How the world’s best financial plans are made

When you come to Planswell, you answer several questions and then see your plan. What you don’t see are the millions of calculations we make in the background to optimize your investments, insurance and mortgages for your goals.

These calculations are based on two types of variables:

  1. Facts that we know, such as your age and income.
  2. Estimates that we must make, such as how much the cost of living will rise in the future and what the tax rates will be when you retire.

Until recently, financial planners would take a mix of facts and estimates and build a plan for the rest of your life. The problem with this approach is that the facts will change and at least some of the estimates will turn out to be wrong. The difference with Planswell is that we enable you to quickly update your plan whenever you want. We recommend twice a year. These small but regular adjustments greatly improve the chance of reaching your goals.

No adjustments
Regular adjustments

This document will give you insight into the facts and estimates that we use to create your financial plan. If you have any questions – or even ideas to make your financial plan better – we would love to hear from you.

The basics

Every plan is unique but there are certain basic assumptions that apply to just about everyone. Here the major ones.

Variable Reference / rationale
Annual real rate of return on investment Conservative: 2.00% Conservative growth: 2.42% Moderate growth: 2.75% Growth: 3.31% Maximum Growth: 3.69% Your investor profile determines the rate of return you can expect. More risk generally means more return. We use estimates based on Financial Planning Standards Council (FPSC) Guidelines. The rates include an adjustment for inflation.
Annual inflation rate 1.83% 25 year average for Canada’s CPI
Salary growth rate Equal to inflation (1.83%) Industry standard
Savings rate Equal to inflation (1.83%) We expect that you can increase your savings along with your income.
Income tax brackets Indexed to inflation Government of Canada
Living expenses Indexed to inflation We expect that your living expenses will increase with the cost of living.
Life expectancy Dynamic plan end date calculated based on current age, smoker status and gender Industry standard
Emergency fund 3 months of net income. If there is 3 months of net income available in your non-registered or TFSA account, the engine will assume your emergency fund is built. Industry standard
CPP and OAS contribution and benefit amounts Based on 2020 figures Government of Canada
OAS limit growth Indexed to inflation Government of Canada
OAS clawback threshold Indexed to inflation Government of Canada
OAS timing and eligibility 100% eligibility starting at 65. If retirement age is after 65, OAS payments will start later. Conservative estimate
CPP payment amount Dynamic CPP payment relative to current income. 58% eligibility for current earnings at $58,700 (CPP Maximum Contributory Earnings). CPP payments are maxed at 95% eligibility for plans with current pre-tax income of $150,000 and above. Indexed to inflation. Dynamic CPP payments based off pre-tax income level in pre-retirement contributory years. Average CPP payment amount is 58% of maximum eligibility (Government of Canada).
CPP payment amount growth Indexed to inflation. Government of Canada.
CPP timing Payments start at 65 or later. If retirement start age is after 65, CPP payments default to retirement age. Government of Canada
Payroll deductions CPP and EI deducted We assume that you are an employee with standard payroll deductions based on current rates.
Home value appreciation Real rate of return of 1.7% per year. Conservative estimate. Home appreciation is a nominal 3%/year. Net inflation of inflation (1.83%), the real rate of return is 1.17%.
Home equity If the plan does not have sufficient funds to maintain your lifestyle until age 90, the plan will sell the house and assume you will be renting. We assume that you can tap into your home equity in retirement.
Rental cost in retirement If the sale of the primary residence is triggered in retirement, annual rent is assumed to be 4% of the value of the property. Conservative estimate
Home sale costs 8% in commissions and other costs You may have a home that will be sold as part of your estate value calculation. Assumption of 5% realtor fees for selling and additional 3% for legal and other misc expenses (movers, legal, taxes, etc.).

Investing for retirement

Your investor profile sets your overall limits for risk and return and any investor should complete a full investor KYC before proceeding with any investment.  In addition, your plan is designed to minimize your overall tax bill. One of the ways we can do that is by determining the best timing and amount when you invest in a Registered Retirement Savings Plan (RRSP), Tax-Free Savings Plan (TFSA), or taxable (non-registered) account. We make these determinations based on your current tax rate and estimated future tax rate.

Variable Reference / rationale
RRSP contribution limit $27,230 or 18% of income, increasing annually Government of Canada
RRSP contribution limit growth rate Indexed to inflation Government of Canada
RRSP tax refunds We assume that your RRSP tax will be reinvested into your plan. Designed to optimize the growth of the assets in your financial plan.
RRSP/TFSA Savings Allocation 100% RRSP allocation for pre-tax income above $95,259. 100% TFSA allocation for pre-tax income below $47,630. Scaled allocation in between incomes of $47,630 - $95,259. Designed for tax minimization. $47,630 to $95,259 are the breakpoints for one of the federal tax brackets.
Accumulated TFSA room Person’s age is used to estimate available TFSA room. Account balance equals prior TFSA contributions. Designed for tax minimization
RRSP room added per year 18% of current year’s income. Designed for tax minimization
TFSA contribution room added per year $6,000 Government of Canada
RRIF minimum withdrawal Based on current rates Government of Canada
Order of withdrawal in retirement RRIF minimum first, then TFSA, then non-registered account Designed for tax minimization
Target retirement income Current net income minus debt payments, minus insurance payments, minus annual savings. The objective of the target retirement income is to maintain your current lifestyle.

Investing for a child’s education

Whether you’re investing for school or retirement, the main principles remain the same, invest in an appropriate portfolio, suitable to your risk tolerance.

Variable Reference / rationale
Post-secondary education timing Age 18 Industry standard
Annual RESP contribution Monthly RESP contributions are calculated to target an estimated required tuition at age 18. The target tuition savings is $27,352 per child Designed to maximize the Canada Education Savings Grant (CESG) while balancing long-term retirement goals
Maximum Canada Education Savings Grant 20% of contributions up to $500 per beneficiary annually and $7,200 per beneficiary lifetime Government of Canada
Maximum lifetime RESP contribution $36,000 Although the legal limit is $50,000, you get the maximum CESG when you reach $36,000 in total contributions.

Protecting your income

The role of insurance is to replace the income that would be lost if you or someone in your family were no longer able to work. The goal is to make sure that, even if there is a negative health event, you and your family will not suffer a lower standard of living now or in retirement. If you are over age 60, we will not automatically recommend insurance as part of your plan, but will discuss your needs with you on an individual basis. Your plan may include three types of insurance: Term Life Insurance pays a tax-free lump sum if the insured person passes away. We design your plan with the expectation that this amount will be invested according to the risk tolerance of the surviving spouse in order to produce ongoing income. Critical Illness Insurance pays a tax-free lump sum if you are diagnosed with one of several common illnesses including cancer and heart disease. This amount is designed to cover lost income as well as a variety of medical expenses that are not covered by public health plans. Disability Insurance pays a monthly tax-free benefit if you become temporarily or permanently disabled and cannot work at your current occupation. Studies show that an accident or illness will cause about one person in three to be disabled for 90 days or more in their lifetime.

Variable Reference / rationale
Life insurance income replacement 100% of after tax income - subsistance (10%-20%) We recommend enough coverage so that you’d be able to maintain your current lifestyle if your spouse were to pass away. We expect that the survivor will continue to work and earn the same income they do today. The subsistance represents the day to day living expenses of your spouse and the percentage range is based on income.
Life insurance debt coverage Coverage amount designed to pay off all outstanding debts Industry standard
Critical illness insurance 100% of annual after-tax Income Industry standard
Disability insurance 65% of pre-tax income replacement until age 65 Industry standard

Managing your debt

At Planswell, our goal is to prevent you from paying unnecessary interest costs. That’s why we’ll recommend ways to minimize your debt costs while you invest, or even before you can start investing. Here are the three main debt solutions that may be included in your plan: Refinance your debt. If you have credit cards, loans, lines of credit, or other debts and also have home equity of 20% or more, we may advise you to pay off your debts with a new home mortgage in order to free up cash flow for investing and insurance. Pay down your debt and invest at the same time. If you have debt with an interest rate lower than your expected investment returns, we may advise you to work on paying it off while also adding to your investments. Pay down your debt before investing. If you have high-interest debts that cannot be refinanced, we will advise you to work on paying them off, starting with the highest interest rate first. Once this is done, we’ll get your investments started.

Variable Reference / rationale
Credit card interest rate 19.99% per year compounded monthly FP Canada Guidelines
Car loan interest rate 4% per year compounded monthly FP Canada Guidelines
Line of credit interest rate 5% per year compounded monthly FP Canada Guidelines
Other debt interest rate 5% per year compounded monthly FP Canada Guidelines
Mortgage interest rate 3% per year compounded semi-annually Industry Standard
Maximum debt to service ratio 44% Industry Standard
Maximum home loan to value (LTV) 80% Industry Standard
Amortization period Up to 30 years Industry Standard
Fee to break existing mortgage Three months’ interest for variable rate mortgages Industry Standard

Reaching your goals

The world’s best financial plan is the one that actually gets you to your goals. That’s why we’ll ask you to log in to your Planswell dashboard every six months and spend a few minutes updating your plan. This will help make sure that your plan reflects the most up-to-date facts and estimates ,and that you have the best possible picture of where you’re heading financially.

Variable Reference / rationale
Plan update interval Every six months This is the key to reaching your goals!
This document is regularly revised in response to many factors – from changing market conditions to tax law updates and the real-life situations of clients like you.  Please note, the assumptions on your plan might change after your plan is tailored by a Plan Pro to better suit your needs.   If you have any questions or would like to suggest ways to improve your plan, please let us know. [email protected]