What To Do If You Are Retiring Alone with Debt in Canada
What to do if you are retiring alone with debt in Canada.
Debt takes up cash flow, which means some of your income-producing assets are creating cash flow that is not dedicated to supporting your lifestyle.
If you read any book on retirement, there are three universal truths that they espouse.
- The first is to maximize the use of tax advantage saving vehicles or investment vehicles, like RRSP and TFSA .
- The second is that your post-retirement lifestyle will look different, maybe even a lot different than your lifestyle during your working years. With expenses going down in some categories and up in another.
- And the third is that you should enter retirement with little to no debt, if possible. And that’s the subject of this post.
Is retirement alone without debt is a fantasy or a reality?
Let’s get into the answer to this question.
Life gets in the way for many people, and life can be expensive. Raising a family on a single parent’s income, helping kids get a university education, experiencing health expenses not covered by any plan, and on and on.
People don’t go into retirement alone with debt because they’re stupid, but mostly because after expenses and myriad taxes, there’s nothing left to save.
Even with no debt and mortgage paid it is still hard to make ends meet at times with unexpected financial costs. Pensions in Canada are not indexed high enough to meet the demands of “any” government tax increases that are out of control as well as the actual cost of living for food and especially the gouging for telecommunications and gasoline.
Retiring Alone with Debt
Is It OK To Retire with Debt?
Debt management is a recurring theme in the retirement planning literature. Debt may be problematic for older workers if not paid off before retirement since repayment can be more difficult on a reduced income. On the other hand, carrying debt into retirement may not necessarily be an issue if repayment is manageable and the household is financially sound.
A large sum of debt will severely strain savings once you retire. If you can, reduce or eliminate credit card payments and other loans.
Depending on your situation, paying off your mortgage or downsizing may also help in the long run.
How Much Debt Does the Average Canadian Retirement Has?
According to Canadian Statistics 1 in 3 retirees holds some sort of dept. Retired Canadians on average have $60,000 in debt and $11,294 of them in non-mortgage debt.
About 20% of retirees are found to be still paying for mortgages, while 66% are carrying credit card debt.
About 25 percent of the 750 Canadians polled between the ages of 55 to 80 years for the Sun Life Financial Barometer said they have debt that ranges from mortgages to car payments.
Here’s a look at the other types of debt those retired were carrying:
- 26 per cent were making car payments.
- Seven per cent had unpaid health expenses.
- Seven per cent owed money on holiday expenses or vacation property.
- Six per cent hadn’t paid off home renovations.
Watch the video to see how this couple resolved their debt.
How Much Does a Single Person Need to Retire in Canada?
As a rule, retirees need about 75% of their pre-retirement income to enjoy a comfortable retirement. That income typically comes from CPP (Canadian Pension), OAS, GIS (Low Income Supplement), and other savings.
Will those sources give you enough income to meet your obligations and enjoy your free time?
What Should Be Paid of Before Retirement?
Many financial experts recommend paying off all their debt before retiring. However, it comes down to the type of debt, the interest rate, and whether or not the repayment fits into the retirement budget.
First payout high-interest rate debt, like credit cards. Consolidating credit cards and taking advantage of low% offers to pay down consumer debt quicker is a good option.
If the mortgage is one of the largest debts you have and you can feasibly pay it off prior to retirement, then do it. If it’s not possible, getting the housing expense as low as possible at a fixed interest rate prior to retirement can make a tremendous difference for retiring alone with debt.
So, You’re in Debt: Here are 5 things to get you on a better financial path right now.
No matter how old you are and ether you are retiring alone or not, an important key to getting out of debt is margin – creating a gap between your income and expenses so you’ve got the money to make extra payments on your debts.
There are only two sides to the margin equation: INCOME and EXPENSES.
1. FIND AN EXTRA INCOME STREAM
If you retired or retired alone with debt in Canada, make sure you know where your income will come from. And how much income you will have.
Some people end up in retirement and realize they haven’t saved nearly enough or saved at all.
If you haven’t saved enough for retirement, look for ways to maximize your available retirement funds. That could mean working longer.
2. TAKE KIDS OFF THE PAYROLL
It’s common for parents to help their adult children with everything from health insurance premiums to cellphone bills. According to a Merrill Lynch study, nearly 70 percent of people ages 55 or older with adult children are doing it. I am guilty of doing it myself.
Wouldn’t it be easier (if it only would be easy) for you to cut them off if you realized that doing so would not only benefit you, but it would benefit them in a long run?
3. SET A BUDGET
Separate your wants from your needs. It’s essential to stop packing up debt after you stop working.
Many people let you believe that when you retire your expenses will go down, but in reality, they tend to increase. When you’re on a fixed income in retirement, take care not to add more debt.
Start by recording everything you spend for a month. Use a premade budget spreadsheet or a special notebook for it but have a solid record of your spending.
Are you sick and tired of stressing about money all the time? Grab Free Monthly Budget Template and take control of your finances today. Get my newsletter and get access to the freebie.
4. PUT THE CARD AWAY
Credit cards open you up to making big purchases you can’t afford. In most cases, they get you in retiring alone with debt in the first place.
Pay for everything with cash or a debit card. Cash forces you to handle and count the money before giving it away.
Tangible funds curb extravagant spending and enable you to make better financial decisions.
5. CONSIDER A CREDIT CARD BALANCE TRANSFER
Transferring a credit card balance to a card with a lower rate – or a low intro rate – are two good ways to get out from under oppressive interest rates.
But this tactic should really be a one-time thing. Borrowing money to pay a debt doesn’t solve the underlying problem.
FAQ
SHOULD I BE DEBT-FREE BEFORE RETIREMENT?
Any level of debt may increase financial insecurity. According to Statistics of Canada, 82% of retirees without debt report their financial situation to be as expected or better than before retirement, whereas only 70% of those with dept report the same outcome.
HOW MANY SENIORS LIVE ALONE IN CANADA?
The number of people living alone in Canada has more than doubled over the last 35 years, especially for older women. Based on the 2016 census, 24.6% of the Canadian population 65 and older live alone. For those 65 and older, 31.5% of women live alone, and 16% of senior men live alone.
Take Away…
Every debt payment you make in retirement sucks up the income that you may need to fund your lifestyle. If you’re like many retirees, debt payments that last into retirement can leave you with little to spend beyond the basics. That might translate to cutting back on travel, shopping, and even nights out. Without those activities, life in retirement may not live up to your goals.
What’s your approach to reducing debt before retirement? Let me know in the comments!
Thanks for reading Retiring Alone With Debt In Canada article – I hope you found it helpful. As always, I’d love to hear from you! Have a fabulous week and take care! Irina Nikitina – Founder of Modern Fifty TV