When the Government Thinks Your Poor

I have a confession to make to you all.  I generally ignore our Child Tax Benefit statement that comes in from the federal government each year.  Why? Well with our combined income we don’t really get a whole lot of money from it and second all of the money I do get, plus some of our own, goes immediately into the kid’s RESP.  So from my point of view the money doesn’t really exist since it only passes through my bank account on the way to the RESP account.  I think of it as my kid’s money and not mine.

So when I did all my retirement planning I generally ignored any potential tax perks I may get when I leave full time work and our income sinks like a stone.  I knew we would be paying less tax but I didn’t really consider that we may qualify for any other benefits programs like an increase to our Child Tax Benefit.

Yet the other day it did occur to me finally that we would get a bit more Child Tax Benefit, so I finally sat down and plug our projected numbers into the government calculator.  Then my jaw hit the table when I saw the result.  See the screen shot below.

Child Tax Estimate

In my head I was expecting perhaps $100/kid per month, so $2400/year.  I certainly was not expecting $8,873 a year.  So how the hell did that happen?  Well it appears that there was a high degree of dumb luck on the numbers when I looked into it.  I figured we would end up between my wife we would have a taxable income of about $26,000/year between RRSP withdrawals and some work (recall my wife will keep running her daycare after I leave work which is her choice).  The rest would come from TFSA accounts so won’t impact our qualification for government programs.  That $26,000/year number is just under the threshold to tie into the National Child Benefit Supplement which for two kids under 18 is fairly generous (over $350/month), then we would also qualify for a few other programs like the GST credit which would give us a bit extra money.

Of course all of this is set to change with the next federal budget as they have previously promised to overhaul these particular benefits during the election campaign.  So I can’t depend on these numbers but it does provide me with some useful input towards my retirement planning.

First off it tells me that I will likely get enough government benefits that I shouldn’t need to save any additional money to finish funding the kid’s RESP account.  I had previously estimated I would need around $20,000 stashed away for that prior to leaving my day job (I had assumed five years of contributions at $4000/year).  But now it entirely reasonable that we should get enough government funds to cover that amount.

The second particular useful fallout of likely getting more benefits than I thought would be the fact this provides a minor cushion to my plan.  As you may be aware one of the particular risks of retiring early and living off of investment income is if you get a series of bad returns on your investments in your first five years, you may end up running out of money in the long run.  So to combat this issue I have a series of backup plans on the ready to help cushion the blow should anything go wrong during those critical five years including: being able to cut back on some spending, having a year’s worth of spending money put aside, being willing to pick up some part time or consulting work in those first five years…you get the idea.  This unexpected money just provides an additional cushion, if we ended up needing it.  On the other hand, if things go well, I would continue to not depend on the government benefits and just put the money aside for the kids.

Ah the joys of having a government think I’m poor based on income, just because I don’t tend to spend a lot regardless of our income.  So this was news to me, did anyone else out there with kids look at this when planning their early retirement?

10 thoughts on “When the Government Thinks Your Poor”

  1. Great post, like yourself I plan on retiring at 45 (I’m 35 now). My guiding principle of ER is spend like Im poor so having the government think I’m poor fits nicely.

  2. It’s always great to hear that a family that does not really need a tax break as large as that qualifies for one. (While Ontario taxpayers pay $1B in interest payments on the Ontario debt every year that will climb dramatically now). Is that not frustrating?

  3. I agree with Paul, however in my ER plan, having 6 kids means the government will basically fund our lifestyle until they are all grown. Which means we need to save less. And the Liberals plan promises us more because the Conservatives didn’t give enough (according to the Liberals).
    So although I agree with Paul, I am willing to take their largess.
    I’ve even thought about moving back to Ontario because their benefits are even more generous than they are in SK.

  4. My sister and her husband have 5 kids under 18! Imagine all the TAX FREE money being pumped into that household! They also live in subsidized housing and have no cars! They spend every cent, and cry poor; and save nothing! There are always more days in the month than money! It doesn’t matter how much they get, they spend it all. Guess that is the difference between working for your money and being handed other people’s money!

    Ps: I retired at 38 in 2004.

  5. I agree with Paul N point of view. It is a bit frustrating that people that don’t need the support also get it.

    But on the other hand how do you define the need for support. If you go by assets you may end up with cutting off people who need it. For example, let’s say a young family got a steal of a deal on housing by getting a house willed to them for the bargain price of $0 in Vancouver. The house may be worth well over a million, so on a pure asset point of view they may not need the support. Yet on an income basis they may still need a hand? So is it right to cut them off due to an asset based means test?

    I personal just accept the fact regardless of how you structure these things you end up with a few free riders. You can’t cover every bloody situation so you create some general rules and deal with the outcome. Otherwise you end up with a 100 page manual on who qualifies for which programs which likely costs more than the amount of free riders.

    Tim

    UPDATE: I found a estimated calculator for the Liberal plan which estimates $900/month in just child tax. https://www.liberal.ca/realchange/canada-child-benefit-plan/?shownew=1

  6. Hey Tim, absolutley we planned for this. I am 42 and have just retired with 3 kids at home and a wife who works part time. Our total kid benefits will shoot to $1100/month from our current $400. Under the propsed Liberal gov plan the total will actually increase to about $1200. Socialism can be a good thing for us “poor” retirees.

  7. As for planning; my working assumption is that we will get 0 from the government (whether CBT with kids at home or CPP later, etc.). This is a deliberate choice/safety net, for planning purposes. It works both ways; if it’s there, well, we’ve got some padding and extra income if the market drops. If it’s not there, we weren’t counting on it, so won’t miss it.

  8. To add to my previous comment: We did plan for it, yes, but as one of our margins of safety. If it disappeared, we would still be fine. It sure is nice to have though!

  9. Re CPP, OAS and GIS

    I believe these plans will be around in 20 – 25 years. The amount of tax the government will be collecting on RRSP’s withdrawals will help pay for these…..

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