A GIS case study Adeline’s dilemma. July 29, 2012 James Daw.
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Transcript of A GIS case study Adeline’s dilemma. July 29, 2012 James Daw.
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A GIS case studyAdeline’s dilemma
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July 29, 2012
James Daw
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Adeline, age 66• Income $20,000
• GIS $2,927
• GIS stopped mid-year
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Assets• RRSP $30,000
• $120,500 from home sale
• TFSA $12,086 (Tax-Free Savings Account)
• car $16,000
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Bank’s RRSP advice
“ …given my modest income, I could withdraw $2,000 per year
without losing ANYTHING from my GIS.”
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FALSE
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Service Canada’s advice
“I lose 50 cents from every dollar
I withdraw.”
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FALSE
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Adeline’s actual loss
$1,000 of GIS+ $308 of taxes
65.4 % of $2,000
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Adeline’s reaction“ I don’t feel I can afford
to lose anything. This RRSP was to be my security blanket.”
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Tina’s advice
Developed educational tools for National Initiative for the Car of the Elderly (NICE)
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Step 1Convert RRSP to RRIF
(Registered Retirement Income Fund)
•$2,000 pension tax creditREASON
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Step 2Withdraw entire RRIF
in $15,000 installments•Lose GIS once
•Only pay tax
•Only 20% held for tax
REASONS
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Step 3Move $5,000 per year
to Tax-Free Savings Account
• No tax on interest• No GIS lost on TFSA withdrawals
REASONS
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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
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Other income potential
$3,500 from part-time work does not affect GIS income
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GIS strategies are
controversial
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Reasons to save• Age 67 for OAS/GIS by 2029• Options before long-term care•Major purchases• Legal, other professional fees• Final expenses
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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%
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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
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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
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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
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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
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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
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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
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‘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!