“I used my RRSPs [régime enregistré d’épargne-retraite] and it’s still around $6,000,” Nicole* wrote to us. His tax-free savings account (TFSA) is no better stocked: $5,000. She is 77 years old and lives alone.
Posted at 6:00 a.m.
The situation
Nicole has no employer pension plan.
She doesn’t own a house or a car.
But far be it from her to lament her fate.
She lives in a three-room apartment with low rent: $635.
“It suits my taste, because I am a person who is correct on my own, she confides. I do weaving, knitting, I can sew, I can paint. I do not get bored. »
A cloud is looming, however.
“There may be changes in the building. It’s a small building where there are just four or five tenants. The owner will change his mind at some point. »
He gives all the clues. The apartment of one of the tenants has been repossessed. Two others have received eviction notices.
“I know that if I move, it will be more expensive. »
Her expenses total $15,000 a year, she first estimated. But following the phone interview, an email exchange instead pegged them at around $23,500.
In addition to her rent ($7,600 per year), she spends $770 on electricity and $1,200 on telecommunications. For the rest, “it’s the grocery store and the pharmacy, but as I have hobbies of weaving and knitting, there were expenses on that side. These are my extravagances”.
Numbers
Revenues in 2021
QPP: $12,830
PSV: $7487
RRIF withdrawal: $3,840
GST and Solidarity credits: $1,475
One-time payment to seniors age 75 from Employment and Social Development Canada: $500
No Guaranteed Income Supplement
Savings
RRSP: $6,000
TFSA: $5,000
These extravagances, however, do not seem extravagant.
“Good, not bad,” she corrects. It was around $4,000 last year. I’ll have to slow down. »
For the most part, his income comes from pensions from the Régie des rentes du Québec (RRQ, $12,530) and the Old Age Security Pension (PSV, $7,500).
In 2021, she withdrew $3,840 from her RRSP, at $480 per month until September. Her RRSP having shrunk to $6,000, she now plans to withdraw only $300 a year.
“So far, things are going well. But I say to myself: you know, you are nearing the end. So how long do you have left to live? Maybe 10 to 15 years. And maybe at some point it will decline. It’s normal. So there, I say to myself: you should perhaps think of something. »
Let’s be reassured: this something is looming. The proceeds from the sale of land worth $900,000 will be distributed among her and her siblings. According to their calculations, they expect to get $150,000 each.
“I don’t plan to invest, but I would like to have your opinion on what I could do. What should my strategy be? How much should I allocate for rent?
“With the cost of living going up, what percentage should we expect for the coming years? »
It will be necessary to provide money for a will, a move, insurance, she says.
“These questions may seem simplistic to you, but I would like to have your opinion to help me see things more clearly. »
There is nothing simplistic when serenity and security are at stake.
The answer
These $150,000 that will fall from the sky will allow Nicole to create a more comfortable budget. With a nuance, however: “It depends on what the horizon is,” comments planner Nathalie Bachand, from the firm Bachand Lafleur, Groupe conseil.
We do not know when this sum will reach the purse of our septuagenarian.
But let’s first see what good it could do her.
A small sum may be set aside for will and moving expenses that Nicole is considering – say $5,000.
PHOTO HUGO-SÉBASTIEN AUBERT, LA PRESSE ARCHIVES
Nathalie Bachand, from Bachand Lafleur, Consulting Group
With the balance of $145,000, “if she receives the money in the next few months or before the end of the year, she fills up her TFSA,” advises the planner.
For someone who has never contributed to it before, the cumulative entitlements amount to $81,500.
Since we do not know the performance and withdrawal history of Nicole’s TFSA, we will assume that the $5,000 she holds correspond to the rights used. She could therefore pay another $76,500 into it in 2022. The balance, held outside the TFSA, would therefore be subject to income tax.
How could this $145,000, invested prudently, improve his lot?
The planner does a simple calculation: “Considering inflation, returns and a little tax, you can practically divide the amount by the number of years. »
Having reached 77, Nicole has a 25% chance of reaching 96. From this perspective, the $145,000 would get him $7,630 a year, or $635 a month. With the $635 she currently spends on it, she could therefore pay rent of around $1,270 per month.
Waiting for…
But if that amount doesn’t show up for two or three years, how will Nicole survive an eviction?
“She doesn’t have a lot of assets,” notes Nathalie Bachand. It boils down to maximizing government rents. »
She is also surprised that Nicole does not receive the Guaranteed Income Supplement. “With income of this order, she should receive around $1,500 from GIS. »
Perhaps her RRSP withdrawals deprived her of it? she suggests.
The amount of the SRG is fixed on 1er July for the following 12 months (excluding the quarterly adjustment for inflation), based on the income of the previous year.
“For example, his 2022 income determines his GIS from July 2023 to June 2024,” says the planner.
To obtain the maximum amount as quickly as possible, she suggests that Nicole withdraw the $6,000 that she still has in RRSPs this year.
“She would pay about $700 to $800 in tax for the 2022 fiscal year, but after filing her 2023 return where she declares no RRSPs, she would recover a Guaranteed Income Supplement of around $3,500 from July 2024.”
However, there is a way to win a year.
“It is possible to request that the GIS be based on the income estimate for the current year and not the previous year,” she adds.
This request is made with the ISP-3041 form, which is only available by direct request to Service Canada. “You can’t find it online. You have to call and they will post it. »
Nicole will thus be able to request from 2023 that the SRG application be based on her estimated income for the current year. “This would have the effect of recouping the $3,500 GIS as early as July 2023 and not July 2024.”
Nicole would thus receive income of approximately $24,500 in 2023 and $25,500 in 2024, which would allow her to spend some $800 per month on her rent. She may need to temporarily restrict her leisure spending.
Waiting for better…
* Although the case highlighted in this section is real, the first name used is fictitious.
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