# Caution to Future Retirees.......



## sags (May 15, 2010)

Talking in general to a few retirees that I know, I have learned that a person entering retirement should ensure that they have all the credit they calculate they will need, in place before they physically retire.

For example.....if you calculate you would like to have a 20,000 credit line and a 10,000 credit card limit, you should do so while you are employed.

The reason is that once you cross into the retirement threshold, and gain a significant portion of your income from pensions, you are creditor proof.

That means that a creditor cannot guaranshee pension income and makes a retiree a much higher risk of default, regardless of previous credit records.
The only exceptions are income tax debt and court obligations.

It would be wise to avoid updating your income status at the lenders, unless you are specifically requested to do so.

Obviously, we all hope to not need a great deal of credit when we are retired, but one never knows the future, and health care expenses or other major expenses can stymie the best laid plans.

So, get it all lined up before you retire.


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## sags (May 15, 2010)

I should point out another caution.

Lenders these days, prefer borrowers who have equity in real estate.

As people contemplate selling their home to provide an income stream for their retirement, they are also selling their greatest asset and collaterol for the bank to make loans in the future, including new car loans.

The lenders don't consider cash as collaterol because it can be transferred in a moment's notice. They can't guaranshee pensions or RRSPs, so they are left with no collaterol to seize, except the vehicle which is a declining asset.

Unfortunately, the laws that protect retirees from seizure of their pensions income etc, also make them a much higher risk to lenders.

It didn't matter when the banks were shovelling money out the door to anyone who walked in, but it matters now.

At least, until time passes and they all return to the good old days.


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## Square Root (Jan 30, 2010)

Hard to believe you would need more credit in retirement than before. Also, having significant assets outside your pension should help solve this problem.


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## carverman (Nov 8, 2010)

sags said:


> The lenders don't consider cash as collaterol because it can be transferred in a moment's notice. They can't guaranshee pensions or RRSPs, so they are left with no collaterol to seize, except the vehicle which is a declining asset.
> 
> Unfortunately, the laws that protect retirees from seizure of their pensions income etc, also make them a much higher risk to lenders.
> 
> ...


Well, I think the good ole days are well in the past. I'm a retiree on a diminished
income and soon to be diminishe even more thanks to Nortel's bankruptcy
and the fact that the Ontario gov't didn't force them to make any contributions
to top up the fund before the bankruptcy.."too big to fail" is the term.

It is comforting though that you mention that creditors can't seize or garnish
pension incomes. 

carverman


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## sags (May 15, 2010)

Sorry to hear about the situation with your Nortel pension.

As far as I am concerned, the government owes the Nortel retirees their full pensions. It is the government who regulate pensions. It is the government who determines to take away equivalent RRSP room from those who pay into a pension. It is the government who decide to give companies pension contribution holidays.

At the very least, the Government should allow people to withdraw the remaining lump sum from their pension without taxation. Perhaps with a lump sum, people could invest in a small business or something to improve their income flow or reduce their debts. 

It is cowardly for the Government to just walk away.


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## kcowan (Jul 1, 2010)

We were sensitive to availability of credit when we retired in 2002. It did not happen. Every credit card vendor has tried to increase our credit limit even though we pay off the balance in full. However our total indebtedness is insignificant compared to our net worth.


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## Guest (Nov 10, 2010)

kcowan ... I've no interest in credit cards, as you say, they're easy to come by ... what I do have in place is a secured $25K line of credit (home as collateral). If I should need a loan, the rate is much much lower and any outstanding loan is life insured for a reasonable fee. The secured LOC just gives me another option which I plan never to use.


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## OhGreatGuru (May 24, 2009)

sags said:


> Talking in general to a few retirees that I know, I have learned that a person entering retirement should ensure that they have all the credit they calculate they will need, in place before they physically retire.
> 
> For example.....if you calculate you would like to have a 20,000 credit line and a 10,000 credit card limit, you should do so while you are employed.
> 
> ...


I'm not convinced. I've been retired (on a pension) for 5 years and my credit card companies keep offering to increase my limits, based on my spending history. The more I charge to the card, the more they offer to raise the limit, as long as I keep paying off the balance every month. (And if you can't pay your balance off every month you shouldn't be asking to raise your credit limit, because you are living beyond your means.)


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## sags (May 15, 2010)

The biggest increase in debt defaults is among the borrowers with the highest credit ratings. They are known as super prime, and prime borrowers and defaults have increased by over 400% in the past 2 years.

Predominantly adversely affected by the US home price collapse, these borrowers are defaulting in record numbers, causing lenders a lot of headaches and forcing a re-evaluation of their risk analysis.

It has been easy for borrowers to attain a high credit score, by spending without concern, and then paying off debts with a home refinance. Many have done so repeatedly, on a yearly or bi-yearly basis. The easy credit withdrawals from their homes masked bad spending habits and the inability to manage debt, while increasing their credit scores by the continual borrowing and paying back cycle. Those days were over when their home prices started to fall. Now they have to pay back a mountain of debt, without the ability to refinance their homes.

The new FICO 8 scoring system hopes to address this situation, by predicting which of the super prime and prime borrowers may default in the future.

Pensioners and those with debtor proof income would most likely fall into a higher risk category, when the lenders fully adopt the FICO8 system.

It is just being introduced in Canada recently.......we will see how it goes.


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