All posts by Marie Engen

Old Age Security (OAS) explained

Old Age Security (OAS) was originally intended to be a universal program to provide income support payments to Canadian seniors. It is one of the cornerstones of Canada’s retirement income system.

It is not a pension plan. You don’t make contributions. OAS is a government benefit program that is financed out of general revenue.

Related: Is our Old Age Security Program Sustainable?

Employment history is not a factor in determining eligibility. You can receive OAS benefits even if you have never worked, or are still working.

Residency requirements have to be met. The amount you receive is determined by how long you have lived in Canada after the age of 18.

Everyone who has been a resident of Canada for at least ten years (after age 18) is eligible to collect OAS starting at age sixty-five. Normally, you qualify for the full amount only if you have been a resident for at least forty years after turning 18.

You may still qualify for full or partial payments if you meet certain other requirements.

Up to September 2017, the maximum monthly benefit is $583.74. This rate is reviewed four times a year and may be adjusted based on the cost of living measured by the Consumer Price Index. OAS is taxable income.

OAS for low income seniors

Anyone who receives OAS and whose income falls below a certain level may be eligible to receive additional non-taxable monthly payments.

  • The Guaranteed Income Supplement provides a monthly benefit to low income OAS recipients. It is an income tested benefit. This means your total income from the previous year (combined income for couples) is used to determine your eligibility.
  • Allowance is available to 60-64-year-old spouses/common-law partners of OAS recipients who also receive GIS.
  • If you are sixty to sixty-four years old and are widowed, you may be eligible to receive the Allowance for the Survivor.

Continue Reading…

Avoid the Credit Card minimum payment trap

Somewhere on your credit card statement there is a note saying if you only make the minimum monthly payment each month, it will take you a certain number of years and months to pay off the balance – BUT ONLY IF YOU NEVER ADD ANY MORE CHARGES TO THAT CARD AGAIN!

Your credit card agreement will specify the minimum payment that is due every month. This amount is generally a certain percentage of the balance owed. This percentage can often be based on factors such as your credit score and the limit on your card.

Basing it on a percentage instead of a fixed amount (like a consumer loan, for example) works in the credit-card company’s favour because the minimum monthly payment reduces as your balance reduces. It will take decades to get out of debt and cost you hundreds, if not thousands, of dollars in interest.

At one time, minimum payments were 5% of your balance, but they have gradually reduced to an average of 2%. My personal Capital One MasterCard requires only 1.45%.

According to a recent TransUnion survey of Canadian credit-card holders, 44% of respondents pay their credit card balance in full each month, and 9% just pay the minimum. Interestingly, it varies by province, with consumers from Ontario (27%) and British Columbia (20%) most likely to pay the minimum.

Avoid this financial trap

Jacob moved into his first apartment. His first stop was the local furniture store to buy some living room furniture. He put $5,000 on his new credit card (18.9% interest). The first minimum payment was $200 (4%). If he maintains this payment, it will take him 11 years and 5 months to pay the entire balance and, by the time he has made his final payment he will have paid $8,109 for his furniture. That’s a lot of money for something that will drop in value year by year, assuming he will still own it in 11 years. Continue Reading…

What exactly does your Home Insurance cover?

I recently received my home insurance renewal notice. The company I deal with merged (or was bought out?) by another company and the accompanying letter advised reviewing the policy to make sure I was getting the appropriate coverage.

Being obsessive that way, I did go through it with a fine-tooth comb. I don’t want to be disappointed if I ever have to make a claim.

Do you know exactly what your home insurance policy covers?

Are you planning a vacation this summer?

Since an unoccupied home is at greater risk of damage and susceptible to break-ins, you may not be covered while you are away. Coverage may only be provided for a certain number of days. If your house will be empty for longer than that minimum you will probably be required to have someone visit your home on a regular basis – generally every three to seven days, depending on your policy.

Water coverage depends a lot on your policy

I was really glad to find out I had been paying an extra $12 for extended water coverage (I didn’t actually pay attention to it before) when a major sewer backup flooded my basement. My neighbours – who assumed they were automatically covered – were giving me the stink eye when the clean-up and restoration crews pulled into my driveway and totally rebuilt my basement.

Typically, this coverage is for when water backs up into your home from a sanitary or storm sewer that overflows, or any accidental water seepage from burst pipes, for example.

Check to see what your limit is. If you did extensive and costly renovations to your basement, a $10,000 limit is not going to cut it for you.

What we think of as “flood” insurance – when water gushes in to your home due to a river or lake overflowing its banks – was not available in Canada until recently (2015). If you build your dream home five metres away from a babbling brook that triggers only a “hundred-year flood,” be safe and buy the optional coverage.

Home insurance doesn’t cover your home’s market value

Home insurance covers only the actual cost to repair or replace your home as it was before the loss.

Insurance companies will look at the overall maintenance of your home. You need to keep up with repairs. You are not usually covered if you have cracks in your foundation, loose window casements, or a leaky dishwasher that allow water to seep through.

Related: Our house insurance bill is up 30 percent!

They will take into account depreciation of your roof and garden shed, and the condition of that (dead) tree in your yard that crushed the neighbour’s gazebo.

You can’t say, “I hope there’s a big wind storm that knocks down my (broken down) fence so I can replace it with a nice new cedar fence.”

Personal property is almost always covered for replacement cost at today’s prices. Actual cash value will only pay today’s value for the item, prorated for age, use and condition.

However, you must actually replace the items and provide receipts. The insurance company won’t just hand you a cheque.

Condominium corporation insurance doesn’t cover your condo

This insurance covers the building structure, such as roof or windows, and common areas. It does not cover the contents of your own condo, or third-party liability if you cause damage to other condo units. You need your own separate policy. My condo corporation insurance has a $25,000 deductible if I cause any damage – so I made sure that this liability was included in my personal policy.

Likewise, if you are a tenant, your landlord’s insurance is not going to cover you. A lot of renters don’t bother getting tenant’s insurance – as you have probably noticed when you hear of a building fire in the news and the tenants have lost everything.

What’s personal liability protection?

Personal liability protection only covers accidental injury to other people on your property, or damage to another person’s property.

So, if you get sued by your neighbour after punching him in the face during an altercation – you are on your own.

Final thoughts

Home insurance is not regulated like auto insurance. In fact, unless you have a mortgage, you are not obligated to even have it.

Policies can differ widely and may not fully protect you. Sometimes you need to pay a bit more to add a rider to the policy for your valuables, or to protect against different risks.

Know what’s covered. What are the coverage limitations? Don’t assume that insurance will pay for all damages. Update your policy if necessary to best protect your property. It doesn’t make sense to reduce your coverage in order to save a bit of money.

Marie Engen is the “Boomer” half of Boomer & Echo. In addition to being co-author of the website, Marie is a fee-only financial planner based in Kelowna, B.C. This article originally ran at the Boomer & Echo site on June 27th and is republished here with permission.

TFSA Estate Planning options

The TFSA (Tax Free Savings Account) has become a popular saving and investment vehicle for many Canadians. It has also potentially become a significant portion of retirement savings.

When TFSAs were first introduced I thought they were pretty straightforward. However, we still get lots of questions, and Gordon Pape wrote an entire book about them (The Ultimate TFSA Guide), so there’s still some confusion.

A lot has been written about how to invest within a TFSA, but what happens to these funds when the planholder dies? The amount in the account at the date of death is tax free: then it depends on who the funds are given to.

Estate Planning For Your TFSA

There are three different estate planning options for your TFSA:

  1. Appoint a successor holder
  2. Designate a beneficiary
  3. Assign the funds to the estate

Successor holder

Only a spouse or common-law partner can be appointed successor holder.

Continue Reading…

The pitfalls of naming your children co-executors

I was named executor on both my father- and mother-in-law’s wills. I had copies of the wills and other documentation I might need. So, imagine my surprise when I just recently found out that I am a co-executor on my own parents’ wills. These wills were prepared in 1992 and I was thinking: “When were you planning on springing this information on me?”

My brother and I are joint executors. You can name more than one person to serve as executor and a lot of people appoint their adult children as co-executors. The primary reasons are they want to treat their children fairly, and they don’t want to hurt any of their children’s feelings. By making sure they are all included in the administration process it can help share the burden.

Related: So you’ve been asked to be an executor

These are perfectly valid reasons. It can be a good idea: or a terrible idea.

Drawbacks of naming co-executors 

It is understandable that parents wouldn’t want to appear to play favourites in naming their executor. Continue Reading…