Posted by Tim Stobbs on March 4, 2016
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.
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?