Debt and Retirement: What You Need to Know Before You Retire

^{By Bromwich+Smith Staff | 954 words | Reading Time: 4 minutes and 46 seconds | Date: 2023/03/14}

Retirement means something different to everyone depending on where they are in life, their age, their savings as well as their debt situation. Can you afford to retire while in debt?  Lets explore what you need to know about your debt before you retire.

Four-in-10 older Canadians have delayed (or plan to delay) their retirement because they have too much debt. In addition, 62 per cent of Canadians have already delayed retirement because they don’t have enough savings or investments. So how can you prepare to be ready for retirement?

When should I start planning?

It is never too early to start preparing for retirement. During your prime working years, it is vital to start planning for the future. Where do you see yourself living? Is it in a property that you own and will have paid off, or will you be renting, or are you planning on splitting your time between multiple properties? By knowing where you will be, you can start planning how much money you will need and start saving. Even if you are in debt, you should consider putting money into savings. You can prioritize what is important to you based on your current situation, and speaking to a financial planner will help you set a clear path.

Budgeting for seniors

1. Create a Monthly Budget. Knowing how much income you have coming in, or saved and compare it to your expenses. By starting a budget now, you will be prepared during your retirement years. The budget you have now while you are working will not be your post retirement budget.
2. Reduce Your costs. You can cut costs in a variety of ways, including searching for senior discounts. Many of your expenses might be cut back by grocery shopping on seniors appreciation day, saving at restaurants, or even preferred rates for utilities and cable. You may want to consider couponing, through apps or store websites to take full advantage of sale prices. There are senior saving programs, or government benefits available you may need to put some time into researching them.
3. Research Your Insurance Options. By choosing your Insurance Premiums payments wisely you may be able to further reduce your costs.
4. Get a handle on your debt. Debt can be the leading cause of delayed retirement, and can cause stress in all aspects of your life. Get debt under control early on, to reduce stress and help you retire when you are ready to.

What happens if I have debt when I retire?

Many Canadians are struggling with debt, and more often are retiring with debt. Statistics Canada recently reviewed the number of people 65+ with an outstanding and saw an increase from 1.2 million to 1.5 million between 2016 and 202. With this number expected to grow, how can you change your debt story if you retire with debt?

1. Stop Gaining More Debt. We know, that seems easier said than done right? Review your debt and see what you owe. Put away the credit cards, and do not use your extended credit. Avoid Buy Now, Pay Later options and evaluate your spending.
2. Reduce Your Spending. This can be done in a variety of ways, you may consider downsizing your home, sell vehicles you no longer need ( many households no longer need two vehicles if they are no longer going to the office every day), or explore your discretionary spending. Can you lower your grocery bills, or cut back your activities budget?
3. Debt Relief. If you find that your debt is overwhelming, you may want to consider your debt relief options. You may consider a debt Consolidation loan, Consumer Proposal or a Bankruptcy.
4. Talk to a financial expert. They may suggest alternative options like how you can access Life Insurance Policy Funds Early, or a reverse mortgage.

Your debt can be transferred to your loved ones after your passing, so make sure you are aware of who may be on the hook for your debt. 

Retirement savings for seniors

As you near retirement things you may not think about include:

• Update your budget.
• Apply for public pension benefits
• Research your tax benefits
• Review your insurance policies and update your will
• Consider Income Splitting
• Learn about collecting a pension while working
• Stay alert, and aware of fraud.

Senior Citizens are often targets for scams, ultimately being caught up in fraud and owing money. Stay alert and aware of emails or phone calls that are asking for payment. Ask around, research online, or call your non emergency police department line to learn about and report current fraud activities.

Debt reduction for seniors

Even with your best efforts, you may find yourself in debt while in retirement. If you do know that you are not alone. Every day, we receive phone calls from individuals of all ages looking for information on debt relief. Knowing that there are options available, and people who are wanting to help may put your mind at ease.

If you’re concerned about losing your pension to creditors, you should know that most forms of retirement income are protected in Canada. Canada Pension Plan (CPP), Old Age Security (OAS), and Guaranteed Income Supplement (GIS) are included in that. However, the Canada Revenue Agency may garnish your Canada Pension Plan (CPP) payments if you owe back taxes. This must stop if you file for Bankruptcy, or Consumer Proposal.

If you are worried about your level of debt during your retirement years, or are wanting to reduce your debt now, before retirement it may be time to talk to a Licensed Insolvency Trustee and talk about senior debt relief options.

Bromwich+Smith has a number of debt relief strategies to help you regain control of your finances and get your life back on track. Reach out today for a free, confidential, no obligation consultation. Bromwich+Smith’s Debt Relief Specialists are available by phone at 1.855.884.9243, or request a call back at contact us page. We want to see you flourish!

FAQ Debt and Retirement:

1. How much debt is too much when approaching retirement age?
The ideal debt level when approaching retirement age is zero. However, for some people, this may not be possible. A general rule of thumb is that total debt payments, including mortgage payments, should not exceed 36% of your one's gross monthly income.

2. What are the most effective strategies for paying off debt before retiring? Some effective strategies for paying off debt before retiring include increasing income by working longer or taking on a side hustle, reducing expenses by downsizing or cutting unnecessary expenses, and prioritizing debt with the highest interest rates first. IT is not uncommon to inquire about debt relief options prior to retirement to start your golden years off on the right foot. 

3. How does having debt impact retirement savings and income? Having debt can impact retirement savings and income in a number of ways. Debt payments can reduce the amount of money available for retirement savings and reduce retirement income if debt payments continue into retirement.

4. Is it better to pay off debt before saving for retirement, or should both be prioritized simultaneously? Both paying off debt and saving for retirement should be prioritized simultaneously, when possible.

5. What are some common sources of debt among retirees, and how can they be avoided?
Common sources of debt among retirees include credit card debt, medical debt, and mortgage debt. These can be avoided by living within one's means, having adequate insurance coverage, and downsizing or refinancing a mortgage if necessary.

6. What are the pros and cons of consolidating debt before retirement? Pros of consolidating debt before retirement include simplifying debt payments and potentially lowering interest rates. Cons include fees associated with debt consolidation and potentially extending the length of time it takes to pay off debt.

7. How can retirees ensure they maintain good credit while managing debt in retirement? Retirees can ensure they maintain good credit by paying bills on time, keeping credit card balances at a minimum, monitoring their credit report for errors or potential fraud, and using credit responsibly. It's important to not take on more debt than can be comfortably managed with retirement income.