In this article, Jason Pereira, a financial planner, examines Bill and Barbara’s retirement plan, and offers his professional recommendation on how they can better manage their investments. This lesson plan aims to highlight the importance of prudent financial planning.


Getting Started

Appropriate Subject Area(s):

Personal finance, financial literacy.

Key Questions to Explore:

  • What are Bill and Barbara’s financial goals?
  • How do they plan on attaining these financial goals? Which additional financial tools does Mr. Pereira suggest?
  • What financial challenges might derail Bill and Barbara from meeting their goals?
  • What lessons can students take away from Bill and Barbara’s retirement plan?

New Terminology:

RRSP, TFSA, mutual funds, Old Age Security, rate of return.

  • Registered Retirement Savings Plan (RRSP): An RRSP helps you save for your retirement and defer your tax expenses because. RRSP contributions are tax deductible.
  • Tax Free Savings Account (TFSA): A TFSA is a flexible investment account that can help you meet both your short- and long-term goals.
  • Mutual funds: A mutual fund is an investment vehicle made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets.
  • Old Age Security (OAS): OAS is a taxable monthly social security payment available to most Canadians 65 years of age or older with individual incomes less than $114,815.
  • Rate of Return: This is the gain or loss on an investment over a specified time, expressed as a percentage of the investment’s cost.

Materials Needed:

A copy of the article.

Study and Discussion Activity

Introduction to lesson and task:

Bill, 41, and Barbara, 40, are both looking to retire by the age of 50. During this time, they must save enough to fund their post-retirement lifestyle and living expenses, pay for their two children’s education and pay for occasional vacations and car purchases.

To achieve this goal, they must adopt effective savings and investment strategies. When Bill and Barbara retire, their main sources of income will include the following: government retirement benefits (e.g. Old Age Security and the Canadian Pension Plan), Barbara’s defined contribution pension, Bill and Barbara’s registered retirement plans (RRSPs) and their personal savings and investments. The goal will be to ensure that these income streams will generate enough income to replace the steady paycheques they currently earn from their employment. (Note: Bill and Barbara currently earn an annual household income of $140,000, but they will start earning an annual income of $80,000 over the next 10 years, if Barbara decides to work part-time only.)

In this article, Jason Pereira offers the following retirement planning recommendations to Bill and Barbara:

  • For the remainder of 2017, Barbara should maximize her RRSP contribution to reduce her tax liability because RRSP contributions are tax deductible. However, when she starts working part-time, she should stop making RRSP contributions.
  • Bill and Barbara should continue making annual contributions to their children’s registered education savings plan to take full advantage of the Canada Education Savings Grant (CESG).
  • Bill and Barbara should transfer their RRSPs to RRIFs as soon as they retire because it is tax advantageous.
  • Bill and Barbara should ensure that they earn a minimum rate of return of 3.25% on their investments.
  • Bill and Barbara should consider working with an investment adviser to ensure that their portfolio is well diversified and professionally managed. For example, they might benefit from switching from corporate class mutual funds to non-registered account.
  • When Bill and Barbara retire, they should split all income 50/50 because it is tax advantageous.
  • Although, the financial plan laid out by Bill and Barbara will allow them retire comfortably at 50 they should consider working a few more years to ensure a more secure financial future.

This article illustrates the benefits of prudent planning to your students. As a result of prudent planning, Bill and Barbara will have the luxury of retiring early, enjoying frequent vacations and automobile acquisitions, while funding their two kids through college. It is important to let your students know that if they plan their financial future with due diligence and care, they too can achieve their financial goals.

Action (lesson plan and task):

  • Engage your students in a discussion about retirement planning:
  • Ask your students to indicate by a show of hands if it is prudent to enlist the help of a financial planner when planning for retirement.
  • Ask your students to state the benefits of working with a financial planner to create an investment strategy. (Expertise, solid advice, potentially higher rate of return, less stress).
  • Ask your students to state some of the costs of working with a financial planner. (More expensive, scheduling conflicts, etc.)
  • Ask your students to state if they will be more likely to come up with a financial plan on their own or enlist the expertise of a financial planner.
  • Ask your students to research how mutual funds work, and explain why they are a useful investment vehicle when saving for retirement.
  • Ask your students to state the benefits and costs of ETFs and index funds, and explain how these financial products can assist them in reaching their financial goals.
  • Ask your students to explain the importance of diversification in investing.
  • Ask your students to explain the benefits Barbara might gain from purchasing her company stock. (Hint: employee share purchase plans often offer discounted prices or matching employer contributions.)
  • Ask your students to explain the risk exposure Barbara has from a large position in her company stock.
  • Ask your students to explain how Bill and Barbara could fund their children’s education.
  • Ask your students to explain how Bill and Barbara can take advantage of the Canadian Education Savings Grant (CESG).
  • Ask your students to explain the difference between defined benefit plans and defined contribution plans.
  • Ask your students to state the benefit of utilizing a TFSA as a savings tools for retirement. (Provides flexibility. It also helps in estate planning, as the investments in the account can be transferred to Bill and Barbara’s children on a tax-free basis).

Consolidation of Learning:

  • Ask each student in your class to state what lesson he/she has learned from Bill and Barbara’s retirement plan.


Success and Additional Learning

Success Criteria:

  • After completing this lesson plan, your students should understand why prudent financial planning is important.

Confirming Activity:

  • Ask your students to state why prudent financial planning is important.