Couple with 48% of take-home pay going to debt servicing needs to cut costs and RRSP contributions

A couple we’ll call Louis and Ghislaine, both 52, live in Quebec with their three children, ranging in age from 13 to 18. They bring home $6,900 per month plus $224 from the Canada Child Benefit, for a total of $7,124. The money isn’t bad, but it’s not enough to cover their monthly spending and savings.

Debt is the immediate problem. Each month, they pay $1,709 for their mortgage, $294 on a line of credit, $410 on a car loan, $380 on a car lease, and have to make back-tax payments of $104. That adds up to $3,414, or 48 per cent of their take-home income.

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Louis, who works for a transportation company, and Ghislaine, a civil servant in a local government, worry they will not be able to afford retirement. Louis went through a bankruptcy five years ago and he doesn’t want to go there again.

Family Finance asked Caroline Nalbantoglu, head of CNal Financial Planning Ltd. in Montreal, to work with Louis and Ghislaine.

“Debt management and rationalizing savings are essential in this case,” she explains.

Savings plans                                                                            

Louis and Ghislaine have recently been allocating $650 per month to their RRSPs even though the tax-reduction benefit is modest. Indeed, in the March meltdown — which saw the total value of their RRSPs decline to $4,435 from $5,500 — their losses exceeded the tax savings.

Since the savings are small, and the money can be better used elsewhere, Nalbantoglu recommends terminating the contributions. Both Louis and Ghislaine will have company pensions, reducing their dependence on RRSPs.

The family Registered Education Saving Plan with a total balance of $57,773 is growing through $1,200 in contributions plus federal and provincial grants that boost that amount by 30 per cent per year. Their eldest child, age 18, no longer qualifies for the grants, and has $16,000 allocated for post-secondary education. Their younger children have six more years combined for contributions. At this rate, their plans with conservative investments growing at two per cent per year after inflation can provide them with about $21,000, enough for four years of study in a post-secondary institution in Quebec, if the kids live at home. They can get summer jobs to boost their school budgets.

Retirement income

Ghislaine will have nearly 40 years of service with her local government unit and can expect a pension of $34,500 at 65 when her Quebec Pension Plan benefits begin. Louis’ pension will be more modest for he only recently started work with his employer. As a result, he expects a pension of $3,600 per year at 65. Their total income at 65 will thus be $38,100 plus two Quebec Pension Plan benefits which, combined, will pay them $23,140 and Old Age Security that will pay a combined total of $14,724. That is a total of $75,964.

Retirement income is not their main problem.

Debt management

The couple’s chief problem is debt management. They need more free cash to reduce what they owe. They can economize on many expenses. Their food budget, $1,300 per month, can easily be cut by $200, the planner notes. Dining out at $100 per month can be cut to zero. A cleaning person at $180 per month can be eliminated. A monthly allocation of $334 for holidays can be cut by $100.

More savings — cutting cellphone bills from $315 per month to $215 — can be found by shopping or warning the providers they’ll go elsewhere.

There are other expenses that do not show up on monthly spending such as a $400 monthly allocation to purchases of shares of Louis’ employer. Those reduce his paycheque.

RRSP contributions of $650 will have stopped. These steps could raise at least $1,845 in extra cash each month.

That surplus can be directed to their highest cost loan, the line of credit with a 10 per cent interest rate set because of Louis’ bankruptcy. If $500 in savings are added to $294 existing payments to raise them to $794, the $7,900 loan will be paid off in ten months.

Next to go should be the $28,576 outstanding car loan. It has a 4 per cent interest charge and costs them $410 per month. They can double payments with some of their surplus so that the loan will be paid in three years. Their only obligation other than their mortgage will then be their car lease, due to end in 2022.


Seven years from now, Ghislaine and Louis will be 59. That’s when they would like to retire, but working to 65 to the start of their full pensions, QPP and OAS would be wise. They need to build up savings lost when Louis went bankrupt. The line of credit and car loan and back taxes owing will have been paid off, but they will still have their $1,709 monthly mortgage with a remaining 20-year amortization.

As previously calculated, their total income will be $75,964 per year. With splits of eligible income, age and pension credits, they will pay tax at an average 13 per cent rate and have $68,700 per year or $5,725 after tax per month for expenses. Their monthly costs will have dropped to about $5,600.

Then, at age 72, their mortgage will be history and their monthly costs will be just $3,900.

It is a long road, but they will have cash for some of the pleasures they have deferred.

Retirement stars: Two ** out of five

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