September 20, 2020

Chief breadwinner can’t afford to stop working

By Andrew Allentuck, Financial Post November 26, 2011

Situation $1-million in debt puts retirement out of reach for now

Strategy cut debt by selling properties, pay off mortgages

Solution Work past 65 to help secure better life moving forward

Sometimes a family’s breadwinner can’t retire, even at 65. An Alberta woman we’ll call Maeve is the principal support for her husband, who we’ll call Tom, already 65, stricken with a progressive illness that will eventually reduce his mobility, and for her daughter, who we’ll call Louisa, 35, who has been diagnosed with a severe psychiatric disorder.

The family gets by now in financial terms, but if Maeve retired after her 65th birthday, the cash crunch would be severe. They would have to sustain almost all their present monthly expenses on an income that would drop by about 80%.

They cannot support their present way of life on future income, says financial planner Caroline Nal-bantoglu, nor their daughter’s future welfare with present net worth.

The financial plan created by Ms. Nalbantoglu, of PWL Advisors Inc. in Montreal, is complex. It has to max out registered disability savings plan contributions for Louisa, pay off credit-card debt, sell some properties, and prepare for the day when both husband and daughter will have to be cared for by others.

“We need to know how and when to sell our rental properties and what to do with the mortgages,” Maeve says. “We have to make the right decisions for our daughter, too.”

Maeve would like to retire in March at 65 and work part-time, but even that modified retirement might not be enough, especially considering this family has more than $1-million in debt. Their cur-rent gross income, $113,130 a year, comes from Maeve’s $87,400 annual salary, Tom’s Canada Pension Plan benefit of $11,460 a year, and $6,456 of Old Age Security payments, and $7,814 from his variable part-time clerical work. Their disabled daughter contributes $3,600 a year from part-time work and a provincial disability plan to family income for total pre-tax family in-come of $116,730.

Debt has to be cut before Maeve’s retirement. The couple has a monthly total of $4,214 in fixed obligations from debt, or $50,568 a year, which is 57% of their take-home income.


The first to go should be $25,000 of credit-card debt. Maeve has a total of $10,000 in her tax-free savings account and Canada Savings Bonds. Tom has $50,000 of GICs that pay 3% a year. Maeve’s TFSA is invested in GICs that pay 2% a year and her CSBs pay less. Her credit-card interest is 19% a year. They can use $10,000 of Maeve’s low-interest savings and some of Tom’s cash to eliminate the balance of the debt.

If Maeve were to retire and take a part-time job to provide supple-mental income, they would still be at the mercy of interest rates. In total, the rental properties have assessed value of $1,085,000 and carry mortgages of $692,000. Sale of all the properties for, say, $980,000 after sprucing-up and selling costs would leave them with $288,000 of cash they could use to pay down a mortgage balance of $324,000 on their $520,000 house. If they do this transaction, they would have $36,000 remaining due on the house mortgage. They could pay off this mortgage by using $40,000 of loans to family members they have coming due or carry the remaining mortgage for about $200 a month, depending on the interest rate and amortization period.


Assuming their RRSPs get a $6,475 contribution from Maeve this year and generate a 3% rate of return after inflation adjustments, the ac-counts would grow from $180,000 today to $229,500 by the time they convert them to RRIFs in six years. RRIF income would be $17,167 a year. They would also have Maeve’s $1,550 defined-benefit pension from prior work. Added to two OAS benefits after Maeve turns 65, each $6,456 in 2011 dollars, and combined estimated CPP payments of $18,867 a year according to the couple’s history of contributions, they would have a pre-tax income of $50,496 in 2011 dollars when RRIF income flows begin in 2018, the planner says.

They would be able to cover their projected expenses. But until that RRIF income flows, Ms. Nalbanto-glu suggests not only that Maeve keep her full-time job but that Tom continue his part-time work when possible. Their greatest financial challenge will not be paying for their own lives, but assuring a de-cent life for their daughter.


Disability assistance is embedded in tax law. The challenge is to make full use of what is available. The couple should ensure that Louisa captures the disability credit, $1,086 in 2010.

They should maximize contributions to Louisa’s registered disability savings plan, which is her own asset (not the parents’) and currently has a $21,000 balance. If contributions are $1,500 a year and Louisa receives grants of $3,500 a year and $1,000 a year in other support, the fund, growing at 3.0% a year after inflation adjustments, will have $146,400 by the time she is 59, which is the age limit for payment of government grants.

RDSPs work like TFSAs. Money going in is tax-paid and no further taxes are imposed while funds are in the plan or at payout. These plans qualify for Canada Disability Savings Grants, which are similar to Canada Education Savings Grants.

To ensure Louisa can benefit from the money and from available forms of public assistance, her parents will need to create a financial arrangement that is in compliance with Alberta statutes which restrict the use of structures available in other provinces, Ms. Nalbantoglu says.

“This is a case of a family with limited income and two very serious health issues,” the planner says. “Good planning can reduce the financial impact of illness.”

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