Lump Sum Income (Inheritance, Pension Lump Sum, etc.)
It is easy to add an inheritance or any lump sum amount in Snap Projections. In the following article, we use an example of an expected inheritance in a future year to illustrate how to add a lump sum amount to your projections. Positive lump sum amounts are also entered in projections involving a commuted pension, and negative taxable income amounts can be used for special cases to indicate tax-deductible expenses.
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Enter the expected income
a. Using the input options on the Income page.
Go to the Income page by selecting Scenario Setup -> Income.
On the Income page, click Add Income. In the Description column, enter Inheritance. The Description will show as the column title for this income on the Planning page. Enter the Amount as the expected future inheritance (for example, $100,000), leave Indexing as 0%, Type as Other, and No for the Taxable and RRSP Eligible columns. For income that is applicable for only one year, enter the same age under the From Age and To Age, age 65 in this example.
Back on the Planning page, there is now a column called Inheritance. You can see that the value is $0 for all years except for age 65 where we entered the client will receive the lump sum amount of $100,000.
Tip: For lump-sum amounts that you wish to split between 2 spouses, do the same steps above for each spouse, and allocate a portion of the total lump sum amount to each spouse.
Remember that Snap works with nominal dollars within the projections. To convert from today's dollars to future dollars, you can use the Indexing field on the Scenario Setup -> Income page. The amount will be converted to nominal dollars based on the Indexing percentage and the number of years until the person reaches that age.
In this example, $100,000 in current year dollars would be $110,950 in that future year based on 2.1% indexing.
b. Using overrides on the Planning page.
If the same type of income is expected in multiple years, you can enter the amounts directly on the Planning page. Under Scenario Setup - > Income enter an amount of $0 and leave the From Age and To Age empty.
This will create a column on the Planning page with all values set to $0. You can then click the $0 amount in any future year and enter an expected income.
You could do this for a single year, a period of years, or on an ongoing basis every few years.
These entered amounts are called overrides and are highlighted in yellow on the Planning page.
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Ensure the income is being saved or spent as desired
Example 1: Automatic contributions occur after the CFM Start Age
If automatic cash flow management is enabled (meaning that the year of the inheritance is after the selected CFM Start Age), the inheritance will be automatically allocated to any existing assets according to the default logic.
In this example, Snap automatically maximizes the available RRSP contributions and contributes the rest of the surplus to the non-registered account.
You can change the allocation of the surplus as shown here: Changing the default cash flow management logic.
Example 2: Using manual contribution overrides after the CFM Start Age
Even if the inheritance has been automatically allocated to any existing assets according to the default logic, you can also enter a specific contribution to one or more of the available assets to override these automatic savings.
In this example, we have specified that the entire inheritance should be contributed to the TFSA. To reach the client's Base Expenses target, Snap withdraws $62,688 from the RRSP. This is because the contribution override of $100,000 blocks the software from withdrawing any funds from the TFSA to support the client's Base Expenses needs. To avoid such a large RRSP withdrawal you could enter a smaller TFSA contribution or simply allow Snap to make an automatic contribution as shown in Example 1.
Another option would be to use the inheritance to pay off the mortgage we update the Amount Paid value for the Debt. By entering $100,000 for the mortgage payment, Snap recognizes that this payment is more than what is needed to pay off the mortgage. After running the scenario, Snap will automatically reduce the Amount Paid to the full amount owing on the mortgage.
Example 3: Manual contributions are required before the CFM Start Age
If the inheritance is expected in a year where the automatic cash flow management is disabled, you will need to manually save the income to one of the assets. Otherwise, it will be assumed to be spent.
In this example, the CFM Start Age is 65. Before that age, any surplus cash will be spent unless you enter contributions to the accounts manually. Here, you can see the inheritance is being spent in the year 2027 since the Base Expenses value in real dollars is $147,791 that year. This value is the inheritance plus any surplus cash left over that year.
To ensure the inheritance is saved, we have entered a larger additional contribution to the TFSA.
Snap will prevent overcontribution to the TFSA based on certain settings and assumptions.