RESP advice for Mindy Lahiri

This new Advisor to Client series helps clients learn about the elements of financial planning through the examples of their favourite fictional characters.

Subject: Dr. Mindy Lahiri, The Mindy Project

Problems:

• Custody and child support (Part 1)
• Estate planning (Part 2)
• Cash flow and education savings (Part 3, today)

Premiere: Thursdays at 8ET/PT starting October 27 on City.

Scenario: New York gynecologist Mindy Lahiri (created and played by Mindy Kaling) passes several major milestones during the fifth season of The Mindy Project. She gives birth to a son, Leo, but splits up with her fiancé and colleague Danny after it’s clear they’re incompatible parents. She also opens a fertility clinic with another doctor from the practice, which requires a great deal of Mindy’s time and money — mainly because she’s a notoriously poor budgeter.

With Leo’s birth, Mindy realizes she’s neglected her finances and hands a box of paperwork over to a friend in the financial business. To her relief, she learns she’s living within her means.

Concern: As a single mother, what plans should Mindy have in place to protect and provide for Leo in case she gets sick or dies? How should she budget and save for Leo’s future as well as her own?

In this series, we assume Canadian tax and estate laws apply to our fictional clients. If you missed our previous columns about custody plans and estate planning, see them here.

Cash flow and saving

Mindy is absolutely awful at spending her money wisely. Advisor Jolene Laing, an avid fan of the show, says, “She definitely needs to have a budget in place that adequately identifies the childcare and household expenses that she might previously have been sharing with Danny, [such as] fixed expenses on a monthly basis, including private education, RESP contributions and retirement savings.”

Assuming Mindy enrolls Leo in private grade and high school, and that Leo is as smart as his parents and attends university at age 18, Laing recommends both an in-trust-for account to save for private education, and an RESP to save for postsecondary expenses.

In the private school trust, Laing recommends half the funds go into a high-interest savings account. “They don’t pay much these days, but the reality is she’s going to need a lot of that cash in the next two years.” The other half can be in something simple, like a balanced fund that’s 50% bonds and 50% equity. “That can conservatively grow for a number of years, until he needs to access it for his postsecondary education,” she explains. Jackson estimates that the annual cost of private school in Canada is between $20,000 and $30,000.

Leo would need access to the trust funds for college or university too, as the lifetime RESP contribution limit for a single beneficiary is $50,000 from all parties, Laing says — far less than the total cost of a university education, which she estimates is about $20,000 per year for a four-year degree.

To maximize her funds, Laing says Mindy could contribute at least $2,500 each year to access the full Canada Education Savings Grant ($500 each year). Laing recommends that if both Mindy and Danny are contributing to Leo’s RESPs that they communicate to avoid surpassing the $50,000 lifetime threshold.

Alternatively, Mindy could max out Leo’s RESP immediately by investing the full $50,000 now, as that amount would grow tax-free over the longest possible time. However, she would miss out on Canada Education Savings Grants.

In addition to education expenses, if Mindy wanted to go back to work full-time as a single mother, she would need to budget for a nanny until Leo reaches school age. Jackson pegs the cost of a day nanny at about $40,000, and the cost of a live-in nanny at between $25,000 and $30,000.

Clearly, if Mindy and Danny proceed with separation in the next season of The Mindy Project, Mindy is going to experience a significant financial hit. With this in mind, Laing says, “Mindy is the atypical single person who made a good income and never had to worry about what she spent. If there’s a better time to put together a financial plan, I don’t know what it [is].”