Is "Being Your Own Banker" a Good Move for Us? 🇨🇦
Have you been seeing ads lately for something called an "infinite banking strategy"? Are you wondering if it’s a clever way to grow your savings? Do you wonder if these "wealth-building" strategies will work for those of us already in retirement?
A lot of Canadian seniors are looking for some way to increase their spending power, and the idea of somehow having more control over our meagre bits of cash that come in certainly sounds tempting. When something sounds this good, it's wise to be a bit skeptical. You aren't alone in wanting to get the full story before getting involved in anything that concerns finances.
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| Could "Being Your Own Banker" put your GIS at risk? It's important to look closely at the fine print. |
Disclaimer: I am not a financial advisor. I am just sharing my personal research and starting a conversation. Please consult a qualified financial or tax professional before making decisions that could affect your government benefits.
Disclosure: This post may contain affiliate links. If you click through and make a purchase, I may receive a small commission at no extra cost to you!
What is Infinite Banking?
Proponents of "Infinite Banking" are basically selling whole life insurance policies. They tell you that you can be your own banker—by purchasing a whole life insurance policy, you can build up equity and then borrow against it for large purchases like a car or home repairs instead of borrowing from the bank.
Why it's rarely a fit for seniors
Unfortunately, this strategy isn't well-suited for most seniors for several reasons:
- Age: At our age, most of us don't have enough years left to wait for a whole life insurance policy to "break even." It often takes 7 to 10 years of payments before the cash value even equals what you've paid in premiums.
- The Cost of Entry: These plans usually require a pretty big monthly payment (premium) to get started. For those of us watching every penny, we have to be sure we aren't "insurance poor" by locking up our cash flow.
- Interest is not "Free": While it sounds like you borrow from yourself, you are actually borrowing the insurance company’s money while using your cash as collateral. The company charges you interest to use their money, even though your own cash is sitting in the policy.
⚠️ A Special Note for my fellow GIS recipients:
One thing we really have to watch out for is how money from these policies is treated by the Canada Revenue Agency (CRA). While policy loans are often tax-free, other parts of these plans can be "income traps":
- Taxable Dividends: If the policy pays dividends in cash or if you surrender the policy, that money may be considered taxable income.
- The GIS Clawback: For every $1.00 of extra taxable income you report, your Guaranteed Income Supplement (GIS) could be reduced by as much as $0.50 the following year. It’s tough enough getting by on our pensions without losing the top-up many of us need to make ends meet.
Looking for Safer Ways to Stretch Your Dollars?
If you are looking for ways to keep more of your hard-earned money without the risks of complex insurance schemes, I’ve been putting together a list of practical ideas. You can check out my latest money saving tips here, where I talk about everything from grocery hacks to reducing household bills.
I’m going to keep researching with an open mind, but I’m definitely taking notes and checking with a tax pro before signing anything. Has anyone else looked into this "Infinite Banking" thing? I’d love to hear if it actually worked for you!
Praying this post will be useful to you,
Su
About the Author
Su is the creator of Canadian Senior Savings, a dedicated space helping retirees navigate discounts, rewards programs, and smart shopping strategies across Canada.
Connect with Su: Linktree/Sister_Su
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