RDSP Math 101 - Has anyone out there done the math for a RDSP?

by Robert Boulter
(Moncton, NB)

As a parent contributing to a RDSP, I will not be in the picture when the payments start to come out of a RDSP. In order to serve the needs of the beneficiary of a RDSP, it is important that any financial assistance (RDSP, Trusts, Estate, Insurance policies, etc) be spread out as even as possible over their lifetime. That means NOW at 25, at 50, at 65, at 71, at 100. Therefore rough calculations are needed for a balanced plan.


We are basically funding the plan using most of our RRSP.

Should I continue depositing into the RDSP or should I be doing something different?

Of all the information sources I have contacted to sort out the fine print of RDSP’s, none of them have ever looked at the end product. This includes: Bank, Service Canada, Human Resources, Canada Revenue Agency and Old Age Security (Guaranteed Income Supplement). When I informed them of the main aspects of my calculations, most of them were surprised and a few of them thought it was a shame. Even the agencies that work for the benefit of persons with disabilities and promote RDSP’s at seminars, etc, have not done the math.

I have no experience in accounting, financial management, etc but I have a very basic knowledge of using a spreadsheet. The data consisted of:
  • Deposits of $500.00 per year for 18 years
    starting at age 22-39

  • 10 year Claw-back period after the last deposit at age 40-49

  • Payments (LDAP) out of the plan to start at age 50

  • Interest Rate used was 2% for the entire life of the plan. Up to death of the beneficiary


Results of RDSP Contributions


  • At age 50 the total assets of the RDSP is $78,300.00 (Deposits, Grants, Bonds, all interest)

  • Payments out of RDSP (LDAP) were calculated to be $2420.00 per year which are paid out till the death of the beneficiary

Problems with RDSP


  1. Although the plan uses the Life Expectancy age of 83 for their calculations, the plan actually is 100% self sufficient even if everyone having a plan lives to be as least 100 years old. At the age of 100 the balance in the RDSP is $3700.00

    • Fact: Statistics Canada lists the Life Expectancy for Males at age 71 and Females at age 77. Statistics Canada also lists the Life Expectancy for those with disabilities as being 10-15 years less.

  2. The Guaranteed Income Supplement does not exempt RDSP payments as income. The result is that the GIS amount is reduced approximately $1.00 for ever $2.00 of RDSP payment.

    • Fact: If the person lives to be age 100, a person’s GIS total income is reduced $43,300.00. This is the same effect as reducing the LDAP from $2420.00/yr to $1210.00/yr starting at age 65 or taking $43,300.00 out of the RDSP.

    • Fact: Any other source of financial assistance after age 65 will reduce GIS in the same manner.

  3. The Interest paid into the RDSP using 2% up to age 100 is $73,200.00

    • Fact: The Bank profit for the stockholders up to age 100 is approximately $366,300.00

  4. Death at 71

    • Fact: Balance left in RDSP is $55,000.00 The Grant and Bond Total was $45,000.00

  5. Death at age 61.

    • Fact: Balance left in RDSP is $66,800.00

  6. In New Brunswick, if a person at 65 is entitled to Guaranteed Income Supplement their Total Income including OAS (not including RDSP) is $15,269.76/yr. Before the age of 65, if a person is receiving benefits from Social Development, their Total Income (not including RDSP) is about $8400.00/yr

    • Fact: At age 65, a person’s yearly income increases by $6870.00 (not including RDSP

    • Fact: This indicates that the main emphasis for financial assistance is for the period from NOW till the age of 65.

Are their any factors that disqualify persons with disabilities from receiving the Guaranteed Income Supplement when compared to other low income Canadians? e.g. Type of accommodations, subsidized rent, etc

RDSP - Conclusion


I now have severe reservations about low level of financial benefits out of the plan when compared to the input into the plan.

The main solution is quite obvious, and easy to do.

I am not an arsonist, but believe a few fires must be set to correct the problems. I am 63 and perhaps can still set a fire, but I am not sure how long I can keep it burning.

Looking forward to hearing from others to find out if I passed my Math Exam. Please include corrections.

p.s.
It was about 7 weeks ago I started taking a serious look at RDSP’s. If my calculations are close, this gravy train must be re-routed to pick up those with disabilities who have purchased their tickets.

I am looking for any suggestions as to how to proceed in having these types of problems properly documented and then corrected. If you need any additional information, please contact me.

Thank-you
Robert

Comments for RDSP Math 101 - Has anyone out there done the math for a RDSP?

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Aug 12, 2012
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RDSP Math 101 Update
by: Robert Boulter

This is an update for my Post in Feb 2012.

Since then I have become aware of some minor errors in my calculations. It is only recently that I have been able to get confirmation from the Old Age Security department that RDSP payments out to the beneficiary are not considered as income for the calculation of the Guaranteed Income Supplement. When I contacted the OAS back in Jan 2012 and Mar 2012, they made it quite clear to me that the taxable income portion of RDSP payments were considered as income for the calculation of the GIS. Although the correct information is not yet included in the pamphlet RC4460 for RDSP’s (page 6), the only current sources for the correct information is:

1. This information is in their current Resource Manual – Old Age Security

Section 5 GIS Income not to be reported

The RDSP items listed are: contributions, grants, bonds, interest. This manual is only available internally online within the government. To obtain that information a person must make the request by letter to: Service Canada, PO Box 250, Station A, Fredericton, NB, E3B 4Z6

2. The information is also in the current public form: Instruction Sheet – Application for the Guaranteed Income Supplement and is as follows:

Section D

Do not include:
- Old Age Security Pension (Canadian), Guaranteed Income Supplement, Allowance or Allowance for the Survivor
- War Veterans Allowance or Veterans Disability or Dependents Pension Program
- Death Benefits from Canada Pension Plan or Quebec Pension Plan
- Canada Child Tax Benefit payments
- Assistance payments from a municipal, provincial or Canadian federal government
- Support or gifts from relatives, registered charities or other organizations
- Municipal tax rebates
- Lottery winnings
- Inheritances
- GST credits or other such payments issued by the Canada Revenue Agency (CRA)
- Universal Child Care Benefit
- Registered Disability Savings Plan payments

For me this is comforting to know because it prevents a major loss of assets in a person’s RDSP.

Jul 09, 2012
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RDSP impact on social assistance benefits
by: SamuelConsultant.com

Hi, I'm a financial consultant in Ontario and just read your blog post. Thank you for your RDSP insights. In regards to your view on RDSP impact on social assistance benefits, to my understanding, RDSP income should NOT have any impact on the GIS.

Below is a quote I found from CRA:
http://www.cra-arc.gc.ca/E/pub/tg/rc4460/rc4460-e.html#P44_1136

"The taxable part (or RDSP income) is excluded from income when calculating various income tested benefits, such as the GST/HST credit, the Canada child tax benefits (CCTB), and the Working income tax benefit (WITB). It is also excluded when calculating the social benefit repayment and the refundable medical expense supplement."

On a RDSP booklet from Mackenzie Investments, it also reads:

"Payments from an RDSP do not impact other income-tested federal government programs, including:
* Old Age Security (OAS)
* Guaranteed Income Supplement (GIS)
* Canada Pension Plan (CPP)
* The Goods and Services Tax Benefit (GST Benefit)
* Social assistance benefits



Regards,

Samuel Li
www.SamuelConsultant.com/RDSP


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