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Jason Franson/jason franson The Globe and Mail

For years, Doris had resisted moving from her comfortable condo into an old folks' home - an assisted living setup - where she would trade her independence for a little help with meals and remembering her medicine. But here she was. She had moved to Calgary to be closer to her only son and daughter-in-law, Alice. Her son had been seriously ill and was in no position to care for his mother.

A healthy 90-year-old - a Betty White look-alike, her daughter-in-law says - Doris resisted the thought of growing frail and old. She had worked until she was 72 and been frugal all her life. She had about $7,000 in the bank, but her condo was taking longer than expected to sell and she had to pay $700 a month for fees and other expenses.

Doris enjoyed the social life at the lodge, confiding to a friend that she should have moved into such a place long ago, Alice writes in an e-mail. Earlier this month, the condo sold, netting Doris about $118,000 - enough, her family hoped, to last the rest of her life - however long that might be - and to provide her with whatever care she needed.

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"We would like this hard-working lady to have the best care in her last years as possible," Alice writes. (Doris gave her son and his wife power of attorney over her financial affairs.) What concerns Alice is that Doris's family "has longevity and it is wise to plan for at least 10 years more of living and need of funds."

How can they ensure Doris's money will last? Alice wonders. Can the condo proceeds be invested in such a way that any interest earned does not interfere with Doris's federal guaranteed income supplement and her Alberta seniors' and drug benefits?

We asked Norm Collins of Collins Financial Consulting in Halifax to look at Doris's situation.

What the expert says

The issue is whether on limited income with no company pension, Doris can afford to stay in the assisted living lodge as long as she is healthy and to hire whatever additional help she might need in the future, Mr. Collins says.

Doris's monthly income is $1,798, comprising $953 in Canada Pension Plan payments, $527 from Old Age Security, $178 from the guaranteed income supplement (GIS), an Alberta Seniors Benefit (ASB) of $103, and $37 of investment income from her savings. Up to the time she sold her condo, she was facing a shortfall of nearly $1,000 a month.

Now that the condo has sold, the challenge is how to invest the money. Both the GIS and the Alberta seniors' benefit are income tested, with GIS payments being reduced by 50 cents for every additional reportable dollar earned and ASB by 18 cents for every dollar earned.

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Income earned in a tax-free savings account is not considered "reportable" and so does not interfere with income-tested benefits, Mr. Collins notes.

Money is important because not only does Doris not want to go into a nursing home, but there is a long waiting list, Alice says. The investment choice, the planner says, is between a series of guaranteed investment certificates and an annuity, in particular, a life insurance "prescribed" annuity, which provides some tax deferral by spreading the interest earned, which is taxable, over the life of the annuity so that each payment includes the same amount of interest and return of capital.

"In the case of an elderly individual such as Doris, the taxable income each year [from a prescribed annuity]is actually zero," Mr. Collins says. "This is valuable in maximizing the GIS and ASB benefits." The tradeoff is that if Doris dies any time soon, most of the money that she invested in the annuity will be lost.

"Those who pass on early subsidize those who survive longer," the planner explains. For example, if Doris were to buy an $85,000 annuity paying $1,371 a month and live only six months, she would have received just $8,227. If she lives for 10 years, she will get $164,534 for the same $85,000 investment.

Mr. Collins recommends Doris invest as much as possible in a tax-free savings account in five-year GICs because this will not interfere with her income-tested benefits. He assumes an average annual rate of return of 2.6 per cent and inflation of 2.25 per cent. If she invests the entire $125,000 in GICs, both within the TFSA and outside of it, she will have enough money to cover her expenses until 2019, when she is 99, he calculates. She will lose some of the income-tested benefits.

If she buys an immediate prescribed annuity, the payments will continue for as long as she lives.

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"This product best protects Doris's needs over the long term," Mr. Collins says. "If Doris does live to age 100, option one [GICs]shows the assets to be fully depleted, leaving no funds to provide for her, whereas the immediate annuity option continues to make payments and provide an asset level to cover any extra or emergency needs Doris may have."



The person

Doris, 90

The problem

How to invest the money from her condo sale to last a lifetime.

The plan

Consider a prescribed life annuity to preserve income-tested benefits and ensure payments for life, or alternatively, a GIC ladder. Invest as much as possible in a TFSA.

The payoff

Peace of mind knowing she can stay in her assisted-living lodge rather than having to go into a nursing home because she can't afford private care.

Monthly net income



Condo proceeds, bank account $125,000.

Monthly disbursements

Rent, including food $2,278; tenants' insurance $8; prescriptions and over the counter medicine $65; cable, TV, phone $68; hairdresser $125; newspaper $27; beauty, gifts, outings, donations $180. Total: $2,751. Shortfall: $953.

Liabilities: None.

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