Reference no: EM133227589

Glen and Megan will both turn 71 this year and will be required to convert their existing RRSP balances into an income producing retirement product. Following information relates to their situation:

a. Glen and Megan hold RRSPs with a balance of $150,000 and $450,000 respectively.

b. Glen was a member of a defined benefit pension plan (DBPP) for most of his career, so he did not have opportunity to contribute as much to a RRSP, however, now receives a full pension from his employer of $50,000 per year. Megan has no pension income from her former employer.

c. In general, Glen and Megan can sustain their current lifestyle based upon Glen's pension income (and both of their government pension incomes).

d. It is increasingly important to Glen and Megan that they leave some monies to their two children upon their death.

e. Currently, Megan's health is deteriorating with minor issues; however, Glen is still in good health. Given her health, Megan wants to enjoy life now; take some trips with her husband and even het children and grandchildren before it is too late. She believes that she may need large sums of money when the time is right in order to meet this short-term objective.

f. Megan also is relatively unsophisticated with money and would just like to have a steady income stream that she can rely upon in the event of Glen's death.

8. The survivor benefit from Glen's pension would leave Megan 60% of his current benefits, if he should predecease her.

h. Glen enjoys managing the money (and investments) that is held in their self-directed RRSPs.

a) Based upon these facts, comment on the suitability (including tax implications) of each of the following options for the conversion of Megan's RRSP. (Marks are awarded by linking the characteristics of these options to the objectives and facts stated above)

Option

1. Life Annuity with a 5 year guaranteed term.

2. Registered Retirement Income Fund (RRIF).