Lifestyle | To the rescue of the widow and the two orphans

The situation: “I am a single mother of two boys aged 14 and 17, wrote Émilie* to us. The father of my boys died in November 2021. I no longer receive child support and he had no life insurance. »

The situation

The 47-year-old had custody of her two boys since the father left the country in 2013. The roughly $600-a-month child support he was sending before his death was insufficient to cover his share of the children’s expenses .

Émilie has applied for an orphan’s pension for her children. “There is a maximum amount of $265 per month per child that is accessible, but they are in the study of the file, to see if their father had contributed enough to the RRQ”.

extra income

Émilie works in the paragovernmental network, where she has contributed to RREGOP for more than 20 years. She receives a salary of $92,000.

She estimates her net income at $48,100, after deducting her contribution to social benefits and a small contribution to the Fonds de solidarité FTQ, deducted from her salary. She has about $4,000 there.

But otherwise, she has no savings.

To supplement her income, she will lend a hand this fall to a former employer who is short on manpower, one day a week, which should bring her about $350 a week, before taxes.

“I was wondering if I was better off taking the full salary and managing it myself, maybe putting it in a TFSA, and paying what’s owed at tax time,” she says.

“I don’t know how to properly use my side income to maximize the benefits. »

Housing

After the sale of the family home at the time of the separation, in 2013, Émilie bought a small condo.

Émilie then met a new spouse, in whose house the little family lived for a few years. Since their breakup, she has been renting an apartment for $1,485 a month.

She has kept her condo, which she has rented for four years. The rent, which does not cover all the costs, results in a deficit of approximately $100 per month. She had thought of selling it, but the rise in housing costs prompted her to keep it for a few more years. She could return to live there with her youngest when the eldest leaves the nest. The mortgage balance of $270,000 was inflated by a few refinances.

“In short, I have the impression that my finances are completely disorganized. »

The answer

Yes, Emilie must make a budget.

“You have to know where your expenses are going. This is the first step to taking control,” advises financial planner David Paré, investment advisor and portfolio manager at Desjardins Wealth Management.

Because Émilie was not able to provide him with any details on his variable expenses.

It is on the basis of his net income that he sets his cost of living at $48,000, before family allowances.

The studies

Emilie’s priority is to support her children’s studies.

For the youngest, aged 14, our planner foresees a contribution of $2,500 per year ($208 per month) in an RESP in his name. With grants of $750 per year and a return of 3%, he will have accumulated some $15,000 by age 18.

The eldest, aged 17, is no longer eligible to open an RESP. Failing this, David Paré provides for an automatic withdrawal of $200 to be deposited in a TFSA in Émilie’s name. After three years, she would hold $7,200 there, for the benefit of her son.

Fluctuating income

But “where do we get the money? », asks our adviser.

The eldest’s family allowances will end when he turns 18, resulting in a monthly shortfall of approximately $500. However, Émilie is hopeful that her children will be able to receive the orphan’s pension, which will add $265 per month for each – although also interrupted at 18 for the eldest.

In short, Émilie will celebrate the 18^e her son’s birthday with a $235 per month drop in income.

“What will save her are the $350 gross income per week from her part-time job,” adds David Paré.

In response to Émilie’s questions, our advisor does not recommend that she collect the entire amount and defer the taxes until the spring. The money, largely intended for her children’s studies and a safety cushion, will not be deposited in an RRSP.

On the contrary, to avoid unpleasant surprises when she files her next income tax return, Émilie must ask her employer to make all the necessary source deductions. “She must inform her employer that she has other income, so that he can make the deductions with the correct level of tax,” he adds.

He estimates that he would be left with $210 per week, or $900 per month. Once the loss of allowances and the contributions to her children’s education savings are taken into account, her extra work would therefore provide her with a monthly surplus of approximately $270.

Because of the imprecision of his expenses, “it takes him a certain leeway, notes David Paré. That’s why I don’t make him contribute this amount to his RRSP. »

Anyway, “his retirement is not an issue”, notes the planner. Émilie benefits from an excellent pension plan, which she will be able to improve after the departure of her children.

If usage shows that these $270 are genuinely excess, they will accumulate in his account. “It would then be relevant to contribute to the RRSP,” he adds.

This is what it is already doing with its employee contribution to the Solidarity Fund, which it recommends continuing. With the tax savings applied directly to his pay, this already acquired discipline only costs him $60 for a contribution of $192.

The case of the condo

Should she keep her condo? “I did not approach the question from the angle of performance, but from the budgetary angle”, comments David Paré.

If she moves there when her eldest takes off, her housing costs will drop by $150 a month – not to mention the disappearance of the current rental deficit of $100.

“Keeping the condo and making the mortgage payments is another form of forced savings. »

Last precaution, and not the least: Émilie urgently needs to update her will and her life insurance.

* Although the case highlighted in this section is real, the first names used are fictitious.