Naked Economics Chapter 18 Summary

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CHAPTER 18 General Comments This chapter brings everything together. There is no further technical material taught, only a process or method for dealing with a comprehensive plan. Many variations in planning are possible. The key skill to acquire is to approach every problem in an organized fashion. Our checklist is one such example of how to organize and solve a comprehensive problem. We provide answers to the three cases, but these are suggested solutions only. At every step you can make different assumptions that will affect the numbers. The final results should be similar, but the details will vary. Furthermore, tax rates differ between provinces, and tax and other institutional details will change frequently. As an instructor,…show more content…
9, Pg. 136. By age 50, they will have accumulated a lot more wealth in housing, RRSPs and CPP, and the children will have left home. Thus, their total insurance needs will have reduced greatly, and if they still want some coverage, they can get the lesser amount at higher rates and still fit within the sort of budget they have now. This is partly a practical decision given that we have not provided rates beyond 20 year term in the book. We use the quoted value for $250,000 policies pro-rated to the size of policy we need, and this is incorrect — policy premiums per dollar decline as the size of the policy rises, since some costs are fixed. However, it is the best we have, and the difference will not be…show more content…
more than renting, which seems too small a premium, given all the advantages of owning. However, ownership is also more risky. Since they can cover up to $5,923 of shortfall, if the 1998-2000 budget is exactly correct, there is considerable margin for error. Any remaining surplus is available for mortgage reduction (on the anniversary dates you can usually prepay some part of the balance) and RRSP contributions. Thus, they can buy a house in four years time, and possibly earlier. Retirement Planning Too early to get into much detail. Neither of them has an employer pension plan; so they must save quite a bit. Paying off the house is a good way to save, but they will also need RRSP contributions. The significant points are that they need to save a lot, and they need to save it efficiently. They should use tax deferral as much as possible, and tax splitting, since Carmina has less income and will have lower CPP and direct savings. Step 5: List the feasible alternatives and

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