FAMILY FINANCE

HEART PROBLEMS AND PENSION WORRIES FORCE ALBERTA COUPLE TO REASSESS THEIR FUTURE RETIREMENT YEARS

A couple must adjust their spending and saving habits or pay the price in retirement .

Yves Chalgrin*, 69, and his wife, Teresa, 63, are caught in a vise of declining income and rising health problems. They are too ill to work full time and their retirement income and pension may not, they fear, allow them to maintain their way of life. The Albertans have crafted their lives for good living — trips to Europe every year, fine dining and good wines — but now comes a time of reckoning. Their incomes have shrivelled from when Yves earned $90,000 a year as a telecommunications manager and Teresa taught French full time at a local college for $60,000. Yves is now fully retired and Teresa makes $30,000 tutoring part time, so their gross income has dropped to $72,056 and will fall even more in two years when Teresa stops working. Just 40% of that future gap will be filled by Teresa’s company pension and Old Age Security. A return to full-time work to generate income to clear their $254,800 debt is not possible. Yves has worsening heart problems that make it hard for him to do physical work, while Teresa has her own issues, including cancer in remission. “I have been a heart patient for 15 years,” Yves says. “I am no longer able to do the usual house maintenance of mowing the lawn and shovelling snow and must rely on the generosity of neighbours.” They could move to a warmer place in Canada such as Victoria, but selling one home and buying another would be stressful. They have just $7,600 cash, so the move could also require them to sell some of their $2,700 in TFSA assets or even dip into their RRSPs for taxable payouts.

The Chalgrins need to change their earning and spending habits as they move further into complete retirement. First, they need to adjust to a lower income. Second, they have to deal with a large outstanding debt on their home. Third, they need to develop a way to finance such things as a new or newer car to replace their eight-year-old upscale compact.

Yves is already receiving annual Canada Pension Plan benefits of $7,704 and OAS of $6,704. He also receives a $21,384 annual payment from his Registered Retirement Income Fund. Teresa receives $6,264 in annual CPP benefits in addition to her tutoring wages, which currently account for 42% of the couple’s pre-tax income. OAS and a company pension from a former job at $5,188 per year starting at 65 will only replace a small part of it.

There are other problems, too. The combination of payments on their lines of credit plus property taxes and home maintenance expenses take up 27% of their current net income. They spend another 22% on food and restaurants, while travel is a further 8%. Budget management is the first order of business. “The cash flow problem is serious now and will worsen when their retirements are complete,” says Derek Moran, head of Smarter Financial Planning Ltd. in Kelowna, B.C.

The first move is to find ways to slice $700 out of their present monthly spend