Planning Ahead to Cope with a Disability


In a city in Ontario, a woman we'll call Janet is trying to cope with the possible financial impact of multiple sclerosis. At 41, she is a civil servant with an above average income. MS, the symptoms of which can become debilitating in some cases, has made her fearful of what it may do to her finances.

"I was diagnosed with MS in 2003 after two attacks," she explains. "I have not had any symptoms since and remain in good health. MS is an unpredictable disease. What are my financial options, given that my career could be shortened and my income reduced at any time due to MS?"

What our expert says:

Facelift asked Derek Moran, head of Smarter Financial Planning Ltd. of Kelowna, B.C., to work with Janet in order to plan for her future.

"Janet has good medical and drug benefits, a disability plan, an option for early retirement and a reliable and fully funded pension," he says.

Janet earns $54,000 a year before tax and has $2,800 a month to spend after tax. She currently saves $429 a month. Her goal is owning a home.

The most efficient way to achieve home ownership is to save $20,000 within a registered retirement savings plan, which is the limit for a Home Buyers' Plan loan. That money can be used for the largest part of a 25-per-cent down payment on a home with a $100,000 price tag. She can add her current $500 car payments to her $426 monthly savings beginning in October, 2009, when the car is paid off. She should be able to save the $20,000 within a few years. After she buys a house or condo, she will no longer pay rent at a cost of $529 a month. The money available for housing will have risen to $1,455 a month.

Janet has already found a condo she can afford. The price is $99,000. By saving the extra $5,000 outside of her RRSP, she can put the required down payment together. She could then take out a $75,000 mortgage with a 10-year amortization. By the time she is in her mid-50s, she can be a home owner with no debt, Mr. Moran says.

Janet has a defined benefit pension plan. At age 60, she will have satisfied an age-plus-years of service requirement and be eligible for a pension of $19,316 a year plus an annual bridge amount of $8,582 payable to age 65 when she can begin Canada Pension Plan payments of as much as $19,615 a year in 2008 dollars. If she chooses to begin CPP before age 65, she will be penalized at a rate of 0.5-per- cent of the full benefit for each month prior to age 65 at which payments begin.

At age 65, Janet will be able to receive Old Age Security, which currently pays a maximum of $6,028 a year. If Janet works at no less than her current income until age 60 and then draws CPP and her government pensions, she will have $34,998 from age 60 to 65 and then $32,444 from age 65 onward, the planner estimates. Even if she does not qualify for a disability credit in retirement, she will have annual income tax to pay of $2,700. Compared to her current situation, in which she pays $17,600 a year in income tax, she will actually have more disposable income than she currently has.

MS symptoms range from mild and almost not noticeable to severe and potentially crippling, says Aprile Royal, assistant vice-president for medical information and education at the MS Society of Canada in Toronto.

"The disease has a broad range of effects on those who have it," Ms. Royal says.

Janet may one day be able to benefit from a new government program for people with disabilities. Beginning in 2008, the federal Registered Disability Savings Plan (RDSP) makes it possible for parents and others to save for long-term security of a child with a disability who is eligible for the disability tax credit of $1,068 a year. The disability must be severe and prolonged. Janet might qualify if her illness were to become more severe. Her father or another relative could help to finance the RDSP for Janet. She could even be a contributor if she, as beneficiary, is actually disabled by her illness. Contributions are not tax-deductible, but they grow over time without tax until paid out.

Another source could be the Canada Disability Savings Grant (CDSG), equal to as much as 300 per cent of RDSP values, depending on family net income and the amount contributed. As well, there is a new Canada Disability Savings Bond (CDSB) for individuals with relatively low family net incomes. Janet may be able to qualify for the RDSP, though she is not likely to qualify for the CDSB. The programs could assist her finances if she does become disabled.

Funds growing within the RDSP and its companion CDSG are not subject to tax until paid out. Therefore, they will not reduce other disability income sources. Information is available at

"Once Janet owns a home, she will have a strong asset that will give her refuge should her illness take control of her life," Mr. Moran says. "Under the circumstances and given her income, her situation in financial terms is reasonably good."

Client situation

The Person

Janet, 41, is a civil servant.

The Problem

Enhance her financial security for what may be a shortened career.

The Plan

Use the RRSP Home Buyers' Plan and federal disability programs.

The Payoff

A debt-free home and federal grants if she becomes disabled.

After-tax Monthly Income



Pension $20,000

Monthly Expenses

Rent $529, phone & utilities $195, prescription drugs $220, food $260, entertainment $200, clothing $100, home & car insurance $130, car loan payment $500, gas & repairs $140, charity $20, miscellaneous $80, savings $426. Total: $2,800.


Car loan $9,000

Copyright 2008 The Globe and Mail, Used by Permission