5 Strategies To Help Increase Guaranteed Income Supplement (GIS) By Up To $100,000+

GIS (Guaranteed Income Supplement) is thought of as a government benefit that is exclusively for very low-income retirees, but the truth is that almost 1 in 3 retirees receive GIS benefits. This is a benefit that is widely available to retirees who are both low- and moderate-income.

GIS is a generous benefit. At a maximum it will provide over $10,000 per year per household. But this is quickly reduced by GIS clawbacks of 50% to 75%. For every dollar of taxable net income (line 23600 on your tax return), GIS is reduced by 50% to 75%.

For example, if you take $1,000 from an RRSP/RRIF then this would reduce next years GIS benefit by $500 to $750!

The challenge with the Guaranteed Income Supplement is that retirement planning with GIS benefits is very counter intuitive. Strategies that help reduce GIS clawbacks are often the opposite of strategies that help reduce income tax for higher income retirees. This can sometimes result in low- and moderate-income retirees getting advice that is not suited to their situation.

If not corrected in time, this bad advice can decrease future GIS benefits by $10,000’s or more.

For example, a client we worked with recently was advised to put $150/month into their RRSP despite being on disability benefits. This advice would have caused extra GIS clawbacks of at least $4,500 in retirement. From $9,000 in RRSP contributions, only half would end up in their pocket after considering GIS clawbacks.

Thankfully there are a handful of strategies to help reduce the GIS clawbacks… but these strategies require foresight. It’s best to create this type of plan in your 50’s, well before GIS benefits begin. The second-best time is in your early 60’s, right before GIS benefits begin. And the third-best time is between 65 and 70, when GIS benefits have begun but there is still time to make changes and maximize benefits. After age 72 there is less that can be done to reduce GIS clawbacks so planning ahead will pay off.

This type of planning can easily add $10,000’s in GIS benefits over the course of a plan and help make retirement significantly easier.

One of the reasons I love these GIS strategies is because they are specifically designed for low- and moderate-income households. We often hear about high-net-worth families employing teams of lawyers, accountants, and wealth managers to help them maximize their personal wealth. These strategies help low- and moderate-income households maximize their retirement income and could quickly backfire if used by anyone else.

Warning! GIS Planning Is Complex!

Unfortunately, low- and moderate-income retirement planning is more complex because of GIS and other income tested benefits.

High income retirement planning is mostly concerned with income tax rates, but low- and moderate-income retirement planning is concerned with both income tax rates AND government benefit clawback rates.

This adds an extra dimension of complexity to low- and moderate-income retirement plans that higher income retirees never need to worry about.

And because GIS clawbacks are so high at 50% to 75%, even a small miscalculation can cause $1,000’s in unintended GIS clawbacks.

So, although the strategies presented below seem straightforward, we highly recommend creating a detailed financial plan using a platform that helps calculate GIS year by year, like PlanEasy, and consider working with an advice-only financial planner that specializes in GIS benefits to help create a custom plan that is specific to your situation.

It’s important to remember that every situation is unique, and the following factors can have a large impact on how these strategies come together…

• Home ownership vs renting
• Annual pension income
• Assets in LIRA/LIF vs RRSP/RRIF
• Size of registered accounts
• Available RRSP contribution room
• Available TFSA contribution room
• etc.

Strategy #1: Start CPP At Age 60

One of the simplest strategies to help increase future GIS benefits is to start CPP as early as possible at age 60, even if still working full-time.

While delaying CPP can help increase CPP benefits thanks to the actuarial adjustment, these higher CPP payments will simply cause extra GIS clawbacks of 50-75%.

For example, let’s say you are expected to receive CPP benefits of $2,777/year starting at age 65. Then by starting CPP early at age 60, your annual CPP benefits would be reduced by 36% to $1,777/year.

Waiting to start CPP at age 65 would provide an extra $1,000/year, so delaying CPP appears attractive, but when GIS clawbacks are factored in that changes quickly.

Even though in this example CPP ends up being higher by $1,000/year if delayed until age 65, this simply means GIS ends up being $500 to $750 lower due to the clawback on GIS benefits. In this example the net benefit of delaying CPP is only $250/year to $500/year after factoring in GIS clawbacks.

Often, it’s better to start CPP as early as possible and then invest that extra income in a TFSA. The extra assets in the TFSA can help with some of the other strategies below.

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Strategy #2: Wind Down RRSPs Before Age 64

RRSP and RRIF withdrawals count as taxable income and directly impact GIS benefits. After age 65 these types of withdrawals can have a large impact on GIS.

A $1,000 withdrawal from an RRSP/RRIF will cause $500 to $750 in GIS clawbacks the following year. This is higher than the highest income tax rates! A retiree receiving GIS benefits has an effective tax rate equal to an individual earning $250,000+ per year!

For this reason, money inside registered accounts (RRSP, RRIF, LIRA, LIF, DPSP, Group-RRSP, DCPP etc) represent a huge liability in retirement. When GIS benefits are expected in the future these registered withdrawals can cause enormous GIS reductions.

Often it can be better to draw down the RRSP/RRIF before age 64 even though that means paying more income tax before retirement. Even if you lose 20%-30% of a registered withdrawal to income tax before age 64 that’s still better than losing 50%-75% to GIS clawbacks after age 64.

The after-tax proceeds of these withdrawals can be placed inside a TFSA to continue growing tax free. Future TFSA withdrawals will not impact GIS benefits.

But this strategy isn’t for everyone. Depending on the amount of assets inside RRSPs, RRIFs, LIRAs, LIFs, Group-RRSPs, DPSPs, DCPPs this strategy can backfire if there is too much inside registered accounts and/or there is very little TFSA contribution room available.

Plan carefully before drawing down registered assets before age 64.

Strategy #3: Make Strategic RRSP Contributions Between Age 64 And Age 71

This is an advanced strategy that requires careful planning but can provide significant increases in GIS benefits from age 65 to 72.

The basic premise is that strategic RRSP contributions between age 64-71 can decrease taxable income to $0 and provide the maximum GIS benefit of $10,000+ per year for 8-years between age 65-72 (income from age 64 affects GIS at age 65)

An RRSP contribution will provide a tax deduction on your tax return. This deduction will lower taxable net income, line 23600, which is used to calculate GIS benefits. Strategically planned RRSP contributions can lower line 23600 to $0 and maximize GIS.

Typically, this strategy requires RRSP contributions equal to CPP income as well as any other taxable income (interest income, non-registered dividend income etc). This strategy requires a significant amount of RRSP contribution room as well as a significant amount of financial assets to make these annual RRSP contributions. Tip: If you own a home, sometimes a HELOC can be used for 1-2 years if you’ve run out of financial assets.

For example, if CPP is $8,000 per year, then over 8-years that is $64,000 in RRSP contributions.

This is one of the side benefits of starting CPP as early as possible at age 60, not only will you get the benefits in strategy 1, but you’ll also have a larger TFSA to help make RRSP contributions and by starting CPP early the annual payments are smaller which then requires smaller RRSP contributions.

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Strategy #4: Quickly Draw Down RRSPs After Age 72

Depending on the situation and the other strategies used, it could be that at age 72 there is still a large amount of assets inside the RRSP.

At the end of the year you turn age 71 this RRSP must be converted to a RRIF. At age 72 annual RRIF withdrawals must begin and the minimum percentage RRIF withdrawal will slowly increase each year with age.

Because RRSP/RRIF withdrawals incur GIS clawbacks, these minimum RRIF withdrawals are like “death by 1,000 paper cuts”. The slow drawdown of the RRIF causes annual GIS clawbacks of 50% to 75%.

Rather than slowly draw down the RRIF, it can often make more sense to quickly draw down the entire RRIF in 1-year (or 2-3+ years if the RRIF is a bit large).

Instead of annual minimum RRIF withdrawals, which is like “death by 1,000 paper are cuts”, often by “pulling off the band aid” and drawing down the RRIF quickly there are fewer overall GIS clawbacks.

It does however mean losing GIS for 1-year (or 2-3+ years if the RRIF is large). It also means incurring more income tax as well. But the net benefit is more GIS benefits in the future.

Strategy #5: Request That The First Year Of GIS Be Based On This Years Income

The last strategy is very specific to the first of retirement. Normally GIS benefits are based on prior years income. But in the first year of retirement that would mean GIS benefits are based on the final year of employment. The extra employment income would mean that most people would not qualify for GIS in the first year of retirement.

Instead, a special request can be submitted using form …… so that the first year of GIS payments are based on estimates income for the current year instead of the previous year.

This is a one-time request that can be made in the first year of retirement. It allows an adjustment to be made to taxable income when there has been a big change in income versus the prior year. Not all income can be excluded from the adjustment so it’s still important to ensure all RRSP withdrawals have stopped the year you turn age 64.