Scenarios including a spouse
In this article, we will review some considerations to take into account when you model projections for a couple.
In this article:
The Basics of Adding a Spouse in the 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.
In order 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 to the projections.
The first person that you add to the scenario is considered the "primary" client for the purposes of this article. The next person added is considered the "spouse". When you add a spouse to the projections, Snap will use the "primary" client's settings to determine a default entry for the spouse for the retirement age and the age to end the projections. To simplify the projections, the same year (but not necessarily the same age) will be used for the spouse.
On the Assets and Debts data entry pages, you will notice additional features when your scenario includes a spouse. You are able to set some assets and debts as joint and copy or move assets/debts to the other spouse.
Cash flow allocation in Snap follows the Canadian tax system design which models each spouse separately to properly assess their taxation. In a scenario with a spouse, you will notice there is a Planning page for each spouse individually and a Combined page.
Here is an example of the Combined page for John and Jane Snapper. Note that for a couple, you use the Combined page to enter the total Base Expenses for them. Snap will display the amount of Base Expenses for each spouse if you hover your mouse over the combined value.
You can access the Net Worth & Estate Summary section on the Combined page by selecting the light blue menu icon in the Estate Before Tax column header. This table shows a column for each spouse as well as the combined total. If the projections have ended in different years for the spouses, the Combined column displays information from the last year both spouses are still alive. Therefore, keep an eye on the year for each column. If Jane lives longer in the projections, it is her column that you would want to refer to for the final estate.
You can also select the value of the Estate Before Tax in any given year to see the Net Worth & Estate Summary for that year specifically.
Spousal Settings to Consider
Here are 4 settings which can be applied to your projections when they include a spouse:
- Combined or Individual entry of Expenses
- Base the RRIF or LIF income on the age of the younger spouse
- Enable a Survivor Benefit for CPP/QPP and DBPPs
- Enable or Disable Automatic Pension Income Splitting
Combined or Individual entry of Expenses
Under Scenario Setup -> Expenses -> Advanced Options, you have an additional option when there is a spouse included in the projections to disable the automatic allocation of expenses for this scenario and enter individual expenses for each spouse manually.
Please refer to this article for details: Expenses: Total for the couple or individual entry for client and spouse.
Base the RRIF or LIF income on the age of the younger spouse
Under Scenario Setup -> Assets -> RRSP/RRIF and DCPP/LIRA/LIF, you have the option to base minimum withdrawal calculations on the younger spouse's age.
Enable a Survivor Benefit for CPP/QPP and DBPPs
Also, you can enable a Survivor Benefit for CPP/QPP and also for Defined Benefit Pension Plans (DBPPs). For more details on the surviving spouse scenario, please click here.
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 Income Splitting column.
In scenarios with a spouse, you typically enter a combined spending target (Base Expenses) for each year. In this case, we automatically split that target spending amount between the two spouses. This allocation is based on the amount of cash and capital assets each person has. 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 manually enter a separate spending target for each spouse.
Order of resources:
We apply the same steps to each of the following groups of resources ( in this exact order by default) until the combined spending amount is fully allocated between the spouses:
- Non-registered assets
- TFSA assets
- 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 capital asset contributions and withdrawals affect cash flow available for the purpose of this calculation, but automatic contributions and withdrawals do not. Registered assets include RRSP, RRIF, LIRA, LIF, DCPP, etc.
Sometimes we use registered assets before other types of assets.
- If there is a minimum amount that has to be withdrawn from RRIFs and LIFs, 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 actually 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, first we allocate all of it, and then move on 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 spending allocated to each spouse is based on each of their total resources (i.e. their total cash and capital assets). Simply speaking, we take more money from the spouse that 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 assets that are actually available. For example, we cannot withdraw from a LIF account more than its maximum amount. We also cannot use capital assets for which you manually override the contribution amount.
If the spouses do not have enough available resources to cover the entire combined spending target, then the remaining spending is allocated in a way that minimizes the difference between cash balances at the end of the year.