The money quiz

5. To avoid living off cat food during my retirement, I'll need investments worth:
a) $1 million
b) nothing -- government programs will support me
c) about 15 times my annual expenses

Answer: c. While government programs may not be enough to support your lifestyle during your golden years, chances are there will be some state-sponsored money for you in the form of the Canada Pension Plan (CPP), and, for low-income seniors, Old Age Security (OAS) and the Guaranteed Income Supplement (GIS). (To see how much CPP you're eligible for, visit sdc.gc.ca. You can also find OAS and GIS payment rates as of this year.) Still, you should open an RRSP as soon as possible. For every dollar you contribute to an RRSP you get an equivalent tax deduction. Yes, you will pay tax on the money when you withdraw it, but at that point you will, presumably, be in a lower tax bracket than you are now.

6. Last week my financial planner was babbling about front-end and back-end loads. She was referring to:
a) the type of RRSP I have
b) the fee I pay when I buy and sell mutual fund units
c) language that wouldn't make her mother proud

Answer: b. If you invest $5,000 in Fund XYZ and it has a front-end load of four per cent, your investment would be $4,800 because the load would cost you $200 off the bat. Back-end loads are paid if you sell your mutual fund units within a certain period of time, usually within seven years.

Let's say you invest $5,000 in Fund ABC and sell after six months. If the back-end load is five per cent, you'll pay $250 for the privilege of getting out of the fund.

7. If I die without a will, my dog, my grandma's china and all my worldly possessions will:
a) go to the government
b) be split between my spouse and my children
c) neither

Answer: c. It's called dying “intestate,” and what happens after that depends on where you take your last breath. Most provinces have a spouse's share arrangement, which means anywhere from $40,000 to $200,000 of your estate will go to your spouse. Children share in only the value of the estate that exceeds the spouse's share.

Here's a scenario to consider. You die peacefully after a full life, leaving a husband and two grown kids behind. Your estate is worth $150,000. If you live in Ontario, where the spouse's share is $200,000, your husband gets everything. If you live in Alberta, where the spouse's share is $40,000, your husband and children split $110,000 (the difference between the spouse's share and your estate). There's no provision for your grandchildren and no donations to your favourite charity. Bottom line? No situation is too simple, and no estate is too small for a will. Visit a lawyer and draft one.

8. By the time my three-year-old is 18 and ready for university, a four-year degree will cost:
a) $25,000
b) $35,000
c) $50,000

Answer: b. Many variables affect that number. Will your kid live at home or in residence? What will she study? How will governments fund education in 15 years? These questions are impossible to answer because your little Doogie Howser hasn't mastered math yet. Assume that the final tab will probably be more than you have, so open a registered education savings plan (RESP). Ottawa contributes 20 per cent of what you do, up to $400 a year per child, to a lifetime maximum of $7,200 per child. If you put away $25 a week for 18 years, with your contributions, the government grant and a return on your investments of five per cent, you'll have $45,000. You don't get a tax deduction, but when your little one withdraws your contributions she doesn't pay tax on it. And when she accesses the investment returns and grant money, that's taxed in her hands in a low tax bracket.