Sample/practice exam March 2019, questions and answers PDF

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2/17/2020

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Assessment >> Formal Assessment Assessment: Registered Financial and Retirement Advisor Course - Part II Unit 3 Post-Assessment (C242V14U3L0A25Q10) Date Submitted:

02/17/2020 08:01:00 PM

Total Correct Answers:

10

Total Incorrect Answers:

0

Your Mark (total correct percentage): 100% 1

Questions 1 - 3 are based on the Carter case study from Lesson 1 (i.e. Choosing the Age of Retirement) You explain to the Carters that you cannot generate predictions out of thin air, and that you need some facts or assumptions before you begin. All of the following statements are true, EXCEPT:

Correct The correct answer: if the Carters tell you when they want to retire, and how much excess income they have right now, you can estimate how much they need to save to meet their objectives. Your answer: if the Carters tell you when they want to retire, and how much excess income they have right now, you can estimate how much they need to save to meet their objectives. Solution: There are three main variables to be considered in any retirement plan: the age of retirement, the income available after retirement, and the amount that must be saved to provide that income. If you are given any two of these variables, you should be able to calculate the third variable using retirement planning software. If the Carters tell you when they want to retire and how much excess income they have right now, you know how much they might be able to save each year, and this will allow you to predict what their retirement income will be.

2

Using Schedule 3, if the Carters want to retire when Don reaches age 57 and they are willing to set aside about $10,000 each year in addition to their maximum RRSP contributions, what income can they expect during retirement in current dollars?

Correct The correct answer: about $45,000 Your answer: about $45,000 Solution: Refer to Schedule 3, under the column "Age 57". In order to support a retirement income of $45,000, the Carters would have to be willing to save an additional $9,096 per year as tax-paid capital. So, if they can save $10,000 per year in addition to their RRSP contributions, they should be able to support an income of about $45,000.

3

The Carters have decided that they want to retire when Don turns 60 years of age. They are able to save about $2,000 per year in addition to their maximum RRSP contributions, so that they can have a retirement income of about $50,000. Using Schedule 3, at what age would they be able to retire if they were willing to accept a retirement income of $40,000?

Correct The correct answer: 57 years of age Your answer: 57 years of age Solution: According to Schedule 3, if they were willing to save an additional $1,692 per year in addition to their maximum RRSP contributions and they were willing to accept a retirement income of only $40,000, they could retire when Don reached 57 years of age. So, if they set aside $2,000 aside each year, they should have no problem retiring when Don turns 57 if they accept a retirement income of $40,000.

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Questions 4 and 5 are based on the following information

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After working for ACME Manufacturing for 29 years, Richard accepted a retirement package. He began working for ACME on January 2, 1973. The pension plan, which he joined in 1982, provided a pension of 2% for each year of plan membership based on his last five years earnings and indexed to inflation. In total, Richard was a member of the pension plan for a total of 20 years. Richard's salary has been frozen at $67,000 for the last five years. His retiring allowance consisted of one week of pay for each year of employment and an allowance of six months of salary. If Richard transfers the maximum permissible amount of his retiring allowance into an RRSP, on what amount will he pay tax? Correct The correct answer: $11,365 Your answer: $11,365 Solution: The total value of Richard's retiring allowance is $70,865.38, calculated as [(1 week of salary × # years of service) + (six months of salary)] or [($67,000 × (29 ÷ 52)) + ($67,000 × (6 ÷ 12)]. Richard has 23 years of service prior to 1996, calculated as (1995 - 1973 + 1). He has 9 years of service prior to 1989 during which he did not earn vested pension benefits, calculated as [(1988 - 1973 + 1) - (1988 - 1982 + 1)]. Therefore, Richard can roll over $59,500 of his retiring allowance into an RRSP, calculated as [($2,000 × 23) + ($1,500 × 9)]. This means, Richard must receive $11,365.38 of his retiring allowance in taxable income, calculated as ($70,865.38 $59,500).

5

How much will Richard's pension pay him during the first year?

Correct The correct answer: $26,800 Your answer: $26,800 Solution: Although Richard has been employed by ACME for 29 years, he has only been a member of their pension plan for 20 years. Therefore, Richard's pension will pay him $26,800, calculated as [($67,000 × 2%) × 20].

6

Questions 6 to 9 are based on the Carl Michelos case study presented in Lesson 2 If Carl's federal marginal tax rate is 26%, how much federal tax will he have to pay on his retiring allowance?

Correct The correct answer: $ 7,020 Your answer: $ 7,020 Solution: Carl can only rollover a portion of his retiring allowance into an RRSP. According to the calculations presented in the case study, he will have to take $27,000 into taxable income, on top of his other employment income and pension income. His federal marginal tax rate is 26% so, he will have to pay federal tax on his retiring allowance of $7,020, calculated as ($27,000 × 26%).

7

If Carl does accept your estimate of lower life expectancy, why might he prefer to take the lump-sum offered by XYZ, instead of the annuity?

Correct The correct answer: The lump sum has estate preservation advantages. Your answer: The lump sum has estate preservation advantages. Solution: If Carl accepted the lump-sum, he could roll it over into his RRSP to defer tax for the time being. However, he would have to mature the RRSP by the end of the year in which he turned age 71, so he cannot defer taxes indefinitely. It is doubtful that he could obtain a return much higher than 8% in today's investment climate without taking on substantially more risk. The annuity would only be payable until he dies. If he dies prematurely, the annuity provider gets to keep the surplus. If he accepts the lump-sum, any amounts that he has not yet spent will form part of his estate. https://virtualuniversity.cifp.ca/TestScore/English/Assessment/AssessmentFormalAsResult.asp

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Refer to Schedule 11, "Projection of Retirement Income". After reviewing this Schedule, Carl wonders if you have made a mistake for the current year. What statement is true?

Correct The correct answer: Carl does not need to set aside any additional funds for retirement if he accepts the annuity from XYZ and the pension from ABC. Your answer: Carl does not need to set aside any additional funds for retirement if he accepts the annuity from XYZ and the pension from ABC. Solution: Schedule 11 shows that Carl will never experience an after-tax shortfall in funds if he accepts the annuity from XYZ and the pension from ABC, so he does not need to set aside any additional funds for his retirement if he accepts this option. The full amount of the retiring allowance is included in his income, but an offsetting contribution of $48,000 is included along with his regular RRSP contribution later in the schedule. The $80,000 in consulting income is also included in the amount shown for employment and business income. Once a person reaches age 65, he can commence receiving his CPP retirement benefits even if he has not substantially ceased working. The requirement to substantially cease working only applies to individuals 60 and over, but under 65, who want to receive an early retirement benefit. The amount of $94,000 for tax-deferred savings refers to the amount that Carl actually has in tax-deferred savings, not how much he has to withdraw.

9

If you were Carl's retirement planner, you would probably do all of the following, EXCEPT:

Correct The correct answer: notify his employer about Carl's decision. Your answer: notify his employer about Carl's decision. Solution: When helping a client with a specific retirement decision, it is important that you both have a very clear understanding of what is expected from the engagement. You would ask Carl exactly what decisions he wanted advice about, and document this in a letter of engagement, which would also specify your fee for that advice. It would be up to Carl to notify his employer.

10 Camille is a financial planner specializing in retirement planning. Her client, Gerlinda, is a member of a defined-benefit pension plan that does not include any indexation provisions. What is Camille's most important role with respect to Gerlinda's pension? Correct The correct answer: Advise her of the additional capital that will be required at retirement to provide for the desired degree of inflation protection of her retirement income. Your answer: Advise her of the additional capital that will be required at retirement to provide for the desired degree of inflation protection of her retirement income. Solution: Without indexing, the purchasing power of a pension will be reduced by about 65% over a period of 20 years if inflation averages 5% per year. In advising a client who is not the fortunate beneficiary of a fully-indexed plan, the financial planner should allow for the loss of purchasing power by determining the additional capital required at retirement to provide for adequate inflation protection of retirement incomes.

CFP®, CERTIFIED FINANCIAL PLANNER® and

are certification marks owned outside the U.S. by Financial Planning Standards

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Board Ltd. (FPSB). Financial Planning Standards Council is the marks licensing authority for the CFP marks in Canada, through agreement with FPSB. Copyright ©2002-2020 www.CIFP.ca. All rights reserved. Powered by 724Learning.net. CP6 (7710561) - 2/17/2020 8:00:58 PM

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