A GIS case studyAdeline’s dilemma

July 29, 2012

James Daw

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 1Convert RRSP to RRIF

(Registered Retirement Income Fund)

•$2,000 pension tax creditREASON

Step 2Withdraw entire RRIF

in $15,000 installments•Lose GIS once

•Only pay tax

•Only 20% held for tax

REASONS

Step 3Move $5,000 per year

to Tax-Free Savings Account

• No tax on interest• No GIS lost on TFSA withdrawals

REASONS

Adeline’s $120,500House? •Not enough, even in Barrie

• Property tax, maintenance

• Rental income to help with mortgage would cut into GIS

• Shared ownership would not cut into GIS

Annuity?• Prescribed annuity pays capital + interest

• Capital doesn’t cut into GIS

• $4,911 capital, $1,123 interest

• Interest not enough to be taxed, but cuts GIS by $561.50

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

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$0

$200$400$600$800

$1,000$1,200$1,400$1,600$1,800$2,000

Annual savings challenge for average CPP recipient

Birth month

A person born in February 1962 would have biggest challenge to save

$32,657 by age 65in February 2027

* 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

41 43 45 47 49 51 53 55 57 59 61 63 65 67 69 71 73 75$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

Age 55

Guaranteed life insurance

Funeral cost

Benefit

Totalpremium

Male 41$30/month

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 Fraternalwww.gfd.org (Owned by funeral

directors)

• Foresterswww.foresters.com (Also a fraternal)

Contact funeral home first to arrange service!