Most Canadians are leaving money on the table when it comes to government benefits in retirement. One of the most overlooked tools is the Guaranteed Income Supplement, also known as GIS.
Let’s walk through how one retiree used the GIS strategy to increase his estate by nearly two hundred thousand dollars, without taking on more risk or cutting his spending.’
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Mike’s original retirement plan
Mike had just turned sixty-five and was ready to retire. His plan was to spend fifty thousand dollars per year, indexed to inflation, until age ninety.
His retirement assets included:
- Six hundred thousand in an RRSP
- One hundred thousand in a TFSA
- Three hundred thousand in a non-registered account (from the sale of his home)
- A mortgage-free cottage worth three hundred thousand
Mike also planned to take his Canada Pension Plan and Old Age Security at age sixty-five, which would give him twelve thousand from CPP and eighty-two hundred from OAS annually.
To cover his income needs, he would top up from his non-registered account and leave his RRSP untouched until mandatory withdrawals began at age seventy-one.
Based on these assumptions, Mike’s plan worked. His net worth rose early in retirement due to portfolio growth and then gradually declined. At age ninety, he would still be leaving behind an estate worth approximately one million seventy-seven thousand dollars.
Where the opportunity was missed
Although Mike’s plan worked, it left value on the table.
Because Mike’s income was relatively low in the early years of retirement, he qualified for GIS, a tax-free benefit available to low-income seniors receiving OAS.
The GIS benefit is reduced as your income increases, but if your income outside of OAS is very low, the payout can be significant. At zero taxable income, Mike could have received just over one thousand dollars per month in GIS. Even with five thousand dollars in taxable income from his non-registered account, he would still qualify for about seven hundred sixty-two dollars per month.
How the strategy works
To unlock the GIS benefit, Mike would need to do two things:
- Defer CPP to age seventy
- Keep his taxable income low by relying on his TFSA and non-registered account in the early years
Deferring CPP to age seventy also increases his annual payment by forty-two percent, which provides higher guaranteed income later in life.
The result of this strategy
By using the GIS strategy and deferring CPP, Mike’s estate at age ninety increased from one million seventy-seven thousand to one million two hundred seventy-three thousand.
That is an increase of one hundred ninety-seven thousand dollars, simply by adjusting when he takes government benefits and how he draws from his accounts.
Final thoughts
The Guaranteed Income Supplement is one of the most underused retirement tools in Canada. Many retirees and even financial professionals overlook it. Before making decisions about CPP and OAS, it’s worth reviewing your options carefully.
In Mike’s case, a simple strategy adjustment led to a larger estate without sacrificing lifestyle. For many Canadians, that’s worth a closer look.
To see if the GIS strategy could work for you have a look on our website and book an appointment with us.
