How to Retire debt-free

By Laurie Campbell

Special to the Financial Independence Hub

These days, don’t be surprised to find a senior citizen standing behind the counter of your favourite fast food spot taking your order instead of a braces-wearing teen. What retirement looks like today has changed quite significantly from what it was even just ten years ago, and there’s no stopping this trend. More and more seniors are staying in the workforce, and for many of them, they have no choice.

Last June for Seniors Month, our agency, Credit Canada co-sponsored a seniors and money study that looked at the financial difficulties Canadian seniors are facing; the results, while shocking, were no surprise.

As a non-profit credit counselling agency, our counsellors are on the forefront of what’s happening when it comes to people and their financial hardships, and we are seeing a large number of people who should be starting to settle into their “golden years” still working, maybe even taking on an additional side job, just to pay off their debt, let alone get a time-share in Florida.

When we conducted our study in June 2018, it revealed that one-in-five Canadians are still working past age 60, including six per cent of those 80 and older. And while one third do so simply because they want to — which is fantastic, kudos to you — 60 per cent are still working because of some form of financial hardship, whether it’s too much debt, not enough savings, or other financial responsibilities, like supporting adult children.

The truth is the golden years have been tarnished, and I don’t know if we’ll ever get them back.

Half of 60-plus carrying some form of debt

Many of today’s retirees are living on fixed incomes, making them vulnerable to unpaid debt. In fact, our study revealed more than half of Canadians age 60 and older are carrying at least one form of debt, with a quarter carrying two or more types of debt. What’s even more alarming is that 35 per cent of seniors age 80 and older have debt, including credit-card debt and even car loans.

Staring at the problem isn’t going to help, nor is hiding from it. The best thing we can all do is to face the facts head-on and devise a plan of action that we know will work, whether it’s getting rid of any debt while building up savings, taking on a side job, delaying retirement by a few years, or all of the above.

Sizing up Government support

Before delving into the numbers it’s important to understand what income you can expect to have during your retirement. A few numbers have been compiled here as an example, but if you wanted to get more detailed information you can visit the Government of Canada website and click on the Canada Pension Plan (CPP) or Old Age Security (OAS) pages.

So, let’s get started by taking a look at 2017.

The average CPP benefit in 2017 was $653 per month; the maximum was $1,114 (if taken at age 65) and average OAS was $585 per month or $874 with the Guaranteed Income Supplement (GIS) included. It’s important to note that amounts vary depending on earnings, yearly income, marital status, and more. Plus, you may also have a company pension, Registered Retirement Savings Plan (RRSP), Tax-Free Savings Account (TFSA), or other means of savings that contribute to your retirement income. (There are also other financial resources available to Canadian seniors.) But in general, we’re looking at about $1,527 a month, which according to today’s standards — let alone how much things will cost 20 years from now — simply isn’t enough. Add debt to the mix, and you might want to start looking for loonies in the couch cushions rather than dreaming about sailing around the world.

If you need a bit of debt support, here are a few ideas that can help you become debt-free before you hit your golden years.

Keep an eye on your Debt

As we get older — long after we’ve secured a car, a home, and other essentials — we may be tempted to adopt a “who cares?” attitude towards credit. Not surprisingly, this often doesn’t turn out well. Rather than draw debt into retirement and carry that burden when you should be enjoying life, try to pay off your credit cards before you say “sayonara” to your job. You may want to consider the avalanche or snowball method for debt repayment, or sign up for a non-profit debt consolidation program a few years before you plan to retire, to help you get your plans back on track.

Save: it’s never too late

The longer you save, the more your funds compound. Great advice if you’re 25, right? But if you’re getting ready to call it quits and still don’t have much of a retirement fund, you could speak to a financial planner who may be able to set you up with the right savings solution, depending on your situation. For example, for those heading into retirement in the next couple of years with little to no savings, your best bet might just be to open a TFSA and max it out every year rather than investing in RRSPs. Many people forget that RRSPs can compromise their ability to obtain the GIS since it’s based on income, not to mention your money gets taxed once you withdraw it from your RRSPs. In many cases, you’re better off saving as much money as you can, tax-free, in a TFSA and collect GIS.

Max out that TFSA

This is an all-purpose savings tool that allows you to earn tax-free investment income that can complement your additional savings, like RRSPs and CPP. If you can’t contribute the maximum every year, you can top it up at a later date.

Begin budgeting: also never too late

Let’s be clear: Financial planning is not budgeting. While both are good, each is different. Planning focuses on the future, while budgeting is all about the ‘here-and-now’ to help you walk towards that future. Budgeting is the process of determining what you’ve got coming in, going out, and where you can make cuts. Confused? Check out these tools for creating a budget.

Delay Retirement

You might be thinking, NOOOOOO. But this isn’t crazy talk. While some seniors continue to work simply because they enjoy what they do, others stay in the workforce due to financial necessity. If you are in debt and/or have insufficient savings, you may want to delay your retirement by a year or two in order to earn some extra income. Don’t know where to start? Check out The 10 Best Jobs for Seniors Who Can’t (or Won’t) Retire.

Just say no

You aren’t the bank of Mum and Dad (or Grandma and Grandpa). Helping your kids or grandkids too much can seriously impact your savings. Though it can be difficult to tell a child no — even a 35-year-old one — it’s important that you look after yourself first and consider housing needs and potential medical expenses. The kids will be okay, plus helping yourself helps them in the long-run because they won’t be burdened with having to take care of you financially.

Whether you’re 24 or 64, retirement planning is a must to ensure your golden years are good ones. And it’s never too late, or too early, to get started. If you have debt and want free expert advice on how to prepare yourself for retirement, contact Credit Canada and we’ll set you up with a free counselling session with one of our certified non-profit credit counsellors. It’s 100% free, confidential, and non-judgmental and there’s no obligation.

Looking for more information on retiring debt-free? Look no further:

6 Tips for Dealing with Debt Before Your Retire
8 Tips To Help You Retire Debt-Free
5 Retirement Planning Mistakes and How to Avoid Them

Laurie Campbell is the CEO of Credit Canada Debt Solutions, Canada’s first and longest standing credit counselling agency. For more than 50 years, the non-profit and charitable organization has helped over two million families and individuals overcome crippling debt, improve their credit, and build their personal money management skills. Laurie is recognized as one of the nation’s leading experts in personal finance, financial wellness, and consumer protection, and is known as an advocate for bringing signicant positive change to Canada’s financial education landscape. She was also a member of the Task Force on Financial Literacy, later known as the Financial Steering Committee.


Leave a Reply