Scenarios including a spouse

When you model projections for a couple, there are some additional things to consider which are not part of individual projections.

To add a spouse, click the Add Spouse button from the Planning page, or when you first create the scenario, click Add Spouse under Scenario Setup -> Client. 

To delete a spouse from the projections, please click the Delete Spouse option which is visible under Scenario Setup -> Client once a spouse has been added.

The first person added to the scenario is considered the primary client. When you add a spouse to the projections, Snap will use the primary client's settings to prefill the spouse's Retirement Age and the Show projection until age value under Scenario Setup -> General. These ages are prefilled to have both individuals retire in the same year and have their projections end in the same year. This simplifies the projections but you can change the default ages.

On the Expenses page, you will enter a Combined Amount for the Base Expenses.

On the Assets and Debts data entry pages, you will notice additional features when your scenario includes a spouse.  You can set some assets and debts as joint and copy or move assets/debts to the other spouse using the green and blue arrows under the Actions column. If you classify a Debt as joint, the payments are split 50/50.

Cash flow allocation in Snap follows the Canadian tax system design which models each spouse separately to properly assess their taxation. There are individual Planning pages for each spouse and a Combined Planning page. 

Here is an example of the Combined Planning page for John and Jane Snapper which shows the total Base Expenses for the couple.  Snap also displays the amount of Base Expenses for each spouse if you hover your mouse over the combined value.

You can access the Estate Summary section on the Combined Planning page by selecting the blue menu icon in the Estate Before Tax column header.

Individual charts are available for each spouse on their Planning pages and combined charts on the Combined Planning page and in the Client Report.

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a. Combined or Individual entry of Expenses

Under Scenario Setup -> Expenses -> Advanced Options, you can disable the automatic allocation of Combined Base Expenses to each spouse and enter Individual Base Expenses manually.

Please see this article for details: Expenses: Total for the couple or individual entry for client and spouse.

b. Base the RRIF or LIF income on the age of the younger spouse

Under Scenario Setup -> Assets -> RRSP/RRIF and DCPP/LIRA/LIF, you can Base minimum RRIF withdrawals on the age of the younger spouse.

c. Enable a Survivor Benefit for CPP/QPP and DBPPs

Enter a Survivor percentage under Scenario Setup -> Incomes -> Defined Benefit Pension Plans (DBPPs). 

Under Scenario Setup -> Gov't Benefits you can choose whether to Illustrate Survivor's Pension for CPP/QPP. This is the default setting.

d. Enable or Disable Automatic Pension Income Splitting

Automatic pension income splitting is enabled by default for your projections including a spouse. It can be disabled on the Planning page if desired. Click the blue gear icon at the top of the Pension Splitting column to Suspend Pension Income Splitting.

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The default and most commonly used setting is for the Combined Base Expenses amount to be automatically allocated between the spouses each year based on individual income, financial assets, and cash outflows. For each year, the automatic allocation attempts to optimize the use of various resources and minimize the Cash Balance at the end of the year.

In rare cases, instead of the automatic allocation, you may prefer to enter a separate spending target for each spouse. 

Order of resources for automatic allocation:

We apply the same steps to each of the following groups of resources until the Combined Base Expenses are fully allocated between the spouses:

1. Cash
2. Non-registered assets
3. TFSA assets
4. Registered assets

The order of steps 2-4 may be different if you change the default CFM logic for withdrawals. The cash group of resources includes the Cash Balance from the previous year and the cash flow available for spending in the year of calculation (which means total income net of all expenses except the spending amount itself). Note that manually entered Financial Asset contributions and withdrawals affect the cash flow available for this calculation, but automatic contributions and withdrawals do not. Registered assets include RRSP, RRIF, LIRA, LIF, DCPP, etc.

Special cases:

Sometimes we use registered assets before other types of assets.

• If there is a required RRIF or LIF minimum withdrawal, we do that after the "cash" step.
• If taxable income is so low that we can make some registered withdrawals (including from RRSPs) without paying any tax on them, we take advantage of that, but only if that money is needed for spending.

Steps for each resource group:

If the client and spouse DO NOT have enough money in the current resource group to cover the remaining spending, then all resources in that group are used, and we go to the next group. For example, if there is not enough cash available, we allocate all of it and then move to allocating non-registered assets.

If the client and spouse DO have more than enough money in the current resource group to cover the remaining spending, then we need to determine how much of those resources to use for each spouse.

• The proportion of the Base Expense allocated to each spouse is based on each of their total resources (i.e. their total cash and Financial Assets). Simply speaking, we take more money from the spouse who has more money to spend. This ensures the fairness of the spending allocation.
• Then, if necessary, we adjust this proportion to ensure we only use available assets. For example, we cannot withdraw more than the LIF maximum withdrawal. We also cannot use Financial Assets for which you manually override the Contribution (Withdrawal) amount.

Final allocation:

If the spouses do not have enough available resources to cover the entire Combined Base Expenses Amount, then a shortfall will occur. The spending allocation minimizes the difference between each spouse's negative Cash Balance at the end of the year.

Surplus cash flow after pension splitting:

The initial spending allocation and withdrawals are completed before Snap splits eligible pension income. As a result, once the income is split and the taxes and OAS are recalculated, in rare cases there may be surplus cash left over. In these cases, the surplus is contributed to the client's Financial Assets using the CFM Order for Contributions. This may result in a scenario where $70,000 is withdrawn from registered accounts for the year and $5,000 is contributed to the TFSA.

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You can only set the automatic Cash Flow Management (CFM) to start in 1 year (the same year for both spouses). If spouses retire in different years, you can select the CFM Start Age as the first or second retirement year. By default, Snap will select the CFM Start Age as the Client's Retirement Age rather than the Spouse's Retirement Age.

You can decide which CFM Start Age is best for your specific scenario by considering the following.

Will the longer-working spouse be able to sustain the couple? Or another way to think about it is, will they need to draw on their investments while one of them is still working?

Options:

• If the couple's spending is more than what the working spouse brings in, you will want to set the CFM Start Age as the year this first client retires. This will allow you to specify the Combined Base Expenses from the year of the first retirement, and the software will pull money out of their investments to cover the spending.
• If the couple does not plan on needing additional money while one of them is still working, then set the CFM Start Age to the year the second client retires. This will ensure that no automatic withdrawals occur while one client is still working.

In this example, the CFM Start Age has been selected as the year of the second retirement. (Retirement ages are bolded and underlined in the Age column.) Before that year, the couple will have an after-tax spending or Base Expenses amount based on two incomes until 2026 and one income until 2029.

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