A GIS case study

1. A GIS case study Adeline’s dilemma

2. James Daw July 29, 2012

3. Adeline, age 66 • Income $20,000 • GIS $2,927 • GIS stopped mid-year

4. Assets • RRSP $30,000 • $120,500 from home sale • TFSA $12,086 (Tax-Free Savings Account) • car $16,000

5. Bank’s RRSP advice “ …given my modest income, I could withdraw $2,000 per year without losing ANYTHING from my GIS.”

6. FALSE

7. Service Canada’s advice “I lose 50 cents from every dollar I withdraw.”

8. FALSE

9. Adeline’s actual loss $1,000 of GIS + $308 of taxes 65.4 % of $2,000

10. Adeline’s reaction “ I don’t feel I can afford to lose anything. This RRSP was to be my security blanket.”

11. Tina’s advice Developed educational tools for National Initiative for the Car of the Elderly (NICE)

12. Step 1 Convert RRSP to RRIF (Registered Retirement Income Fund) REASON • $2,000 pension tax credit

13. Step 2 Withdraw entire RRIF in $15,000 installments REASONS • Lose GIS once • Only pay tax • Only 20% held for tax

14. Step 3 Move $5,000 per year to Tax-Free Savings Account REASONS • No tax on interest • No GIS lost on TFSA • withdrawals

15. Adeline’s $120,500 • House? • 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

16. Other income potential $3,500 from part-time work does not affect GIS income

17. GIS strategies are controversial

21. Reasons to save • Age 67 for OAS/GIS by 2029 • Options before long-term care • Major purchases • Legal, other professional fees • Final expenses

22. Age 67 OAS/GIS • Average CPP benefit is $6,349 • Someone with no other savings would need $33,022 to replace OAS/GIS from age 65 to 67

23. Closing OAS/GIS gap A person born in February 1962 would have biggest challenge to save $33,022 by 65 in February 2027 Birth month * Assumes zero inflation, zero interest on savings in tax-free savings account

24. 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

25. 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

26. 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

27. Guaranteed life insurance Total premium Funeral cost Benefit Male 41 $30/month

28. 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

29. ‘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!