Identifying the Exposure and Managing the Risk

Case Study No. 2

The retirement strategy for the Jones and the Smiths are different but equal in value. The Jones invested in an expensive home while the Smiths in an RRSP. What is their exposure?

The Jones Family

Mr. Jones
Mrs. Jones

No RRSP, but $1M third-party liability insurance.

Fair Market Value of the Home

$3.5M

Hard Equity

$40,000

Retirement Planning

Sell home, buy new home for $1M and have $2.5M of capital to retire on.

Exposure

Fair Market Value

$3,500,000

Liability Insurance

($1,000,000)

Hard Equity

($40,000)

$2,460,000

The Smith Family

Mr. Smith
Mrs. Smith

RRSP of $2.5M, and $1M third-party liability insurance.

Fair Market Value of the home

$1M

Hard Equity

$40,000

Retirement Planning

Stay in the current home and retire on RRSP capital.

Exposure

Fair Market Value

$3,500,000

RRSP

($2,500,000)

Liability Insurance

($1,000,000)

Hard Equity

($40,000)

$40,000

Why the difference?

RRSPs are exempt from bankruptcy but homes, only $40,000 is exempt.

Conclusion

Both families are well positioned for retirement. The Smiths are better protected due to their investments in RRSPs rather then a more expensive home.

Solution for the Jones Family

Protect their home with a Principal Residence Protector™.

Why?

It would take a lifetime to recover their investment in their home that was to be used to facilitate their retirement.