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How to pay off debt in retirement

Posted on 26 November 2021

Written by Samantha Galea

No matter what an individual’s age, debt is a stressful financial burden to deal with. Once that debt becomes unmanageable, it is even more overwhelming. However, when you are working, or have the ability to work to increase your monthly income, things are a little easier. This is in contrast to someone who has retired and is relying on RRSPs and pensions to get by. For retirees, senior debt is often a pressing and troublesome issue. Nowadays, an increasing amount of seniors are taking debt into retirement, whether it is a mortgage, credit card debt, or lines of credit. Due to changes in modern life including a rising cost of living, greater student debts, and adult children living at home for longer, many of us are accruing more debt and taking longer to pay it off. If you have a fixed income, you should try to reduce your debt as quickly as possible to avoid increasing interest rates. In this article, we explain how to pay off debt in retirement.

Recognizing the signs of debt in retirement

There are a number of signs of debt that should be useful in establishing if you may be struggling with unmanageable debt in retirement. These include the following:

  • You cannot make your minimum payments on credit cards each month
  • You are living in your overdraft
  • You need credit to pay for basic living expenses
  • You are unsure of how much you owe
  • You are often reaching your limit on your credit cards
  • You are making late payments or missing payments
  • You are avoiding your finances, or feeling stressed about them
  • Your finances are affecting your family or social debt

When you consider how limited Old Age Security Pensions are in Canada, having significant debt can make it very difficult to live comfortably.

How much is the Old Age Security Pension in Canada?

As of 2022, the following payments stand for Old Age Security Pension once you have retired in Canada:

Old Age Security Pension

$642.25 per month, depending on how long you have lived in Canada as an adult.

Increased Old Age Security Pension at age 75 July 2022

Seniors aged 75 and over will see an automatic 10% increase of their Old Age Security pension, as of July 2022.

Additional Old Age Security Pension based on income and age

  • One-off payment for older seniors if you were eligible for the Old Age Security Pension on June 2021, and if you were born on or before June 30, 1947
  • Guaranteed Income Supplement if you are 65 or older; live in Canada; get the Old Age Security Pension and your income is below $19,464 if you are single, widowed, or divorced; or if your income plus the income of your spouse or common-law partner is $25,728 or if your spouse/common-law partner receives the full Old Age Security Pension; $46,656 if your spouse/common-law partner does not receive an Old Age Security Pension; and $46,656 if your spouse/common-law partner receives the Allowance. You can apply for the Guaranteed Income Supplement when you apply for the Old Age Security Pension.

How to pay off debt in retirement

Retirement is meant to be one of the most enjoyable times of anyone’s life. The last thing any of us wants is to battle with debt, or see our loved ones facing financial pressures during retirement. Different types of debt have challenging consequences if not tackled immediately, including tax debt which can lead to action like a wage garnishment. There are a number of different debt relief solutions to help you, no matter how bad you believe your financial circumstances to be. At Spergel, we treat everyone’s situation differently. Our experienced Licensed Insolvency Trustees will sit down with you to look at all the variables, including any assets you may have, and create a debt relief plan that is tailored for you. Here are some of the top ways of how to pay off debt in retirement:

  • Find opportunities for more income. Additional income streams can make all the difference. You will likely not want to work during your retirement, but even a part time role for a short period of time may generate enough funds to pay off your debts.
  • Stop helping your adult children. It is tough for today’s children with mounting student loan debt, but if you are using your own limited funds, you must stop. Your children will need to find their own pathway to successful financial management to prevent you getting into further debt.
  • Downsize your home. With house prices rising across Canada, it could be a great opportunity to downsize your home to release the equity – moving into a less expensive home means you can pay off a chunk of your debt.
  • Use your RRSP to pay off your debt. If you have a significant RRSP, you could use it to pay off your debt. You must note that you may be taxed a percentage of the amount you take out, so you need to consider how worthwhile this may be for you.
  • Consider a debt consolidation loan. Either a debt consolidation loan or a home equity line of credit (HELOC) may be able to pay off debts as they also help to lower your interest rates. A reputable Licensed Insolvency Trustee will be able to walk you through the process.
  • Sell your assets. If you have any valuable assets like a second car, other vehicle, or collectibles, selling your assets may provide you with the additional funds you need to pay off your debt.
  • Use a reverse mortgage. If you still have a mortgage, a reverse mortgage allows you to access money from your home equity without selling your home. You can often borrow up to 55% of your home’s value, and you will only repay it when you move out or sell.
  • Cash out your life insurance. You may no longer need your life insurance, particularly if your children have established their own lives. You could consider unlocking this money to put towards paying off your debt.
  • Try negotiating with your lender. There is no guarantee, but if you speak to your financial institution, bank, or lender, they may be able to offer you a better rate to try and help you shed your debt faster.
  • Tighten your budget. If you do not have one in place, check out our guide on how to create a budget. A good exercise is to review your monthly expenses and income to see how you can cut back in order to put extra funds towards paying off your debt.
  • Speak to a Licensed Insolvency Trustee. At Spergel, we can offer you the guidance you need to know how to pay off debt in retirement. We provide credit counselling and will explore debt relief options like a consumer proposal and bankruptcy with you to clear or reduce your debt by up to 80%.
  • The key thing to remember here is that if you are in retirement or getting close to it, there are plenty of options. Licensed Insolvency Trustees are here to help you get out of debt so you can enjoy your retirement to the full. They will work with you to explore your debt relief options depending on your circumstances so that you can start living your golden years.

If you want more advice on how to pay off debt in retirement, book a free consultation with Spergel today. Our Licensed Insolvency Trustees are here to help you make the most of your retirement. We will help you to find the best form of debt relief for your circumstances. The sooner you reach out, the sooner we can help you to begin a fresh financial start.

Samantha Galea

Samantha Galea

Samantha Galea is a Chartered Insolvency and Restructuring Professional and LIT (Licensed Insolvency Trustee) who started working with Spergel as a summer student in 2010. With her socio-political background, Samantha is committed to breaking the stigma associated with bankruptcy so that individuals and families can properly understand all of their options on their path to debt freedom. She is also our resident expert on student debt and collection agencies, as well as the manager of our Brampton office. Outside of work, Samantha is an avid reader of historical non-fiction and world traveler.

Schedule a Free Consultation with Samantha Galea (or your local Spergel LIT) by:

Phone 1-877-501-4321 (toll-free)

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Email (hello@spergel.ca)

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