Q: I am 63 years old, and stayed home to raise my family for a number of years, so do not have a lot of employment years or high income. I am currently working, but my health is slowly diminishing due to rheumatoid arthritis and not sure how much longer I can work full time.
I may only receive $500 a month from the government, and will get some of my ex-husband’s pension as well, plus 10 years’ time for being a stay-at-home mom. I do not own anything and am currently sharing an apartment with my son, which is not ideal. I would love to have my own place.
My mom recently passed and left me $240,000. I’m wondering how best to use this money to help me in my retirement. I live in Vancouver, so buying my own place is not an option. I would consider myself to be a conservative investor.
A: Hi Shirley, sorry to hear about your Mom. From what you’ve written you’ll want to think about how you manage your taxes and your cash flow.
Managing your tax may not be that easy because you have CPP, OAS at 65, and some of your ex-husband’s pension. It is the tax on the $240,000 from your Mom you’ll want to watch.
For example, a $240,000 GIC at 3.25% will generate $7,800 in interest which would be added to your income and taxed. Why is this important? You may be eligible to receive the guaranteed income supplement (GIS), at age 65. The amount you’ll receive is based on your taxable income, which includes your CPP, pension, and investment income, but not OAS.
Use this table to find out how much you could receive. If you have a taxable income of over $18,096, not including OAS, then you will not receive the GIS.
To reduce your investment income, maximize your Tax-free Savings Account (TFSA). The CRA only considers taxable income as income. If all your income came from a TFSA the CRA would assume you have zero income.
The other thing you want to think about is how you manage your cash flow because it sounds like you need to make it stretch.
Instead of budgeting, why don’t you set up two bank accounts, a master account for paying everything you have no emotional pull to spend more on, i.e. bills, auto, etc.., and a spending account for those things where there is an emotional pull to spend a little more, i.e. food, family, entertainment, etc..
Determine a set weekly amount to be deposited from your master account to your spending account. That is your weekly allowance for groceries, vacations, entertainment etc. Just use cash and a debit card, no credit card in this account. If you are spending too much get rid of the debit card and just use cash.
Finally, Shirley, I’d suggest you talk to a financial planner. There may be some other things you can do to be more tax efficient. They may also able to give you some further suggestions around managing/stretching your cash flow.
Allan Norman is a Certified Financial Planner (CFP) as well as an investment advisor (CIM) with Aligned Capital Partners Inc. in Barrie, Ont. He can be reached at firstname.lastname@example.org
This commentary is provided as a general source of information and is intended for Canadian residents only. Allan offers investment advisory services and products through ACPI.
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