Question

Dan and Anca are both 36 and married. They are both social workers working at a local non-profit that specializes in helping immigrants settle into life in Canada. They live in Thunder Bay and both earn $45,000 per year. They immigrated to Canada when they were 24 and recently became citizens. They enjoy the quiet nature around Thunder Bay and don’t ever plan on leaving. They just finished paying off student loans so collectively have approximately $600 each month they can start saving towards retirement. They don’t plan to have a pension so will need to rely on government programs and their own savings to fund their retirement. They are not particularly keen on risk because they came from a country with high inflation and economic uncertainty, but they know they need to invest their money if they ever hope to retire.

For the each scenario below, identify:

a)     Investment goal

b)     Type of investment account recommended (i.e., RRSP, TFSA, RESP, non-registered, etc.)

c)     Asset allocation of the portfolio and why this is appropriate

d)     Other aspects you would need to consider that are not specifically noted

Answer 1

A. The investment goal would be $208,800. ($600*12months*(65-36, retirement age - current age))

B. TFSA is recommended, it has a $6,000 yearly investment limit per person, any withdrawals from this fund are tax free. This is good for Dan and Anca since they are in a lower tax bracket and don't need a tax deduction, they can invest after tax dollars in a TFSA and not have to pay any tax on the withdrawals. They also don't breach the collective 12,000 yearly contribution limit.

C. 50% in equities, and 50% in fixed interest securities in order to balance the risk and also have healthy capital appreciation in the equity market while receiving a fixed interest income from bonds and other securities.

D. Whether they plan to have children, this will reduce their savings and therefore contributions into their TFSA. Any notified increases in salary, whether they own a home or are planning to purchase one, do they care for any dependants like parents.