concept, and a disclosure page. Printing the Report To print the Tax Funding Alternatives (Business) report: FP Solutions User Manual - Tax Funding Alternatives (Business) Planning Concept Module 441 of 473

443 64. Make sure that the Tax Funding Alternatives (Business) report is on screen (access the report as described above). 65. Click on File in the main menu bar. 66. Click on Print in the drop-down menu. This will launch the Full Print dialogue box. 67. If the Documents to be Printed window is already populated with documents that you do not wish to print, you can clear the window by selecting the (Select Package) option in the Print Package drop-down menu. 68. Select the pages of the Tax Funding Alternatives (Business) report that you want to print by holding the Ctrl key, and clicking on the title of each desired page in the Available Documents window. 69. Click on the right arrow key to transfer those pages to the Documents to be Printed window. 70. Click on Print. Summary Page The first chart and graph on the Summary 1 page show the projected value of your client s corporate assets at the life expectancy that you selected on the Funding Assumptions data entry screen. It also shows the projected deferred taxes on those assets, and the balance that will be available to the heirs. In the example shown here, the projected taxes amount to $ , or 11% of the total value of the corporate assets. The second chart and graph show how much of the estate will be consumed by paying those taxes under each of the four funding alternatives. In the example illustrated here, if death occurs at age 85, the results of the four funding alternatives are as follows: If the estate is paying cash, it will need cash of $344,258 to cover the tax liability, which is 11% of the corporate assets value. If the estate is liquidating assets in a forced sale at fire-sale prices, it will need to sell assets valued at $382,509 to come up with the $344,248 needed to cover the tax liability. This amounts to 12% of the corporate assets value. If the estate borrows $344,258 to cover the tax liability, the total cost of this loan will end up being $501,216, or 16% of the corporate assets value. FP Solutions User Manual - Tax Funding Alternatives (Business) Planning Concept Module 442 of 473

444 If the estate uses the selected insurance policies to pay the income taxes, the proceeds will be more than enough to pay the deferred tax liability, and the balance of the death benefit ($78,060) will accrue to the heirs, increasing the estate value of the corporate assets by 3%. The final graph on the Summary 1 page shows the projected after-tax value of the corporate assets and the estimated taxes payable for each year. The line represents the amount that the client s heirs could receive if an insured funding arrangement is set up. In the graph below, the insured funding will actually provide a windfall for the heirs, particularly in the early years of the planning horizon. Ledger 1 Page The Ledger 1 page shows the projected asset values and taxes, as well as the final cost of the four funding strategies. Business Value: This is the total value of all of the business assets owned by the client and spouse. FP Solutions User Manual - Tax Funding Alternatives (Business) Planning Concept Module 443 of 473

445 Projected Taxes: This is the projected income tax liability resulting from the deemed disposition of the business assets upon death. The tax liability is calculated using the top marginal tax rate for the client s province of residence. Estate Erosion: This is calculated as (Projected Taxes Business Value). Cash Payment: This is equal to the deferred tax liability. Forced Sale: This is the value of the assets that have to be sold at fire sale prices to generate enough money to pay the deferred tax liability. Borrow Money: This is the total cost (principal and interest) of financing the deferred tax liability through a loan. Insured Funding: This is the future value of premiums on life insurance contracts that are used to pay the tax liability, plus or minus any excess or deficiency in the benefits paid. In our example above, during the first 5 years as shown, the existing insurance policies are more than adequate to pay the deferred taxes, actually resulting in a surplus for the estate. This surplus is shown as a negative number, because this planning concept is designed to show the costs of the alternatives. By showing a negative cost, it indicates that the client could actually reduce the amount of their insurance (and thus the cost associated with that insurance), and still meet their tax funding objectives. Ledger 2 Page The Ledger 2 page summarizes the details of the insurance contracts you chose on the Open Planning Concept data entry screen. Corporately Owned: This is the projected death benefit from all corporately owned policies that you chose on the Open Planning Concept data entry screen. Personally Owned Life Insurance: These four columns show the projected death benefits of any personal insurance policies that you chose on the Open Planning Concept data entry screen, which could include individual and/or joint policies on the client and spouse. Total Benefit: This is the sum of all death benefits recorded in the previous five columns. Annual Premium: This is the total of all premiums for all of the selected insurance policies for the year. FP Solutions User Manual - Tax Funding Alternatives (Business) Planning Concept Module 444 of 473

446 Ledger 3 Page The Ledger 3 page shows the details of the Insured Funding Arrangement strategy. Business Value: This is the same as shown on the Ledger 1 page. Projected Taxes: This is the same as shown on the Ledger 1 page. Benefit: This is the total of all death benefits from the insurance policies you selected on the Open Planning Concept data entry screen. Premium: This is the projected annual premium for all of the selected insurance policies. FV Premium: This is the future value, at the life expectancy, of all cumulative premiums paid since Year 1 of the planning concept. Net Cost: This is calculated as (Benefit FV Premium Projected Taxes). A negative number indicates that the insurance proceeds will be more than enough to offset the tax liability, and the remainder of the insurance proceeds will be paid to the heirs. Cost Reduction: This is calculated as (Benefit FV Premium). Disclosure Page The top section of the Disclosure page provides an overview of the Tax Funding Alternatives (Business) concept. The bottom section requires the client to acknowledge that he or she understands that the information contained in the module is a projection only, and that the actual results may vary from this projection, based on changes in investment performance, federal and provincial tax laws, or the cost of obtaining life insurance. There is space for both the client and the planner to sign the acknowledgement. FP Solutions User Manual - Tax Funding Alternatives (Business) Planning Concept Module 445 of 473

447 Module: Tax Funding Alternatives Planning Concept Income taxes have the potential to erode your client s estate, particularly upon the death of the second spouse when the spousal rollover is no longer available. The Tax Funding Alternatives planning concept creates a report that compares various methods of funding the taxes owing at the second death. The four methods that are compared are: Pay Cash Forced Sale Borrow Funds Insured Funding See the section called Funding Assumptions Data Entry Screen for a description of these alternatives. This module explains how to use the Tax Funding Alternatives planning concept, and how to interpret the resulting Tax Funding Alternatives report. Launching the Tax Funding Alternatives Planning Concept To use the Tax Funding Alternatives planning concept, you must have already completed an initial fact finding interview. If you attempt to launch the concept as a stand-alone plan, you will first be directed to the main FP Solutions data entry wizard. So, in most cases you will launch the Tax Funding Alternatives planning concept from within a completed financial plan. To do this: 13. Do one of the following: a. From the Main Screen, click on Open a Planning Concept, or b. Click on the Concepts icon in the main toolbar 14. You will be prompted to save the existing file. Click on Yes or No. This will launch the Planning Concept selection box. 15. Double click on Tax Funding Alternatives or select this title and click OK. This will launch the Tax Funding Alternatives data entry wizard. FP Solutions User Manual - Tax Funding Alternatives Planning Concept Module 446 of 473

448 Data Entry Because you will generally only run the Tax Funding Alternatives planning concept on a completed financial plan, there is very little data entry to perform before you can run this concept. Open Planning Concept Data Entry Screen The Open Planning Concept data entry screen allows you to choose those assets with a deferred tax liability that the client would like to pass intact to his or her heirs, and to identify any existing insurance contracts that can be used to fund the tax liability upon death. 7. Choose the assets with a deferred tax liability that the client would like to pass intact to his or her heirs by clicking on the appropriate option(s). FP Solutions will assume that assets that are not protected can be liquidated to pay the tax bill. 8. Choose the life insurance contract(s) that will be used for the insured funding portion of this planning concept by clicking on the appropriate option(s). 9. Click on Next> to proceed to the Funding Assumptions data entry screen. FP Solutions User Manual - Tax Funding Alternatives Planning Concept Module 447 of 473

449 Funding Assumptions Data Entry Screen Once you have chosen the assets to be protected, FP Solutions compares different ways of funding the deferred taxes that will become due at death because of the deemed disposition of those assets. These options are as follows: Pay Cash: This assumes that cash will be used to pay the deferred tax liability on the protected assets. FP Solutions calculates the amount of cash that would need to be in the estate. Forced Sale: This assumes that the estate will have to sell other estate assets at a discount (i.e., at fire sale prices), to raise funds to pay the deferred tax liability on the protected assets. FP Solutions calculates the value of assets that will have to be sold. Borrow Money: This assumes that the estate will borrow funds to pay the deferred tax liability on the protected assets. FP Solutions calculates the total cost of the loan, including principal and interest. Insured Funding: This assumes that the estate is named as the beneficiary of one or more existing life insurance policies, so that the proceeds can be used to pay the deferred tax liability on the protected assets. FP Solutions calculates the future value of the premiums on these policies, plus or minus any excess or deficiency in the benefits paid. The Funding Assumptions data entry screen allows you to set a variety of parameters that will affect the comparison of these funding options. Life expectancy (age): FP Solutions will perform the comparison for each year of the client s planning horizon. However, the graphs at the top of the Summary 1 page highlight a single year. Choose the year that you want to have highlighted on the Summary 1 page by selecting the appropriate age from the Life expectancy (age) drop-down menu. Forced sale discount rate: Enter the portion of the full value of the liquidated assets that your client could expect to receive if he or she had to sell them within a short time frame (i.e., at fire sale prices). FP Solutions User Manual - Tax Funding Alternatives Planning Concept Module 448 of 473

450 Borrow funds interest rate: Enter the interest rate that would apply to any funds borrowed by the estate to pay the deferred taxes upon death. Borrow funds term (years): Enter the amortization period for the loan. Insured funding after-tax compound rate: Enter the interest rate that FP Solutions should use to project the future value cost of all premiums paid for the life insurance that will be used to pay the deferred taxes upon death. Saving the Concept You cannot save your results after running the Tax Funding Alternatives planning concept. However, you can easily duplicate your results simply by launching the concept and reentering the small amount of data described earlier. Documentation To access the documentation for the Tax Funding Alternatives planning concept if it is not currently on screen: 41. Click on Goto in the main menu bar. 42. Click on Concepts in the drop-down menu. 43. You will be prompted to save the existing file. Click on Yes or No. This will launch the Planning Concept selection box. 44. Double click on Tax Funding Alternatives or select this title and click OK. This will launch the Tax Funding Alternatives report, which is suitable for distribution to your client. It consists of a summary page, three ledger pages that provide numeric information about the concept, and a disclosure page. Printing the Report To print the Tax Funding Alternatives report: 71. Make sure that the Tax Funding Alternatives report is on screen (access the report as described above). 72. Click on File in the main menu bar. 73. Click on Print in the drop-down menu. This will launch the Full Print dialogue box. 74. If the Documents to be Printed window is already populated with documents that you do not wish to print, you can clear the window by selecting the (Select Package) option in the Print Package drop-down menu. FP Solutions User Manual - Tax Funding Alternatives Planning Concept Module 449 of 473

451 75. Select the pages of the Tax Funding Alternatives report that you want to print by holding the Ctrl key, and clicking on the title of each desired page in the Available Documents window. 76. Click on the right arrow key to transfer those pages to the Documents to be Printed window. 77. Click on Print. Summary Page The first chart and graph on the Summary 1 page show the projected value of your client s protected assets (i.e., those you chose to include in this concept when you completed the Open Planning Concept data entry screen) at the life expectancy that you selected. It also shows the projected deferred taxes on those assets, and the balance that will be available to the heirs. In the example shown here, the projected taxes amount to $1,335,861, or 39% of the total value of the protected assets. The second chart and graph show how much of the estate will be consumed by paying those taxes under each of the four funding alternatives. In the example illustrated here, if death occurs at age 70, the results of the four funding alternatives are as follows: If the estate is paying cash, it will need cash of $1,335,861 to cover the tax liability, which is 39% of the protected assets value. If the estate is liquidating non-protected assets in a forced sale at fire-sale prices, it will need to sell assets valued at $1,669,826 to come up with the $1,335,861 needed to cover the tax liability. This amounts to 48% of the protected assets value. If the estate borrows $1,335,861 to cover the tax liability, the total cost of this loan will end up being $1,944,921, or 56% of the protected assets value. If the estate uses the selected insurance policies to pay the income taxes, it will cost the estate a total of $863,840 to cover the tax liability, which is 25% of the FP Solutions User Manual - Tax Funding Alternatives Planning Concept Module 450 of 473

452 protected assets value. This includes the future value of all premiums on the insurance policy, plus the shortfall between the death benefit and the taxes owing, which will have to paid out of the estate. The final graph on the Summary 1 page shows the projected after-tax value of the protected assets and the estimated taxes payable for each year. The line represents the total value that the client s heirs could receive if an insured funding arrangement is set up. Ledger 1 Page The Ledger 1 page shows the projected asset values and taxes, as well as the final cost of the four funding strategies. Total Assets: This is the total value of all of the assets you selected for protection on the Open Planning Concept data entry screen. Projected Taxes: This is the projected income tax liability resulting from the deemed disposition of the protected assets upon death. This could include tax resulting from taxable capital gains for real estate and non-registered investments, and the inclusion of all registered funds in income. The tax liability is calculated using the top marginal tax rate for the client s province of residence. Estate Erosion: This is calculated as (Projected Taxes Total Assets). FP Solutions User Manual - Tax Funding Alternatives Planning Concept Module 451 of 473

453 Cash Payment: This is equal to the deferred tax liability. Forced Sale: This is the value of the assets that have to be sold at fire sale prices to generate enough money to pay the deferred tax liability. Borrow Money: This is the total cost (principal and interest) of financing the deferred tax liability through a loan. Insured Funding: This is the future value of premiums on all life insurance contracts that are used to pay the tax liability, plus or minus any excess or deficiency in the benefits paid. In our example above, during the first 5 years, the existing insurance policies are more than adequate to pay the deferred taxes, actually resulting in a surplus for the estate. This surplus is shown as a negative number, because this planning concept is designed to show the costs of the alternatives. By showing a negative cost, it indicates that the client could actually reduce the amount of their insurance (and thus the cost associated with that insurance), and still meet their tax funding objectives. Ledger 2 Page The Ledger 2 page shows a breakdown of the projected value of the protected assets, and the deferred taxes on those assets. Non-registered Investments: For the non-registered investments, the tax liability depends on the adjusted cost base of those investments, which is used to calculate the taxable capital gain. The taxes are calculated as (taxable capital gain top marginal tax rate). Note: In the case file illustrated above, the client does have non-registered assets, but we did not select the non-registered investments for protection, so the values shown here are zero. Registered Investments: Unless a spousal rollover is available, all registered assets become fully taxable upon death. The taxes are calculated as (value of registered assets top marginal tax rate). Real Estate & Other: For the real estate investments, the tax liability depends on the adjusted cost base of those investments, which is used to calculate the taxable capital gain. The taxes are calculated as (taxable capital gain top marginal tax rate). Projected Taxes: This is calculated as the sum of the three Taxes columns. FP Solutions User Manual - Tax Funding Alternatives Planning Concept Module 452 of 473

454 Ledger 3 Page The Ledger 3 page shows the details of the Insured Funding Arrangement. Total Assets: This is the same as shown on the Ledger 1 page. Projected Taxes: This is the same as shown on the Ledger 1 page. Benefit: This is the total of all death benefits from the insurance policies you selected on the Open Planning Concept data entry screen. Premium: This is the projected annual premium for the insurance policies. FV Premium: This is the future value, at the life expectancy, of all cumulative premiums paid since Year 1 of the planning concept. Net Cost: This is calculated as (Benefit FV Premium Projected Taxes). A negative number indicates that the insurance proceeds will be more than enough to offset the tax liability, and the remainder of the insurance proceeds will be paid to the heirs. Cost Reduction: This is calculated as (Benefit FV Premium). Disclosure Page The top section of the Disclosure page provides an overview of the Tax Funding Alternatives concept. The bottom section requires the client to acknowledge that he or she understands that the information contained in the module is a projection only, and that the actual results may vary from this projection, based on changes in investment performance, federal and provincial tax laws, and the future cost of life insurance. There is space for both the client and the planner to sign the acknowledgement. FP Solutions User Manual - Tax Funding Alternatives Planning Concept Module 453 of 473

455 Module: Tax Terminal Return Planning Concept Income taxes have the potential to erode your client s estate upon death. The Tax Terminal Return planning concept prepares a four-page report that simulates the final tax return due after death. You can run the concept at various ages within your client s planning horizon, to show how the terminal tax burden changes over time and to illustrate the need for proper estate planning This module explains how to use the Tax Terminal Return planning concept, and how to interpret the resulting Tax Terminal Return report. Launching the Terminal Tax Return Planning Concept To use the Tax Terminal Return planning concept, you must have already completed an initial fact finding interview. If you attempt to launch the concept as a stand-alone plan, you will first be directed to the main FP Solutions data entry wizard. So, in most cases you will launch the Tax Terminal Return planning concept from within a completed financial plan. To do this: 16. Do one of the following: a. From the Main Screen, click on Open a Planning Concept, or b. Click on the Concepts icon in the main toolbar. 17. You will be prompted to save the existing file. Click on Yes or No. This will launch the Planning Concept selection box. 18. Double click on Terminal Tax Return or select this title and click OK. This will launch the Tax Terminal Return dialogue box. Data Entry Because you will generally only run the Tax Terminal Return planning concept on a completed financial plan, there is very little data entry to perform on the single dialogue box. FP Solutions User Manual - Tax Funding Alternatives Planning Concept Module 454 of 473

456 10. Choose whether the terminal tax return should be prepared for the client or the spouse, by clicking on the appropriate option. 11. Choose the assumed age of death from the Age at death drop-down menu. By running this concept several times at different ages, you can demonstrate how the tax burden will change if the client dies at different life stages. 12. If you feel that the existing financial plan may not be complete, you can click on Enter Client Data. This will launch the FP Solutions data entry wizard, and you can review your client s data and modify it if necessary before running the concept. 13. Click on Finish to run the concept. Saving the Concept Because there is no specific data entry required for the Tax Terminal Return planning concept, you cannot save the concept. However, you can easily duplicate your results simply by launching the concept as described earlier. Documentation To access the documentation for the Tax Terminal Return planning concept if it is not currently on screen: 45. Click on Goto in the main menu bar. 46. Click on Concepts in the drop-down menu. 47. You will be prompted to save the existing file. Click on Yes or No. This will launch the Planning Concept selection box. 48. Double click on Terminal Tax Return or select this title and click OK. FP Solutions User Manual - Tax Funding Alternatives Planning Concept Module 455 of 473

457 This will launch the Tax Terminal Return report, which is suitable for distribution to your client. It consists of a summary page, three ledger pages that provide numeric information about the concept, and a disclosure page. Printing the Report To print the Tax Terminal Return report: 78. Make sure that the Tax Terminal Return report is on screen (access the report as described above). 79. Click on File in the main menu bar. 80. Click on Print in the drop-down menu. This will launch the Full Print dialogue box. 81. If the Documents to be Printed window is already populated with documents that you do not wish to print, you can clear the window by selecting the (Select Package) option in the Print Package drop-down menu. 82. Select the pages of the Tax Terminal Return report that you want to print by holding the Ctrl key, and clicking on the title of each desired page in the Available Documents window. 83. Click on the right arrow key to transfer those pages to the Documents to be Printed window. 84. Click on Print. Summary Pages The four summary pages simulate the four main pages of a terminal T1 tax return. The year for which the concept was run is shown in the upper right corner of the Summary 1 page. The bottom line, the tax owing for the year of death, is shown on the Summary 4 page. Note: This is a simulated tax return only. It is NOT suitable for submission to Canada Revenue Agency. FP Solutions User Manual - Tax Funding Alternatives Planning Concept Module 456 of 473

458 Disclosure Page The top section of the Disclosure page provides an overview of the Tax Terminal Return concept. The bottom section requires the client to acknowledge that he or she understands that the information contained in the module is a projection only, and that the actual results may vary from this projection, based on changes in investment performance, federal and provincial tax laws, or the timing and amounts of future investment deposits or withdrawals. There is space for both the client and the planner to sign the acknowledgement. FP Solutions User Manual - Tax Funding Alternatives Planning Concept Module 457 of 473

459 Module: Using the Simulation Tools FP Solutions predicts the client s future asset balances based on assumptions you make about the client s asset allocation, the rate at which he or she adds to those assets, and rates of return on various asset classes. While the client has some control over the asset allocation and the rate at which he or she adds to those assets, the client cannot control the rates of return. If the actual rates of return vary from the assumed rates, particularly over a long planning horizon, the actual future asset balances can differ significantly from those predicted by FP Solutions. You can use the simulation tools in FP Solutions to test the sensitivity of the asset balance predictions to changing rates of return. The simulation tools calculate the projections repeatedly, each time with changes to the variable assumptions. Types of Simulations FP Solutions can perform two types of simulation: the Monte Carlo simulation, which applies random changes to the assumed rates of return the Variance simulation, which applies fixed or controlled changes to the assumed rates of return Monte Carlo Simulation A Monte Carlo simulation repeatedly runs random values through a financial model, to produce a range of possible outcomes. The random value selection is much like a roll of the dice, which is where the Monte Carlo simulation gets its name. Monte Carlo simulations are used in finance, but their use in financial planning has typically been limited because the calculations can be very intensive. However, FP Solutions simulation tool lets you perform Monte Carlo simulations with relative ease. FP Solutions Monte Carlo simulation tool uses a random sampling of return values within a set number of standard deviations for each asset class. It can also factor randomness into the rate of inflation and the rate of realized gains on equity investments. Within the context of a comprehensive financial plan, you can use the Monte Carlo simulation tool to assess the potential effects of financial market volatility. FP Solutions will generate a report that details and organizes the different outcomes of hundreds of FP Solutions User Manual - Using the Simulation Tools Module 458 of 473

460 simulations, each using a different random set of returns. You can use this report to help discuss risk vs. reward and the realities of market volatility with your client. Variance Simulation A Variance simulation adjusts the return assumptions within a user-specified range, to test what the results of the financial plan would be if returns were a fixed amount lower than, or greater than the assumed rates. This effectively tests the margin of error on your plan assumptions. Reviewing or Modifying the Basic Return Assumptions FP Solutions initially uses default rates of return for each asset class. You may or may not have modified these rates when you completed the data entry for the client. In either case, you may want to review or modify the basic return assumptions used in the financial plan before you perform a Monte Carlo or Variance simulation. Review the Return Assumptions To review the basic return assumptions: 1) From the main menu bar, click on Goto. 2) From the drop-down menu, click on Assumptions. This will launch the Assumptions module. The first portion of the Summary page of this module shows the return assumptions for the first year of the plan for each asset class. It also shows the assumed inflation rate. By default, FP Solutions assumes that the rate of return for each asset class remains constant over the planning period. However, you may have changed the rates of return over time via the Return Assumptions or Assumptions Variables data entry screens, discussed shortly. The second portion of the Summary page shows the assumed rates of return for each asset class for each year. FP Solutions User Manual - Using the Simulation Tools Module 459 of 473

461 Modify the Return Assumptions To modify the assumed rates of return: 1) From the main menu bar, click on Data. 2) From the drop-down menu, click on Assumptions. This will launch the Assumptions data entry dialogue box, which consists of two data entry screens: Return Assumptions and Earnings Allocation. Return Assumptions Data Entry Screen FP Solutions populates the Return Assumptions data entry screen with default values for each asset class. To change the rate of return for an asset class, enter the new value in the appropriate Return Index field. This value will be used for each year of the financial plan, unless you have specified otherwise through the Assumptions Variables data entry screen, discussed shortly. Note: If you have specified a rate that changes over time via the Edit Variables function, the Return Index field will be grayed out on the Return Assumptions data entry screen. You can also adjust the management expense ratio for each asset class by entering a new value in the Management Expense Ratio field. This amount will be subtracted from the gross return, to arrive at the amount shown in the Net Return field. FP Solutions User Manual - Using the Simulation Tools Module 460 of 473

462 Earnings Allocation Data Entry Screen FP Solutions populates the Earnings Allocation screen with default values for the proportions of interest, dividends and capital gains that comprise the return for each asset class. It also specifies how much of the capital gains are in the form of realized capital gains. To change the allocation for an asset class, enter the new values in the Interest, Dividends and Capital Gains fields. Note that the allocation must add up to 100%, so if you increase the proportion of interest income, for example, then you will have to decrease the proportion of dividends or capital gains, to maintain 100%. If you fail to make this adjustment, FP Solutions will highlight the asset class in red until you correct the error. Variable Data FP Solutions will use the values you enter on the Return Assumptions and Earnings Allocation data entry screens unless you specify otherwise using the Edit Variables function. FP Solutions User Manual - Using the Simulation Tools Module 461 of 473

463 From either of the Assumptions data entry screens, click on Edit Variables. This will open the Assumptions Variables data entry screen, where you can enter additional information on a year-by-year basis. You can also access this data entry screen from the Assumptions report, by clicking on the Variables tab at the bottom of the page. There are several buttons of note on the top left of the Assumptions Variables data entry screen: Click on Data to return to the Assumptions data entry dialogue box. Click on Calc to recalculate the spreadsheet values. Click on Main/OK to return to the data entry screen you were in before you clicked on Edit Variables. However, you should first recalculate the spreadsheet values. From the drop-down menu, click on Inflation, Cash, Bonds, Equity or User Definable to navigate quickly to various sections of the data entry screen. There are three different ways you can change the inflation rate, rates of return, and proportion of realized capital gains on the Assumptions Variables data entry screen: Manual Data Entry: You can enter data on the Assumptions Variables data entry screen manually, by navigating to the appropriate cell and inputting the desired numbers. Custom Trend (automatic data entry): You can also fill in some of the columns of the Assumptions Variables data entry screen using the Custom Trend feature. This will enter the same return value in specified fields. To apply a custom trend: 1. Click on Index (for inflation), Return or Realize % (for each asset class). This will launch the data entry dialogue box for that column, open to Custom Trend data entry screen. 2. Specify the time over which the custom trend will be applied by either: a. Checking the Use ages box, and then choosing the appropriate ages from the From age and To age drop-down menus; or FP Solutions User Manual - Using the Simulation Tools Module 462 of 473

464 b. Unchecking the Use ages box, and then choosing the appropriate years from the From year and To year drop-down menus. 3. Specify the desired rate in the Set value at field. 4. Specify how often this rate should be used by selecting an option from the Frequency drop-down menu. 5. Click on Apply, and the column will be filled with the specified value. Random Number Generator (automatic data entry): You can also fill in some of the columns of the Assumptions Variables data entry screen using the Random Number Generator feature. This will enter return values that are randomized within specified limits. To apply the random number generator: 1. Click on Index (for inflation), Return or Realize % (for each asset class). This will launch the data entry dialogue box for that column, open to Custom Trend data entry screen. 2. Click on the Random Number Generator tab at the top of the dialogue box. 3. Define the limits of the return range by entering an upper amount in the High field and a lower amount in the Low field. 4. Click on Apply. FP Solutions will populate the column with random values between the upper and lower limits. The software will also calculate the annual compound rates of return and displays the 5-, 10-, 20-, 40- and 60-year compound rates for the randomized data set. FP Solutions User Manual - Using the Simulation Tools Module 463 of 473

465 Note: Each time you click on Apply, FP Solutions will generate a new set of random values, and you cannot return to the previous set of random values. Running a Simulation As you can see, you can do a simplified assessment of the impact of variable investment returns by using the Edit Variables function. However, it requires you to manipulate the returns for each asset category manually, and then you only obtain the results of a single simulation. The Simulation Tool function automates the simulation process so that you can perform hundreds of simulations with just a few key strokes. Steps Involved in Running a Simulation This section lists the steps involved in running a simulation. A more detailed description of the specific data entry screens follows. 1. From the main menu bar, click on Tools. 2. From the drop-down menu, click on Simulation Tool. FP Solutions will open the Simulation report and the Simulation toolbar. 3. From the Simulation toolbar, click on Run Simulation. This will launch the Simulation Tool data entry dialogue box, which includes four data entry screens: Simulation Analysis, Return Assumptions, Earnings Allocation and Standard Deviation. These screens are described in more detail in the next section. 4. On the Simulation Analysis data entry screen, select the type of analysis to be performed, choose to perform the analysis on the full financial plan or selected assets, enter the report settings, and choose the number of simulations. 5. Click on the Return Assumptions and Earnings Allocation tabs to review and modify the return assumptions if necessary. Any changes you make here will also be made to the Base Plan. FP Solutions User Manual - Using the Simulation Tools Module 464 of 473

466 6. Click on the Standard Deviation tab to set the deviation rate and the number of individual investments in each asset class. 7. If you are performing the simulation on a full financial plan, click on Optimize settings to review the cash flow optimization settings and adjust them if necessary. Click on OK to save those settings to return to the Simulation Tool dialogue box. 8. Click on Run Simulation. FP Solutions will run the simulation. Once the first simulation is complete, the Simulation Status window will display an estimate of the time remaining to complete the remaining simulations. Note: You should not run other programs during the simulation process, because it requires most of your computer s resources. The program may terminate if too many other demands are placed on your computer. 9. At this point, you may want to change the number of simulations to be performed, depending on the amount of time you are willing to let the process continue. To change the number of simulations, click on Pause after Current Simulation. 10. Once FP Solutions pauses, you can either: a. change the number of simulations and click Resume. b. Click on Abort to cancel the remaining simulations and view the values from the simulations run to that point. Note: If you click on Abort, the results of the Base Plan will not be included in the Simulation report, because it is the last simulation to be run. If you want to cancel the remaining simulations but want the Simulation report to include the Base Plan values, change the number of simulations to be performed to the number that have already been performed, and click Resume. 11. The results of your simulation will be displayed on the Ledger page of the Simulation report. This report will be discussed shortly. 12. Sort the results, if desired, by clicking on Sort Results in the Simulation toolbar, and then chose the sorting method from the drop-down menu. Sorting results will be discussed shortly. FP Solutions User Manual - Using the Simulation Tools Module 465 of 473

467 13. Adjust the settings for the graphs displayed on the Ledger page, if desired, by clicking on Chart Settings in the Simulation toolbar. 14. You can perform two additional simulations by clicking on the Ledger 2 or Ledger 3 tabs and repeating the process above. 15. If you want to save your results (they will not be saved when you save the client file), from the File menu, click on Print, which will launch the Print dialogue box. Select the pages you want to print, and click on the Print to Excel button. Enter or confirm the file name, and click on Save. Note: Although there are only three Ledger pages, enabling you to only show three simulations in FP Solutions at the same time, you can save as many simulation reports as you want by printing to Excel. After adding the report documents to your new workbook, you can run new simulations in FP Solutions over the existing results. Simulation Data Entry Screens The Simulation Tool data entry dialogue box includes four data entry screens: Simulation Analysis, Return Assumptions, Earnings Allocation and Standard Deviation. Simulation Analysis Data Entry Screen On the Simulation Analysis data entry screen, you will choose the type of simulation to run, the assets that the simulation will be applied to, the time horizon that the simulation will cover, and the number of simulations to be run. Type of Analysis: Click on Monte Carlo Simulation if you want the simulation to be based on randomized returns. These randomized returns will be based on the Base Plan rates and the amounts you entered in the Standard Deviation data entry screen. Click on Variance Test if you want all returns to be adjusted by a fixed amount, and then enter that amount in the Variance Test % field. FP Solutions will run eight simulations, four higher and four lower than the Base Plan rates, at evenly distributed intervals within the variation entered, along with the rates used for the Base Plan. To run the simulation on the entire plan, click on Full Financial Plan. FP Solutions runs the Cash Flow Optimization procedure for each simulation. If you choose to run a simulation on the full plan, you should first check your Optimization Settings by clicking on Optimize Settings at the bottom of the data entry dialogue box. See Optimizing Cash Flow in FP Solutions for more information on performing an optimization. To focus on specific asset categories, click on Single Assets. This will activate the Single Assets to Include portion of the data entry screen. FP Solutions User Manual - Using the Simulation Tools Module 466 of 473

468 Single Assets to Include: If you chose to run the simulation on single assets instead of the full financial plan, you must select the asset categories you want to include by checking the appropriate boxes. Pension accounts cannot be included. Report Settings: Enter the ages for which you would like the results to be displayed, for comparison with the Base Plan. The Simulation report will display the results of each simulation at the three specific points in time that you select. For example, you may want to summarize results at the client s retirement age, life expectancy and a point in between. In the Life Expectancy fields, enter values from a life expectancy table, or estimate them for comparative purposes. If you don t want the report to show life expectancy, enter values that are larger than the range of the period to be graphed; you cannot enter 0. If you are performing the simulation on the full financial plan, the Simulation report will only show the projected asset accumulations for those assets that produce investment income. If you want the report to include all assets, uncheck Calculate values using investment assets only. Number of Simulations: In this field, enter the number of simulations you want to run. See Number of Simulations in the section on Fine Tuning Simulation Settings for more information. FP Solutions User Manual - Using the Simulation Tools Module 467 of 473

469 Return Assumptions and Earnings Allocation Data Entry Screens Click the Return Assumptions and Earnings Allocation tabs to review or modify assumptions from within the Simulation Tool dialog box. These are the same as the screens described earlier. Standard Deviation Data Entry Screen Return Index: If you are performing a Monte Carlo simulation, you must use the Standard Deviation data entry screen to specify the limits within which the return values will be randomized. You do this by entering the amount of one standard deviation in the Return Index field for each asset class, and the number of standard deviations that will be used to define the upper and lower limits in the Number of Standard Deviations field. For example, assume that the return for Canadian equities for the Base Plan, as specified on the Return Assumptions data entry screen, is 9.5%. Also, assume that you specify a standard deviation for that asset class of 12.00% on the Standard Deviation screen, and you enter 1.5 in the Number of Standard Deviations field. When you perform a Monte Carlo simulation, FP Solutions will randomize the return within a lower limit of - 8.5%, calculated as [9.5% - (12.00% 1.5)], and an upper limit of 27.5%, calculated as [9.5% + (12.00% 1.5)] Realized Capital Gains: You can specify different standard deviations for the realized capital gains for each asset class. Inflation: You can randomize the inflation rate used in the financial plan by entering an inflation standard deviation in the Inflation field. # of Assets per Investment: You can set the number of assets for each asset category. The asset balance for that category will be divided into equal amounts and a different random return will be applied to each asset. This models the effects of diversification on a portfolio. FP Solutions User Manual - Using the Simulation Tools Module 468 of 473

470 Fine Tuning Simulation Settings The choices that you make for several of the simulation settings can significantly affect the outcome. This section provides additional reference information about those settings, to help you choose the best settings for your purposes. Number of Simulations FP Solutions allows you to run any number of simulations from 1 to 1,000. The number of simulations you should enter on the Simulation Analysis data entry screen depends on the type of analysis, the degree of accuracy required and the time available to perform the simulations. Monte Carlo simulations on single assets do not use many computer resources and do not take long, so you should set the number of simulations to at least 250 simulations to get an adequate sampling. Monte Carlo simulations on a full financial plan use far more computer resources, because the program re-optimizes the plan with every simulation. You can perform as few as 10, however to get a wider sampling, you should run 100 or more. This can take a few minutes to several hours, depending on the optimization settings. FP Solutions User Manual - Using the Simulation Tools Module 469 of 473

471 Although a Variance simulation also re-optimizes the plan with each simulation, it does not take as long, because it only involves eight simulations. Optimize Settings To reduce the time required to perform the simulations, you can reduce the number of iterations performed in the Cash Flow Optimization process: 1. From the Simulation Tool data entry dialogue box, click on Optimize Settings. This will launch the Cash Flow Optimization data entry dialogue box. 2. Click on Advanced Settings. 3. Under Optimization Method, click on Custom. This will activate the Custom Settings fields. 4. Enter a lower number of iterations in the Custom Settings fields, such as two total iterations and one pre-rrif iteration. For most cases, these reduced optimization settings are adequate to produce dependable results for analysis. For cases where more analysis is required, you may wish to run the simulations at the Basic or Extended setting while you are at lunch or overnight. Note: Your system resources can be diminished after intensive simulations, so you should save your results and then restart your computer. Standard Deviations When you perform a Monte Carlo simulation, FP Solutions generates random return values for each simulation, for each year, based on the standard deviation rates that you FP Solutions User Manual - Using the Simulation Tools Module 470 of 473

472 enter on the Standard Deviation data entry screen, and the number of standard deviations that you specify on that same screen. Standard Deviation Rate: The standard deviation rate will depend on the volatility of each asset class. Usually you would use historical information, such as that published by the investment issuer, to decide what rate to enter. Number of Standard Deviations: If investment returns are normally distributed, statistics say that 95% of all returns will be within two standard deviations of the mean, and this is usually a reasonable approximation for any one year. However, a financial plan can cover a long time horizon of twenty, thirty or even forty years or more. If the plan is properly monitored, it is likely that the financial planner would intervene if realized returns are consistently offside from the assumed rates, and make corrections to the asset allocation or specific investments. For this reason, FP Solutions assumes a default number of standard deviations of 1.5. If you would like to be more conservative, you can use a greater number of standard deviations in your simulations. Viewing the Simulation Results Once you run a simulation, the results are shown on the Simulation Report s Ledger page. The Graphs Simulation Chart The top graph, called the Simulation Chart, shows the path of each individual simulation over the planning horizon, clearly illustrating the ups and downs in asset values over time, and the wide range of possible outcomes. Note: If you perform more than 250 simulations, only the first 250 are shown in the Simulation Chart. Because the simulations are random however, this usually represents a legitimate cross-section of the total sampling. However, all of the results are used to produce the Confidence Chart, described below. FP Solutions User Manual - Using the Simulation Tools Module 471 of 473

473 Confidence Chart The second graph, called the Confidence Chart, summarizes the results of all simulations. For each age, the bar graph shows the percentage of simulations where the assets successfully generated income to that age. The horizontal line on the graph is set at 70%, and helps to measure a favorable probability of success. For example, in the Confidence Chart above, more than 70% of the simulations show successful outcomes until about age 80. After that point, the probability of the financial plan failing to meet the client s objectives becomes more significant. Chart Settings You can fine tune the years displayed in these graphs by clicking on Chart Settings in the Simulation toolbar, and then setting the desired age ranges for both the Simulation Chart and the Confidence Chart. The Simulation Data The data table at the bottom of the Ledger page shows the specific values for each of the simulations, with the Base Plan results shown first, followed by the Average and Median results of all simulations. The rest of the table illustrates the results of each individual simulation. FP Solutions User Manual - Using the Simulation Tools Module 472 of 473

474 The table shows the results at the three key ages you specified on the Simulation Analysis data entry screen. It includes the predicted asset values for each of those years, as well as the predicted estate values if the client dies at that age. The Base Plan simulation, which is always completed last, is based on the assumptions that you used when developing the financial plan, with no standard deviation. Sorting Results The simulation data are initially displayed in the order they were generated. However, you can choose to reorder the results, based on ascending or descending asset or estate values at any of the specified ages. To sort the results, click on Sort Results in the Simulation toolbar. This will open the Sort Results dialogue box. Then choose the sorting method (ascending or descending) and key parameter (asset or estate value at a particular age). Click on OK to perform the sort. FP Solutions User Manual - Using the Simulation Tools Module 473 of 473