Jennifer Black

Sheila’s first act should be to contact a funeral home to arrange a funeral and have a death certificate prepared. I would suggest she ask for 20 copies of Bill’s death certificate. She’ll need them to do everything from cancelling Bill’s health card and driver’s license, to dealing with financial institutions.

If Sheila doesn’t request enough copies in the beginning, the funeral home may come back and charge for additional copies later.

She should also apply to receive the CPP death benefit of $2,500 (to help pay for funeral expenses and other immediate expenses) as well as the CPP survivor benefit.

The exact amount of the survivor benefit will vary depending on Bill’s CPP contributions over the years, but the maximum currently is $7,476 per year. Sheila should phone Service Canada to find out if she’s entitled to other benefits, and to make sure her paperwork has been received and processed correctly.

Fortunately, both Bill’s RRSP and TFSA will roll over automatically into Sheila’s accounts with no tax owing. Assuming the house is jointly owned with rights of survivorship, there should be no tax consequences.

Nonetheless, Sheila is going to face some difficult decisions going forward. Even assuming she gets maximum CPP survivor benefits as well as her $40,000 annual salary, after taxes and other deductions, she would be left with about $35,000 in income annually.

The $12,000 in mortgage payments she needs to pay yearly puts a big dent in that cash. Not only will she be unable to add to her TFSA and RRSP annually, she won’t be able to maintain her current lifestyle. She needs to immediately try to reduce her monthly expenses.

I’d use a cash flow spreadsheet to help Sheila get a handle on where her money is going and how she might economize. If she wants to stay in her house, for example, she may want to use the $40,000 in TFSAs to pay down most of the mortgage, reducing her monthly payments significantly.

On the other hand, if Sheila’s monthly lifestyle activities are more important to her than the house, she might consider downsizing, although I generally wouldn’t recommend she do so for at least a year. That gives her time to let the dust settle and weigh her options.

I wouldn’t recommend either the son taking over the mortgage or a reverse mortgage. Sheila can borrow in the future from the home if she needs to cover off years of expenses, but I’d be inclined to use a secured line of credit, if that were necessary.

When Sheila reaches age 65—assuming she has lived in Canada her whole life—she should get full OAS payments (currently at about $6,500 per year). CPP will be based on her annual contributions from age 18 until the year she applies, although she’d be eligible for the child rearing years’ exemption. Most likely the combination of her CPP Survivor benefit and her own benefits will give her the maximum allowed—currently about $12,460 per year.

But even with these government benefits, Sheila is looking at an income of about $34,000 per year in today’s dollars during retirement, taking into account 3% inflation. And that is assuming continued growth of 8% on the $500,000 currently in her RRSP, followed by 5% annual growth from age 65 to 95.

If, however, she feels that she will live only to age 90, at 3% inflation, she would be able to spend $36,000 per year. Sheila needs to work with a financial planner who can help her prioritize and create a realistic plan, allowing her to put more towards her savings while she is still working.

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