Gilbert is a 73-year-old retiree who was recently widowed. Low retirement income and a few thousand dollars on his credit card will bring him down.
Gilbert’s wife passed away a few weeks ago. She could leave him no fortune or income. His only inheritance is a $5,000 life insurance policy, which he used to pay for funeral expenses and some legal fees.
The income of the seventy-year-old comes exclusively from the statutory pension insurance (QPP and old-age security), the solidarity credit and the GST credit. At $1,520 a month and spending the same amount, he can’t afford a deductible: no restaurants or activities. He can’t afford a car either.
During his working life, Gilbert was unable to save money or contribute to an RRSP. His low salary and some financial problems even led him into bankruptcy a few years ago. Despite everything, he had struck a balance and was able to finalize his budget before retiring.
Payments impossible to accept
This is where the trouble started, as his income then dropped compared to his previous salary. To make up the shortfall, Gilbert occasionally used his credit card, the balance of which gradually increased to $8,350.
“At the end of the day, it represented a minimum payment of $400 a month, which is a mountain to him and he can’t afford,” said Vanessa David, financial recovery advisor at Raymond Chabot.
With increasingly urgent demands from his creditor to collect his debt, the retiree panicked. It also places an enormous burden on the seventy-year-old whose health problems prevent him from returning to the labor market, even on a part-time basis, which would have allowed him to top up his month-end.
Gilbert wanted to avoid a second bankruptcy and hoped to repay his creditor as much as possible. So Vanessa David created a consumer offer of $6,000, the payout of which was spread over five years. From now on he only has to pay $100 a month instead of $400, without interest.
Maximize your budget
The advisor also helped him maximize his budget so he could free up the amount needed for the monthly payment. Gilbert’s children will also help him as much as they can.
“When you’re still in the labor market, a $400 payment can be budgeted, but with small retirement incomes, it becomes downright impossible,” warns Vanessa David, who reminds us that debt on retirement can be a heavy burden to be manageable. She points out that public plans are not always or just barely sufficient to cover the basic costs. That’s why you have to be proactive.
TIPS
- Reduce your debt as much as possible before you retire. When income falls, it is often no longer possible to cover additional expenses.
- Very often we don’t know exactly how much we will get in retirement. Contact both levels of government to find out what benefits you will receive. When you have a good idea of your future income, it becomes easier to set a realistic budget.
- It’s important to prepare for retirement as early as possible. Good planning will allow you to set aside funds that will help you have a more comfortable retirement. Create a budget where you expect, for example, an amount to be paid into an RRSP or a TFSA each month. Organizations like the Cooperative Home Economics Associations (ACEF), located in each region, offer free home economics advice.