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It’s Friday, and you know what that means. READER CASE TIME!
Today’s case was especially difficult because it deals with something I have very little experience with: disability. I’ve (thankfully) never experienced it personally, nor has anyone in my immediate family. So I’m obviously not an expert at this at all, but at the past Chautauqua I had the privilege to meet several attendees who have struggled with this problem and how they navigated the system. I learned a lot from them, and as a result I have at least a base level knowledge in this, but again, I’m by no means an expert. That being said, let’s see what we can do with this reader’s case study.
At 26, 7 years ago, I was in a horrific MVA. I am Canadian, in live in Ontario. Due to permanent catastrophic injury, I am retired which was not something I ever thought would happen to me this young as it was not by my own choice, retirement via car accident, no fault of mine.
I am in the position now where I don’t know if the lump sum plus my monthly IRB payed out by my insurance company will last me until age 65 as I have no idea what to do with my lump sum settlement.
The IRB will be paid up to age 65, no matter what unless I pass away.
My lawyer suggested – real estate, investing, or a combination of both. While I trust his opinion and guidance I do not overly feel the need to own property. I would rather invest as I need financial security long term. I do not feel the ‘need’ to own and pay a rent payment in taxes, utilities, etc. since I could outright purchase a condo but loose a huge nest egg.
I was advised settlements are based in negotiation with ‘inflation’ taken into consideration. I should be ‘comfortable’ but given I am not a banker, and this was all unexpected, and I am no investment guru no matter how many times I’ve read your guide, I do not know how to make sure I have money for the rest of my life.
I had an option for a structured settlement where I would receive roughly $1200 a month plus my IRB – roughly $2142 total per month but choose the lump sum as you can never go back on the structure if you need liquid cash.
I am scared to put it mildly.
Since reading your site, I feel I am better off doing things myself then depending on a scam artist financial advisor or mutual funds at the bank.
This are my current situation;
I live with my Dad & Step-Mom. After the MVA I came home from the Hospital to live with them as they could help care for me, as I learned everything again, did endless rehab, doctors appointments, surgeries, therapies, basically it was hell times a million. Having to depend on others to help me do simple things I should be able to just be ‘normal’ is indescribable.
Annual Income $11,312.16 IRB (Income Replacement Benefit)
Monthly Spending $1800 (Rent, Food, Insurance, Heat, Hydro)
No Debt
Own Car Fully Paid
Cheqing Account $1300
Savings Account $1800
$5000 in a TFSA
Cash $400, 000
The Insurance pays all my medical costs as I am CAT. Medications, Housekeeping, Attendant Care, Massage, Physio etc…is all payed for up until age 65. These costs are very high monthly but I do not personally pay out of pocket so I did not feel they should be added in.
I realize my monthly spending exceeds what I receive from my IRB. Which is why I obviously need growth to help me.
I went from living on a comfortable $3200/month working to $942/Month IRB.
I would like to live off of $40,000/year, as I do not wish to live below poverty level again.
40,000 – 11,312.16 IRB = $28, 687.84 is what I need in growth? So, how do I go about doing this?
I sincerely appreciate any advice you can send my way.
I am clueless as to where to begin though yes, I have studied your guide.
With love,
InjuredAndScared
OK, wow. First of all, I am so sorry that all this happened to you. I can’t imagine what it must be like to live with an injury like this. You sound like an incredibly strong person and your dad sounds like he sacrificed a lot to get you to where you are today.
But before we get started, right away we can see how much more complicated an analysis like this is going to be. Typically, personal finance boils down to “Track your spending, invest, and don’t shoot yourself in the foot.” But when a disability like this comes into play, there are a lot more moving pieces. The analysis becomes less about lifestyle changes and more about navigating the various support systems put in place to help people in this situation.
And again, I’m not an expert at every program available out there, so we’re going to focus on just one that I do know about: The Registered Disability Savings Program, or RDSP.
How It Works
The RDSP was introduced in 2008 by the late Finance Minister Jim Flaherty, who had a son with a disability, and is designed to help parents save for their disabled kid’s long-term future. Here’s how it works:
- Contributions are not tax-deductible (like a TFSA)
- Investment gains are tax-free (like a TFSA)
- Withdrawals are taxed BUT can be offset using the Disability Tax Credit, or DTC
- Withdrawals will NOT affect any disability benefits
OK so we have a TFSA-like vehicle so far. That’s OK but not that mind-blowing. Here’s the really interesting part of the RDSP. There’s two benefits that come with the RDSP: The Canada Disability Savings Grant and the Canada Disability Savings Bond.
Assuming no other income, the CDSG provides up to 300% matching from the Federal government for money you put into the account like so:
- on the first $500 contribution—$3 grant for every dollar contributed, up to $1,500 a year.
- on the next $1,000 contribution—$2 grant for every dollar contributed, up to $2,000 a year.
So for $1500, you would get a total annual matched benefit of $3500 per year, up to a lifetime maximum of $70k.
The other side of this is the CDSB, and assuming no other income will provide a straight $1000 per year benefit, up to a lifetime max of $20k.
Normally, RDSP’s are opened by the parents of disabled children, but in this case, InjuredAndScared can open one up herself and use some of the money from her insurance settlement to contribute to it.
Let’s Math Shit Up
OK so we’ve got a lot of moving parts here. InjuredAndScared wants to live off of $40k a year. Can she do it? Short answer, no.
Her settlement amount of $400k will support spending of $400k x 4% = $16k. Add that to her IRB of $11,312, and we get a total of $27,312, or $2276 a month. So she can increase her monthly spending by $400 month, but not up to the equivalent of $40k a year.
But let’s see what happens when we add to the RDSP to it.
In order to get the maximum benefit, she needs to contribute $1500 a year into the account. Let’s say she does that every year until we hit our lifetime maximums for both benefits. There’s also a rule in the RDSP that you have to wait 10 years after you get the last federal payment before making any withdrawals, otherwise you have to repay back part of the grant/bond money. So what does that look like at the end of that time period?
| Year | Balance | Contribution | Grant | Bond | ROI | Total |
|---|---|---|---|---|---|---|
| 1 | $0.00 | $1,500.00 | $3,500.00 | $1,000.00 | $0.00 | $6,000.00 |
| 2 | $6,000.00 | $1,500.00 | $3,500.00 | $1,000.00 | $360.00 | $12,360.00 |
| 3 | $12,360.00 | $1,500.00 | $3,500.00 | $1,000.00 | $741.60 | $19,101.60 |
| 4 | $19,101.60 | $1,500.00 | $3,500.00 | $1,000.00 | $1,146.10 | $26,247.70 |
| 5 | $26,247.70 | $1,500.00 | $3,500.00 | $1,000.00 | $1,574.86 | $33,822.56 |
| 6 | $33,822.56 | $1,500.00 | $3,500.00 | $1,000.00 | $2,029.35 | $41,851.91 |
| 7 | $41,851.91 | $1,500.00 | $3,500.00 | $1,000.00 | $2,511.11 | $50,363.03 |
| 8 | $50,363.03 | $1,500.00 | $3,500.00 | $1,000.00 | $3,021.78 | $59,384.81 |
| 9 | $59,384.81 | $1,500.00 | $3,500.00 | $1,000.00 | $3,563.09 | $68,947.90 |
| 10 | $68,947.90 | $1,500.00 | $3,500.00 | $1,000.00 | $4,136.87 | $79,084.77 |
| 11 | $79,084.77 | $1,500.00 | $3,500.00 | $1,000.00 | $4,745.09 | $89,829.86 |
| 12 | $89,829.86 | $1,500.00 | $3,500.00 | $1,000.00 | $5,389.79 | $101,219.65 |
| 13 | $101,219.65 | $1,500.00 | $3,500.00 | $1,000.00 | $6,073.18 | $113,292.83 |
| 14 | $113,292.83 | $1,500.00 | $3,500.00 | $1,000.00 | $6,797.57 | $126,090.40 |
| 15 | $126,090.40 | $1,500.00 | $3,500.00 | $1,000.00 | $7,565.42 | $139,655.82 |
| 16 | $139,655.82 | $1,500.00 | $3,500.00 | $1,000.00 | $8,379.35 | $154,035.17 |
| 17 | $154,035.17 | $1,500.00 | $3,500.00 | $1,000.00 | $9,242.11 | $169,277.28 |
| 18 | $169,277.28 | $1,500.00 | $3,500.00 | $1,000.00 | $10,156.64 | $185,433.92 |
| 19 | $185,433.92 | $1,500.00 | $3,500.00 | $1,000.00 | $11,126.03 | $202,559.95 |
| 20 | $202,559.95 | $1,500.00 | $3,500.00 | $1,000.00 | $12,153.60 | $220,713.55 |
| 21 | $220,713.55 | $0.00 | $0.00 | $0.00 | $13,242.81 | $233,956.36 |
| 22 | $233,956.36 | $0.00 | $0.00 | $0.00 | $14,037.38 | $247,993.74 |
| 23 | $247,993.74 | $0.00 | $0.00 | $0.00 | $14,879.62 | $262,873.37 |
| 24 | $262,873.37 | $0.00 | $0.00 | $0.00 | $15,772.40 | $278,645.77 |
| 25 | $278,645.77 | $0.00 | $0.00 | $0.00 | $16,718.75 | $295,364.51 |
| 26 | $295,364.51 | $0.00 | $0.00 | $0.00 | $17,721.87 | $313,086.39 |
| 27 | $313,086.39 | $0.00 | $0.00 | $0.00 | $18,785.18 | $331,871.57 |
| 28 | $331,871.57 | $0.00 | $0.00 | $0.00 | $19,912.29 | $351,783.86 |
| 29 | $351,783.86 | $0.00 | $0.00 | $0.00 | $21,107.03 | $372,890.89 |
| 30 | $372,890.89 | $0.00 | $0.00 | $0.00 | $22,373.45 | $395,264.35 |
At the end of that lockout period in 30 years, and assuming our usual conservative 6% growth, this account will have grown to $400k! In other words, for the small price of about $30k total in contributions, she will generate another $400K (thanks to the government and invest returns)–on top of the $400K her insurance has already paid her.
$1500 a year is, by the way, just $125 a month, so she can easily cover that using the $400 extra a month she can afford to spend.
Now, the RDSP is a somewhat complicated account, so you’re going to want to consult an licensed planner before you open one up. Fortunately, the RDSP comes with free resources to help you with that, including an information helpline you can call. Click here for more information.
One really interesting provision that bears further investigation is the CDSG/CDSB carry-forward rule. If you’ve qualified for the RDSP but haven’t contributed, you can access your unused benefits from previous years. So for InjuredAndScared, she “qualified” for an RDSP the moment she got injured 7 years ago. But because she hasn’t opened on RDSP this entire time, she has 7 years of unused CDSG/CDSB waiting to be claimed. This could potentially shorten the amount of time it takes to access this money by 7 years, so in 23 years instead of 30.
Other Suggestions?
There’s another few suggestions we can spot here. For example, she’s been accumulating TFSA contribution room but not using it. Log into the CRA website, figure out how much money you can shovel into your TFSA, and make that deposit. Right now you’re just needlessly paying taxes.
Also, I highly recommend you do NOT attempt to invest in real estate. One of my old landlords had a back injury while renting out her property, and the physical labor required to maintain the building plus the emotional stress of dealing with uncooperative tenants in the basement seriously aggravated her injury. Stick with index ETFs like we write about in the Investment Workshop.
But again, we’re not experts on everything disability-related, so readers, if you have any suggestions that you can spot, please please please let’s hear it in the comments. Our reader needs all the eyes/ears we can get!
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Hi InjuredandScared. I wonder if you have looked into COOP (Rent Gearing to Income-RGI) housing? You would have to apply, and I’m not sure which city in Ontario you are living in, but your rent would be based on what you could afford, not market. Even if you are assessed as having to pay ‘market’ rent, it is usually lower than what the real rate is-in Toronto a single bedroom is going for $2300 per month right now for example. Just a thought, best wishes, and keep feeling better and better!
That’s an interesting idea. I’ve never heard of these before.
How do these work?
https://www.toronto.ca/community-people/employment-social-support/housing-support/rent-geared-to-income-subsidy/
Here is a good introduction in Toronto, most cities have some form of this ☺️
As a someone who used to work in the personal injury world, I am sorry for what has happened to you. The litigation process is difficult. Congrats on starting your own life. You probably have already heard, but I wanted to make sure you knew about the recent issues regarding HST and legal fees in that industry:
https://www.canadianlawyermag.com/author/aidan-macnab/auto-accident-victims-launch-lawsuits-against-insurance-companies-over-hst-dispute-16431/
https://www.thestar.com/news/investigations/2017/01/28/double-dipping-lawyers-taking-big-slice-of-injury-settlements.html
It would be worth it to take a look at your settlement to see if you are entitled to more funds.
But I would definitely agree with Wanderer to NOT invest in real estate and definitely invest in a RDSP. I wonder if there is any way to reduce your monthly spend on $1,800.00? It worries me that insurance is paying your medical expenses up to 65 years only. In general whist the cost of goods have been decreasing, the cost of services (esp. health) have been increasing. I also wonder if there is anything you can do to generate income given your limititations?
Really. Wow, those articles are shocking. As if these people didn’t have enough to deal with…
Wow. What a powerful story, can’t imagine what your reader is going through. I was a victim of significant medical malpractice many years ago, and one thing that helped me deal with the frustration and anger at my situation is simply to focus my time and energy on things I could control. Getting frustrated and angry at things that have already happened (and over which I have no control) simply makes you more mad…it just isn’t productive. When you are in a bad situation like that, focusing all of your energy on things that are productive is very helpful…
Regarding the lump sum…does the reader have to pay back their health care out of the value of the lump sum? Also, does receipt of that lump sum obligate the reader to pay for future health care on their own?
Not sure how all of that stuff works in Canada, but here in the US both of those questions would probably be a yes. That was another one of the crazy things I learned about US law in the process of getting my lump sum after my injury. Just another reason to ABSOLUTELY F—ING HATE the health Care system in the USA.
The best part is that the repayment of my health care costs happens before legal fees….meaning that the health insurance company gets 100% of their money back, and the cost of the lawyer comes entirely out of the injured party’s net. That’s part of the US ERISA law around subrogation, in case anyone wants to look it up.
Just something to think about if it applies to your reader. I think the Waffles on Wednesday blogger got caught by this already….
Her email indicated that the insurance company will take care of medical costs, but hopefully she’ll chime in to be sure.
Out of curiosity, how did you manage to shift your thinking into only focusing on what you can control? I can only imagine how hard it is for someone dealing with chronic pain.
I’ve been happy to read some of the other comments on how injury litigation seems to be handled in Canada. Seems far, far simpler there than here in the US. Between health care, and retirement savings plans, college savings plans, etc I still cannot get over how much simpler things are up there….
As far as shifting my thinking….I guess I eventually just got tired of what the anger and frustration was doing to me personally. I felt that I was turning into this miserable person, and it just wasn’t good for myself and my family. And of course, it wasn’t helping things at all. While I don’t have significant chronic pain or anything, I now have a medical condition that i will need to monitor for the rest of my life, and I can no longer do some of the things i used to enjoy before. So while its not as bad as the readers situation , it still sucks. I guess that focusing on things I can control is just my way of dealing with the situation. Best of luck to the reader!!
Just wanted to say good luck to InjuredAndScared. I am currently disabled and I cannot even imagine what you have gone through.
Also, disability appears to be another area where Canada is kicking our (US) butts. I am unaware of any accounts like Wanderer has written about. I hope you take advantage of them.
The RDSP is a Canadian-only account, and I think it’s the first of its kind in the world. Hopefully other countries will look at it and steal the idea…
Hey Wanderer, First off thank you so much for sharing the amazing RDSP program with your reader. I’ve got one for my son and it’s a definite life changer for both of us. I know that he’ll be able to financially support himself after I’m gone and as a parent this paramount to me. That being said, the program can be very confusing at times. I suggest using a credit union vs a bank and also phoning RDSP directly as they are extremely helpful. Now Wanderer you are truly a, “math this shit up guru” but there’s a small error here that might make a huge difference to this case study. You’ve got $3500 as the grant $ in year number 1 but when it actually should be $4500. When you open an RDSP and you have carry forward money the 1st year you should deposit $3500, grant would be $10500 (the max grant allowed per year) plus the bond of $1000 for a 1st year total of $11500. Yep, as a mom I pretty much sh#t my pants, (and cried a lot)when this happened, lol! Also the maximum per lifetime grant is $70k plus bond (if you qualify) is $20k.
Yes that carry-forward thing I’m still having trouble understanding. How do they calculate how much carry-forward you have?
Not a clue as this is my 1st year! They estimate next year I’ll need to deposit $4500 to max the grant money, but I’ll have to wait until February to get my statement. They only triple a certain amount and double the rest until you hit the $10500 yearly max and the 70k lifetime grant max. If your income is over $91831 all grant money is matched, (not tripled). You only qualify for the $1000 yearly bond if your income is under $45916. Look up Your Guide to Understanding RDSP put out by Central 1 Credit Union. There’s a ton of info in there but I still phone for clarification. The biggest mistake people make is not properly vesting the account. Ten years before you want to start withdrawing the money you must officially inform the government you want all grant AND BOND money stopped and don’t add ANY more money to it, (except interest). Ten years later all the funds are yours. If you withdraw any money without doing this the government will want their share back plus their portion of interest ex. you withdraw 3k they’ll want their 9k. Also banks and credit unions aren’t your only choices for the RDSP. I’ve got my son’s in a mortgage investment company.
Yes and No, that was the old rule, but it was challenged, you can still contribute withing the 10 year period, but when you withdraw, only the Grant and Bond from that portion needs to be paid back.
Don’t trust the information from the Banks or Credit Unions, go to the source, or seek a trusted advisor that specializes in RDSP’s. The Royal Bank people screwed mine up, we had to eventually contact CRA to find the mistake.
Your contribution room is based on the date CRA granted Disability Status, and therefore in the first year, you have extra room, but this is not guaranteed, its up to CRA to decide.
The best thing about the Disability Tax Credit, is what you can claim on your taxes. And that is what it was meant for, you have an extra exemption, and a care giver amount, that became effective about 5 years ago. The caregiver gets to claim these amounts, if unused by the recipient. After age 18 it gets a little tricky, but if the recipient is still going to school, or still a dependant, the grant amounts are based on his or her income, not the caregiver.
RDSP and Disability Tax Credit, are probably the most confusing financial instruments in the Canadian Tax System… So best to find a good Tax Advisor and consult them.
cheers
Hi InjuredAndScared,
Your story is definitely a scary one and I wish you the best moving forward. When it comes to RDSP accounts, the big thing is to get started as soon as possible. They take a while to process. Fill out a T2201 form (Disability Tax Credit -DTC)
https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t2201.html
Once you are done, send it to your doctor. Make sure it’s a doctor that knows you & your condition and has some experience filling one of these out. It saves a lot of time and headache to get this right the first time. Once you get approval from the CRA you can open an RDSP account at pretty much any bank.
After you have been approved, you don’t have to reapply for the DTC unless the CRA specifically ask for a reapplication.
Another reason to open it up asap is that the government stops making contribution once you turn 50 years old.
If you further questions on RDSP, PLAN (Planning, Lifetime Advocacy Network) has free workshop online.
See link below if you want to check out a session:
http://www.rdsp.com/supports-and-services/rdsp-information-sessions-2/
Hope this helps!
Dan, thank you so much for this. Did the RDSP thing work out for your family?
We did open the RDSP for my brother, who has a mental disability. This will help him in the future though, it is not a silver bullet.
The funds from the RDSP will not be available to him until he is 60. With the RDSP the only way to withdraw money without any penalties is to wait 10 years after the last government contribution. If you don’t, you have the 3:1 work against you. So if you withdraw $1 you have to pay back $3 to the government.
The RDSP is an amazing tool and would recommend this to anyone who is eligible but this needs to be part of a bigger plan.
I would also recommend ODSP (Ontario Disability Support Program). They can also provide financial support and connect you to a lot of other service providers.
https://www.mcss.gov.on.ca/en/mcss/programs/social/odsp/info_sheets/what_odsp.aspx
My brother has a developmental disability. So those of you in similar boats should also consider DSO (Developmental Services Ontario) and Access point. These are organizations that can help connect people to different service providers that cater specifically to those with developmental disabilities. Services include housing, social programs and employment support to name a few.
http://www.dsontario.ca/
http://theaccesspoint.ca/about/
Just an FYI the services listed are specific to Ontario.
Nothing to add on the navigating-bureaucracy side of things, but after the line about the OP wanting to kill herself, I figured I’d sneak this link in here for anyone else having suicidal thoughts:
https://suicidepreventionlifeline.org/
Sincerely,
ARB–Angry Retail Banker
Oh, I almost forgot.
There I should work that the OP could do. Work At Home jobs. I’ve worked with a company in the past doing search engine results analysis. It was an unstable job, but it paid $15/hour.
Other companies exist in that space (as well as data entry, transcription/and ESL tutoring) that, while they vary in terms of stability and compensation, will at least earn some extra money for the OP.
Hope that helps.
Sincerely,
ARB–Angry Retail Banker
ARB’s last comment just made me think of a job suggestion. I considered doing this as a side hustle but the hours they asked were too much for me. I have seen ads hiring people to speak English to people who live abroad over the internet:
https://ca.indeed.com/Online-English-Tutor-jobs
I think computers can be adapted.
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