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May 2010 - Retirement is like hell if you still have a big mortgage.

Retirement is like hell if you still have a big mortgage.

☳ by Adam Aspilla

After working for so many years, it is every body's dream to retire, and live a relax and happy life, for there is no more waking up early in the morning to go to work rain, shine or snow to make a living. It is a common anticipation that once a person retires, it is like heaven for even without working, your pension money would be electronically deposited to your bank account.


While this is true for those whose income is not dependent only on Old Age Security (OAS) and Canada Pension Plan (CPP), but for those who only rely on OAS and CPP, their life would be miserable if they still have big mortgage on their house.


It is a misconception, that retirement income from OAS and CPP would only be slightly lower than income during full time employment. In fact, the average monthly pension income for a retired person is between $1,300.00 and $1,500.00 (OAS and CPP combined). This income is just about half of the income on full time employment or even less. If you have a mortgage payment of $2,000.00 monthly, plus property tax, plus utilities, and even if you are a couple, your combine pensions (OAS and CPP) would not be enough to cover your living expenses. Much more if you still have outstanding debts on credit cards, loans and line of credits.


A good example was a retired man who called me asking if I could help him and his wife (also retired) to consolidate their debts. I asked questions for me to give their options over the phone to save their time and my time in coming to my office. I found out that just a year before they retired they increased their mortgage up to eighty percent of their house value, and paying $2,100.00 monthly for the mortgage including property tax.


Their monthly combined pension (OAS and CPP) was $2,900.00. Less the mortgage payment of $2,100.00 what was left of their pension was only $800.00. Of that amount they will pay utilities, food, transportation and other living expenses. They had nothing left to pay their outstanding debts on their credit cards amounting $25,000.00.


I asked, "Why did you increase your mortgage?" He said, they were making renovations on their house (which were not really necessary) and they went on vacation.


He and his wife were so depressed for they were repeatedly hounded by collection agents for their unpaid credit card bills. They could not sleep well thinking of the possibility of being sued and ultimately lose their house.


I further asked him, "Did you not anticipate that your pension income would be much lower than your employment income?" He said, "No, I thought that our pensions would only be slightly lower than our employment income."


A lesson we can learn from the above illustration is to be prudent in managing our finances. Instead of increasing a house mortgage, reduce it to a minimum if not pay it off in full on retirement. Moreover, pay off credit card debts before you retire otherwise you will be living like hell as in the above case scenario.


Adam Aspilla is a Senior Financial Counselor of the Debt Clinic of Canada Inc. and the author of the book, You Can Negotiate All Your Debts. He also writes a biweekly column, “What Matters In Life” in “Taliba Newspaper. For free initial, professional and confidential consultation, please call 905-306-7572.