Retirement Forecast: Less Savings, More Debt for Canadians?

Some Canadians might still be digging out of a big snowstorm from last week. Hopefully, we won’t see much more snow in March—but when it comes to debt and savings in retirement, the forecast could be looking a little bleak.

A recent Sun Life Financial survey found that 25 per cent of Canadians over 55 are still carrying debt in retirement. While some were making mortgage (20 per cent) or car payments (26 per cent), two-thirds (66 per cent) of respondents had unpaid credit card debt. Retired Canadians owe an average of $11,204, which does not include their mortgage.

Retired Canadians owe an average of $11,204 in non-mortgage debt. Click To Tweet

Two in five Canadians are taking out of their retirement savings…before they’re retired

Why are some Canadians coming up short in retirement? It might be because they’re depleting their savings ahead of time. A Bank of Montreal poll found that 40 per cent of working Canadians withdrew from their RRSP in 2017, taking out an average of nearly $21K. While some of them withdrew to buy a home under the Home Buyers’ Plan, others took out the money to help cover living expenses, to pay for an emergency or to pay off debt. Not only will they be paying tax on the money withdrawn, but by not allowing their savings to grow, they could find themselves with fewer funds in retirement.

The average Canadian is expected to live 82 years

You should expect to have enough savings to last at least 25 years in retirement. While 82 is the average life expectancy, you could still end up living longer. The oldest person in Canada is about to celebrate her 113th birthday. Could your retirement savings last you 50 years or more?

That might not be a realistic expectation, but many financial planners suggest saving with the idea of living to 95, which would mean 30 years of retirement after 40 or 45 years in the workforce.

How to add, not withdraw from your retirement savings

Debt repayment shouldn’t come at the expense of your RRSP. Here are three things you can do to avoid debt without withdrawing from your retirement funds.

  1. Create a budget. To stay on top of your expenses, you need to know how much you earn, how much you spend and how much you can save on a monthly basis. Track your spending and use a budget calculator to figure out if you’re spending more than you earn.
  2. Save for emergencies. Tapping your retirement fund for financial emergencies is definitely not ideal. To prevent this from happening, you’ll want to have a separate fund set up for emergency savings. Consider directing a portion of what you might save for retirement to an emergency fund instead, until you have three to six months’ of living expenses put aside.
  3. Consider debt consolidation. One way to make your debts more manageable is by combining them. With either a debt consolidation loan or a consumer proposal, you could combine several credit cards and other loans into one monthly payment and reduce or eliminate interest charges.

 

Even if you’re struggling with debt, you can still leave debt behind in retirement. Learn more about your debt relief options.