DEBT DURING RETIREMENT: How to Find a Solution that Fits

Weekdays on the golf course, opportunities for world travel, more time with the grandkids…debt can get in the way of even the best laid retirement plans. The reality is that many Canadians are still dealing with debt in their golden years.

A recent survey from the Financial Planning Standards Council (FPSC) found that over half of Canadians over 60 have some form of debt, such as credit card debt, a line of credit and/or a mortgage. Another 2018 survey – this one from Sun Life Financial — found that Canadian retirees owe an average of $11,204, not including their mortgage.

5 factors that are adding to seniors’ debt

More Canadians are unable to pay off debt prior to retirement and some are taking on debt during retirement. It all boils down to a few major reasons:

  1. Not enough savings – A Bank of Montreal poll found that 40 per cent of Canadians who are still in the workforce withdrew more than $20,000 of their retirement savings in 2017 to pay down debt or cover unexpected costs.
  2. Financially supporting adult children – Younger generations are having a tough time qualifying for mortgages, paying down student loans, covering their expenses and purchasing big-ticket items. Retired parents and grandparents are contributing financially, sometimes at their own expense.
  3. Rising divorce rate among retirees – Many retirees are already on a fixed income, and dividing that can be a financial nightmare. A Pew Research Report showed that senior divorce rates have doubled since the 1990s.
  4. Healthcare costsPrescription drugs and long-term health care aren’t always covered by insurance plans and can put a real strain on finances during retirement.
  5. Reverse mortgages – They’re advertised as a way for seniors to unlock the equity in their home without monthly payments, allowing them to pay off debts, assist their children, etc. The downside is the balance of your loan can increase over time and the fees will snowball. A reverse mortgage can also leave your relatives with the loan balance if you pass away.

5 things you can do to reduce lingering consumer debt

Hanging on to debt during retirement can keep you from what you enjoy most and add to financial stress. If your debt is becoming unmanageable, here are some steps you can take to alleviate that stress and get back on track:

  1. Keep calm and make a plan. No need to panic. Go over your debts with your spouse or a trusted family member so you can make sure you’re on the same page. Once you’ve tallied up your loans, take a look at your budget together. Are there any areas that can be trimmed in order to ramp up your debt repayment?
  2. Don’t let shame or embarrassment stand in your way. Debt is a reality for adult Canadians of every generation. Rising costs of living, increased interest rates and housing costs have all made it more difficult to stay on track, let alone get ahead. The FPSC survey found that 20 per cent of seniors are still in the workforce past the age of 60, especially if they have financial worries. You’re definitely not alone.
  3. Prioritize your debts. Starting with your highest interest debts, determine a monthly payment plan that will help you make a big dent in your balances. You might choose the Debt Snowball Method which involves paying all extra money toward your highest interest debt until it’s paid, while paying the minimum on all other debts. You can also use this debt calculator to map out your monthly payments.
  4. Talk to a professional. If you’re having trouble making progress with your debt repayment efforts, it’s worthwhile to speak with a Licensed Insolvency Trustee who can explain available debt solutions based on your situation. You can even review some of your options beforehand using this repayment options calculator.
  5. Don’t neglect your savings. Once you’ve got a solid debt repayment plan in place, it’s important to keep adding to your savings so you won’t need to turn to debt in case of emergency. An easy way to grow your emergency fund is to set up an automatic withdrawal to your savings account through your bank.

Is debt adding stress to your retirement and keeping you from what you enjoy? Find more debt relief tips by visiting the blog, Boomer and Echo and by searching #DebtSolutions and #SeniorsMoney on Twitter