Today, many Canadians continue to work well past retirement age because they can’t afford to stop. If you’re approaching retirement with debt, you’re not alone.
Here’s what you need to know about retiring with debt in Canada, and solutions to help you improve your financial situation.
Why Are More Canadians Retiring With Debt?
There are many reasons to explain why more Canadians are carrying debt into retirement or delaying retirement because they can’t afford it.
One in ten (13%) unretired Canadians* don’t think they’ll ever retire, according to a 2024 survey conducted by Abacus Data for the Healthcare of Ontario Pension Plan (HOOPP).
Twenty-eight percent of unretired Canadians (aged 55 to 64) expect to keep working in retirement to support themselves, and 39% of Canadians aged 55 to 64 have less than $5,000.
Some of the reasons Canadians are entering their retirement years with more debt and more anxiety include:
- Cost of living. The last few years haven’t been easy for many Canadians. With high inflation, many have found it difficult to manage day-to-day expenses. High interest rates have also made it expensive to borrow and more difficult to pay debt and save for retirement.
- Housing affordability. Over half of Canadian homeowners are worried that higher interest rates will impact their ability to afford their mortgage payments. The average household mortgage debt for seniors age 65 and older is $27,441.
- Limited pensions. According to a study by Statistics Canada, only 37.5% of paid workers are covered by a registered pension. Those without a pension tend to feel less prepared for retirement.
- Minimal savings. Men and women 65 years and over say they have no money set aside for savings, according to the HOOPP study. This number increases to 23% for men and 32% for women between 55 and 64 years old.
- Living longer. The life expectancy for Canadian women is 84 years, and 80 years for men. Depending on when you retire, you might need enough money to fund yourself for decades. While there are financial supports like the Canadian Pension Plan (CPP) and Old Age Security (OAS), this isn’t enough to pay your bills, let alone payoff debt.
- Fixed incomes. Many retired Canadians are on a fixed monthly budget which leaves little to no room for unexpected expenses. Without an adequate emergency fund, an unexpected expense can completely derail your budget, pushing you further into debt.
Tips to Eliminate Debt Before Retirement
If you’re retiring with debt, know that you are among many Canadians that are also worried about their savings. What are some things you can do to reduce your debt in retirement?
Create a retirement budget
Calculate how much income you’ll bring in from all sources including government supports like CPP and OAS, personal retirement investments, and any other income. Next, calculate all your expenses, including debt repayment. If you are spending more than you’re making, your next step is to find ways to reduce your expenses or increase your income.
Reduce expenses
To make room in your budget, look for ways to cut your expenses. If you’re still paying a mortgage, you might consider downsizing. This can reduce your monthly mortgage payments, property taxes, and insurance. If you have two cars, consider if you can get by with one. This can reduce car payments as well as insurance and registration costs.
Increase income
In addition to reducing expenses, consider how you might bring in extra income. Perhaps you can use your career skills to consult. Or think about turning a hobby such as working on cars, carpentry projects or gardening into a money-making venture. Another option might be renting out a room in your house for extra income and then using any extra income to pay off your debt.
Delay retirement
If you’ve run your numbers and know you can’t afford to retire, you may want to delay your retirement. Depending on the size of your debt, taking a few extra months or years to get your finances in order might allow you to retire with less debt and stress.
Consolidate debt
If you’re carrying multiple forms of high-interest debt, consider debt consolidation. This involves combining multiple debts into one loan. Instead of having separate payments with different interest rates and due dates, you can simplify debt repayment into one payment. The goal is to find a debt consolidation loan with an interest rate lower than what you’re currently paying.
Avoid new debt
In addition to paying off debt, try to avoid taking on new debts. One strategy is to set aside money in an emergency fund. If you have an unexpected expense, like a car repair, you can dip into your emergency fund instead of using your credit card.
Seek credit counselling
Credit counsellors offer financial education and can help you with things like budgeting or learning to use credit wisely. Some credit counsellors also offer debt management plans (DMP). In a DMP, your credit counsellor may ask your creditors to reduce or eliminate interest payments or extend the time to repay your debt. Your creditors however, are not obligated to participate.
Get Help From a Licensed Insolvency Trustee
If you’re dealing with debt in retirement and don’t know what to do, speak to a Licensed Insolvency Trustee (LIT) about debt relief options. A LIT can offer the widest range of debt solutions, including formal debt relief through a Consumer Proposal or Bankruptcy. You don’t have to navigate your debt alone, we’re here to help. For a free, no-obligation consultation call us at 1-888-371-8900, or complete our online contact form.
