Adeline’s dilemma
A GIS case study
James Daw
July 29, 2012
Adeline, age 66
• Income $20,000
• GIS $2,927
• GIS stopped mid-year
Assets
• RRSP $30,000
• $120,500 from home sale
• TFSA $12,086 (Tax-Free Savings Account)
• car $16,000
Bank’s RRSP advice
“ …given my modest income,
I could withdraw $2,000 per year
without losing ANYTHING
from my GIS.”
FALSE
Service Canada’s advice
“I lose 50 cents
from every dollar
I withdraw.”
FALSE
Adeline’s actual loss
$1,000 of GIS
+ $308 of taxes
65.4 % of $2,000
Adeline’s reaction
“ I don’t feel I can afford
to lose anything.
This RRSP was to be
my security blanket.”
Tina’s advice
Developed educational tools for
National Initiative for the Car of the Elderly (NICE)
Step 1
Convert RRSP to RRIF
(Registered Retirement Income Fund)
REASON •$2,000 pension tax credit
Step 2
Withdraw entire RRIF
in $15,000 installments
REASONS •Lose GIS once
•Only pay tax
•Only 20% held for tax
Step 3
Move $5,000 per year
to Tax-Free Savings Account
REASONS • No tax on interest
• No GIS lost on TFSA
withdrawals
Adeline’s $120,500
House?
Annuity?
•Not enough, even in Barrie
• Prescribed annuity pays
capital + interest
• Property tax, maintenance
• Rental income to help with
mortgage would cut into GIS
• Capital doesn’t cut into GIS
• Shared ownership would not
cut into GIS
• Interest not enough to be
taxed, but cuts GIS by $561.50
• $4,911 capital, $1,123 interest
Other income potential
$3,500 from part-time work
does not affect GIS income
GIS strategies
are controversial
Reasons to save
• Age 67 for OAS/GIS by 2029
• Options before long-term care
• Major purchases
• Legal, other professional fees
• Final expenses
Age 67 OAS/GIS
• Average CPP benefit is $6,349
• Someone age 50, with no other
savings, might have to
save$32,657* by 2027 to replace
OAS/GIS from age 65 to 67
*Amount in 2027 dollars if inflation averages 2%
Closing OAS/GIS gap
Annual savings challenge for average CPP recipient
$2,000
$1,800
$1,600
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0
A person born in February 1962
would have biggest challenge to save
$32,657 by age 65
in February 2027
J-58 J-59 J-60 J-61 J-62 J-63 J-64 J-65 J-66 J-67 J-68 J-69 J-70
Birth month
* Assumes interest rate in tax-free savings account equals inflation rate. Start saving monthly in January, 2013
Long-term care
• Apply to Community Care Access Centre (CCAC)
• Waiting lists can be three years long
• You are considered “safe” in hospital, but at
risk of losing capacity for independent living
• High risk of infection
• Private alternatives can cost $40,000/year
• Few can afford without selling a home
Final expenses
• Toronto’s Employment and Social Services
department will help cover funeral costs
• Not just for those receiving Ontario Works or
Ontario Disability Support Program (ODSP)
• One must apply for the support
• The city may recover costs from all sources
available to the deceased person
Guaranteed life insurance
• Policies sold on TV are not the cheapest
• You may pay for two years to qualify
(if you die first, premiums may be refunded)
• Insurance is cheaper than saving -if your life is short
• Costs could grow beyond the death benefit
Guaranteed life insurance
$14,000
Total
premium
$12,000
$10,000
Funeral
cost
$8,000
$6,000
Benefit
$4,000
$2,000
Male 41
$30/month
Age 55
$0
41
44
47
50
53
56
59
62
65
68
71
74
Final expenses: ‘Preneed’
Insurance
• Pay premiums for 1, 3, 5, 10, 15 or 20 years
• Funeral home guarantees policy will pay for
funeral of your choice if you have a funeral contract
• If unhealthy can pay one to five years to qualify
Savings annuity, trust accounts
• Contributions refundable
• Once funded, keeps up with cost of funeral if you
have a funeral contract
• Up to $15,000 tax-free for funeral, $20,000 for cemetery
‘Preneed’ insurers
• Guaranteed Funeral Deposits
of Canada Fraternal
www.gfd.org (Owned by funeral directors)
• Foresters
www.foresters.com (Also a fraternal)
Contact funeral home first to arrange service!