Recently, I applied for a new credit card. Among the questions I had to answer was ‘What is your income?’ Before retirement that was an easy question; I’d just tell them my salary. But now that I’m retired, I’m not sure how to answer it.
I have no salary. I have no workplace pension. I’m not drawing from CPP or OAS yet. There’s nothing I can point to that is the rough equivalent of a salary.
I chose to answer the question with my previous year’s taxable income. However, that number has little relationship to what I can afford to spend. A big chunk of my spending comes from non-registered accounts that contain savings that have already been taxed.
I do draw from my RRSPs, but this is only for lifetime tax efficiency. Late in the year I withdraw the right amount to manage my income up to the top of a particular tax bracket. I could just as easily have an income near zero and collect the HST rebate.
So, my taxable income for the year has little bearing on what I can afford to pay. If I had applied for a credit card in person, my first answer to ‘What is your income?’ would have been to tell the person how much money I have in their bank.
I got my credit card, but it came with a disappointingly low credit limit. In requesting a higher limit, I got hit again with the ‘What is your income?’ question. I gave the same unsatisfactory answer I gave the first time, and now I wait. There must be a better way for banks and credit card companies to deal with retirees applying for credit cards.
Monday, March 7, 2022
How Does a Retiree Answer the Question ‘What is Your Income?’
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I've struggled with this too. Do you feel it crosses a line to come up with your own reasonable adjusted income level? (say: 4% of your total after-tax portfolio, plus any active income).
ReplyDeleteHi Sebastien,
DeleteI thought about doing this. My portfolio spreadsheet calculates my safe monthly spending level, so I could use that. I'd rather hear from someone high up in banking say what they expect. Or even better, change the question to be more clear about what they expect from retirees, or anyone else with significant non-registered assets.
It is definitely a dilemma Michael. I’ve found that after a few months of paying my balance off in full the credit card company starts raising my limit. I don’t know why they just don’t use your credit score.
DeleteHi Gary,
DeleteI don't understand why my account balances in the same bank aren't more relevant.
I too have had the conversation with my bank about their dumb credit card rules and automated system. While doing a home reno project I wanted to raise my limit. Never carried a balance, good salary and had hundreds of thousands of $ invested at the same bank they refused to raise my limits. A different credit card raised my limit without any questions. To the banks it's a profit business decision and locked into their programming apparently If you don't fit their algorithm it's out of their hands at my bank customer service can't do anything about it. Stupid banks, my suggestion is just game the system I agree with Sebastien make it 4% or something defendable in the end I don't think the bank really cares it's just a screening tool they are using.
ReplyDeleteIt's definitely the case that branch employees are powerless to make any significant decisions. All the algorithms are baked into computers. It can be very difficult to get the attention of someone on the other side of the wall of computers who can change dumb things like this. I have a spreadsheet that calculates how much I can safely spend. Maybe I'll start using that value.
DeleteWhat proof of income do CC companies typically ask for?
ReplyDeleteI've never been asked for proof, but I'm not comfortable lying in case I get asked for proof. I wouldn't want computers to add "liar" to my profile.
DeleteDirect them to their investment side of their own bank where they can look at your Dividends and distributions every month from your TFSA/RRSP and Non reg. accounts :) (if you do both at the same institution)
ReplyDeleteHi Pail,
DeleteThe problem is that there is nobody to direct anywhere. Applications are done by computer with no opportunity to add further information, at least for the most recent credit card application I made.
Not related to the topic at hand, but truth be told, we retirees that pay off our balance every month are most likely a net cost to the banks. They call us "deadbeats". Makes me smile.
ReplyDeleteHi Garth,
DeleteI doubt that we are a net cost to banks because of the fees charged to merchants. However, we are very likely insufficiently profitable to support our share of bank dividends.
True that the merchants cover these costs. Why don't merchants offer discounts for cash or debit transactions?
DeleteThere used to be wording in agreements between merchants and credit card companies that prevented this. I recall that there was some sort of change to the law governing such agreements, but I'm not sure what resulted.
DeleteWould it be fair to say that merchants pass on much of these costs to customers who pay cash or use debit cards?
ReplyDeleteMerchants definitely pass on some of these costs, but not all. Merchants don't have unlimited pricing power. The price they can charge is determined by a number of complex factors. One thing that is certain is that added costs hurt (almost) everyone. Merchants get less, consumers pay more, and the banks and credit card companies collect rent in the form of these fees.
DeleteI wish this topic/info had appeared a bit earlier. I recently cancelled a premium credit card that gave Aeroplan miles and switched to a cash-back card. I have close to 1 million Aeroplan miles available which I haven't been able/willing to use during the pandemic. The Aeroplan miles card also had a ridiculously high credit limit which I had asked the issuer to stop increasing. When I called to cancel the Aeroplan miles card, they offered no fee for the coming year which I declined since I had no plan to use it over the next year.
ReplyDeleteIn hihdsight, I should have probably kept that card until I am able to get my credit limit raised to a satisfactory level on the new card.
Hi Bob,
DeleteI'm still in the dark somewhat about how all this works, but it appears that the system doesn't work well for retirees. Based on your experience, it makes sense to hold onto high-limit cards.
Hi Michael, the answer is easy: look at your NOA from last year and use that. Your NOA clearly shows what your total income was (from various sources).
ReplyDeleteI'm not retired yet but if I'm ever asked this question, I always refer back to my NOA as that tells an accurate picture of what my total income was in the prior year.
The bulk of the body of my article is devoted to explaining why taxable income is unrelated to ability to pay for people with significant assets outside of RRSPs.
DeleteI've found a lot of credit card applications have an income level that needs to be met but if you read the fine print it usually states something like "minimum household income of $100,000 or minimum total investable assets of $250,000." So for those credit cards you could easily apply and get approved with $0 income as long as you have decent investable assets.
ReplyDeleteHi Herb,
DeleteInteresting. BMO doesn't seem to do this, but it's good to know that other banks are more sensible.