Gilbert is a 73-year-old retiree who was recently widowed. Low pension income and a balance of a few thousand dollars on his credit card will cause his downfall.
Gilbert’s spouse died a few weeks ago. She was unable to leave him any assets or income. His only inheritance is $5,000 life insurance which he used to pay for funeral expenses and some legal fees.
The septuagenarian’s income comes solely from public pension plans (QPP and Old Age Security), the solidarity credit and the GST credit. With $1,520 a month and expenses totaling the same amount, he can’t afford any excess: no dining out or activities. He also cannot afford a vehicle.
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 to go bankrupt several years ago. Despite everything, he had found a balance and was able to complete his budget before the time of his retirement.
Payments impossible to assume
This is where the difficulties started, because his income then decreased compared to the salary he was earning before. To make up for the shortfall, Gilbert occasionally used his credit card, whose balance gradually climbed to $8,350.
“At the end of the day, it ended up representing minimum payments of $400 per month, an amount that is a mountain for him and that he is unable to pay,” explains Vanessa David, financial recovery advisor at Raymond Chabot. .
With increasingly pressing calls from his creditor to recover his due, the retiree began to panic. This also constitutes enormous stress for the septuagenarian whose health problems prevent him from returning to the labor market, even on a part-time basis, which would have allowed him to supplement his ends of the month.
Gilbert wanted to avoid a second bankruptcy and hoped to be able to repay his creditor as much as possible. Vanessa David therefore prepared a consumer proposal in the amount of $6,000, the payment of which was spread over five years. From now on, he will only have to pay $100 per month instead of $400, without interest.
Maximize your budget
The advisor also helped him maximize his budget so that he could free up the amount needed to make the monthly payment. Gilbert’s children will also help him as much as they can.
“When you’re still on the job market, a payment of $400 can be absorbed in the budget, but with small retirement income, it becomes downright impossible,” warns Vanessa David, who recalls that debt at the Retirement is a heavy burden that can be very difficult to cope with. She points out that public plans are not always enough to pay basic expenses, or just barely. That’s why you have to be foresighted.
TIPS
- Reduce your debt as much as possible before you retire. When income decreases, it is often no longer possible to meet additional expenses.
- Very often, we do not know exactly how much we will receive in retirement. Contact both levels of government to find out what benefits you will receive. By having a good idea of your future income, it will be easier to establish a realistic budget.
- It is essential 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. Make a budget in which you anticipate an amount to be paid each month into an RRSP or a TFSA, for example. Organizations such as the Cooperative Home Economics Associations (ACEF), present in each region, offer free budget consultations.