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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!