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Ian is 63 and living with a permanent disability. He wants to make sure his income — largely composed of government benefits and a recent inheritance — will meet his cash flow needs.

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He has two key challenges. The first is one that many people who receive government disability pensions often face when they turn 65. It is at this age that disability benefits are typically converted into lesser amounts in retirement pensions.

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For example, Ian currently receives the Canada Pension Plan (CPP) disability benefit, which accounts for $1,600 of his monthly $2,600 income. This is an age-restricted program and will automatically convert to a likely reduced Canada Pension Plan benefit when Ian turns 65. An annuity that currently pays about $790 a month will also expire in two years.

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In addition, he receives the federal disability tax credit of $200 a month.

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The second challenge: His rental expenses are expected to double to $2,000 in the next six to 12 months, increasing his total monthly expenses to at least $3,000 and exceeding his current income.

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He wants to ensure that he is effectively managing his recent inheritance of $143,000 to avoid losing benefits and that he meets his cash flow needs.

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To date, he has directed $30,000 of this money into a self-directed tax-free savings account (TFSA). The remainder of the inheritance is in a high-interest savings account (HISA). He also has $13,000 in additional TFSAs. He plans to keep $20,000 in the HISA as an emergency fund but would like advice on the most efficient way to invest the remaining assets to minimize the effect on government benefits. For example, should he consider setting up a discretionary trust or specified disability savings plan?

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In addition to his inheritance, Ian also has $24,000 in a life income fund (LIF). How can he ensure his investments and government benefits will meet his needs?

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What the expert says

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One critical tool to ensure Ian maximizes all income sources is to leverage his TFSA, said Graeme Egan, a financial planner and portfolio manager who heads CastleBay Wealth Management Inc. in Vancouver.

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But first, it is important to understand his income. Unlike the CPP disability pension, which will revert to his calculated CPP pension benefit at 65, the federal disability tax credit will continue as long as his impairment meets the Canada Revenue Agency’s criteria.

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“Ian may also be eligible for the GIS payment of up to $1,109 per month if his annual income is below the current threshold,” which is $22,512, said Egan. “GIS is calculated yearly and is based on the previous year’s income. The GIS is non-taxable and would be added on top of his Old Age Security payments. Assuming he meets the criteria, the current monthly maximum OAS benefit is about $817, which is indexed to inflation so it will be higher when he commences OAS at age 65 and will help to offset the loss of his annuity.”