Caution
The regulations governing the federal programs for seniors are exceedingly complex
and the interaction between those rules and programs like Home Care and Social Housing
let alone income tax makes the complexity much worse.
Therefore, the suggestions below should not be considered as financial advice appropriate for your
individual circumstances but are simply things you may wish to consider.
Are you GIS bound?
The Guaranteed Income Supplement is targetted to lower-income seniors.
Basically if your don't have a company pension you may well be eligible,
If you are single then a good pension could keep you off GIS.
If you are a couple and you both worked for a good portion of your lives then
your CPP may keep you off GIS.
Will you be eligible for GIS at retirement?
The Guaranteed Income Supplement, GIS for short, is a program which supplements the income of some seniors.
Which is a good thing.
If you are likely to receive the GIS at retirement then your savings will be subject to a set of very different
rules than those affecting other Canadians.
Why GIS will influence the value you get from your savings
One dollar of income generally reduces your GIS by 50 cents. So if you withdraw $1,000 from your RRSP, your
GIS is reduced by $500. Income from other sources like the CPP Pension and earnings is treated the same.
As well, half of those receiving GIS also pay income tax; so, a $1,000 RRSP withdrawal will reduce their GIS by
$500 and on top of that they can expect to pay about $250 in income tax.
GIS is not asset tested
Under current rules, your savings, including your home, do not affect
your eligibility for GIS. So, compare two people, one owns a $100,000 house and
the other has $100,000 in an RRSP. The homeowner is in a better position because
their house does not affect their GIS. The person with the RRSP will have their
GIS reduced by RRSP withdrawals. For example, if they withdraw $4,000 then their
GIS will be reduced by $2,000.
GIS bound and under 65
Consider Avoiding an RRSP
The GIS reduction rate of 50% makes RRSP a bad investment for many low-income
seniors. In fact, you probably may wish to consider cashing-out your RRSP before your turn 65.
Consider applying for early CPP
You can apply for CPP any time after age 60 so long as you are not working during
that month. The amount you recieve in CPP benefits will be reduced if you apply
earlier than 65 (by up to 30%) and is increased by up to 30% if you wait to age
70 to apply.
Consider dumping your RRSP before your turn 65
Suppose you have $20,000 in an RRSP and you are 60 years old.
If you cash out
your RRSP before you turn 65 then you'll pay income tax on the amount withdrawn. After
tax, you'll have roughly $12,000 to $15,000 free to spend.
What if instead, you wait and withdraw the funds after you reach 65. Then ON TOP of
the income tax you pay, you will receive less GIS because the RRSP withdrawal is
treated as income. After income tax and the impact on GIS, you'll have at best $5,000 to spend.
If these consequences of keeping your RRSP until after 65 weren't bad enough, consider
that those RRSP withdrawals are included in taxable income. That means that, depending
on where you live, they can increase, what you would pay for home care, meals on wheels,
prescription drugs and nursing home care.
Consider using your house as an investment
In the long term a house can be a good way to save for lower income Canadians.
If you own a house, you might use your RRSP money to instead reduce
your mortgage or increase your mortgage payments.
A GIS recipient and already over 65
Consider a Reverse Mortgage
If you own a home you might consider a Reverse Mortgage; which pays you a monthly
amount which is, in effect, a loan using your home as collateralle; the load is repaid
out of the equity in the home at your death.
