When we think of retirement we picture a smiling person enjoying a golf game, sitting by a tranquil lake or driving a really cool car. The overall sensation is relaxation and fulfillment. We see advertisements everywhere conveying these blissful images that suggest how retirement should be for most of us. The reality, however, is that the majority of retired Canadians are in debt and struggling daily to keep up with their day-to-day expenses.
Making the transition to retirement may mean adapting to living on a fixed income. Debt carried into retirement can affect retirement plans and cash flow, as the monthly payments must come from pension earnings or from retirement savings — both of which were intended to serve as retirement income.
According to a recent CIBC poll 59 per cent of retired Canadians are carrying debt. Among this group,19 per cent say the amount of debt they are carrying has increased in the past 12 months.
Although retired Canadians hold less debt than those still working, they are also more likely to not allocate more of their funds to their debt repayment. This suggests that retired Canadians may carry debt for longer than they anticipated in retirement, incurring higher interest costs and affecting cash flow.
With more than half of all retired Canadians managing debt, the CIBC poll also reveals that 37 per cent of retired Canadians are juggling two or more debt payments a month. Among retired Canadians with debt:
- 39 per cent say they are carrying debt on their credit card
- 30 per cent say they are carrying debt on their line of credit
- 16 per cent say they are carrying debt on their mortgage
- 14 per cent say they are carrying debt on their loan
“With today’s low interest rates, there is an opportunity for retired Canadians to review their monthly cash flow and make progress in paying down their debt. Although future interest ratechanges can’t be predicted, being on a fixed income means any interest rate increases will have a greater impact on your monthly cash flow for those retired Canadians carrying debt,” explained Christina Kramer, Executive Vice President, Retail Distribution and Channel Strategy, CIBC.
“These poll results clearly illustrate the importance of having a good debt repayment strategy in all phases of life, particularly as you approach retirement” adds Ms. Kramer.
So what can retired Canadians do to resolve their debt?
Stop using credit to make purchases. Retired individuals on a fixed income should not finance their spending with credit. Such loans should be the last resort to make any purchase as the possibility of the loan being repaid in full is less likely.
Prioritize paying off the high-interest debts first before the lower-interest ones. It just makes sense to unload the loan charging the highest interest as soon as possible.
Use Budget planner to help keep your spending in check. Many personal finance websites offer budget tools you can download for free.
Consult with a debt management firm to help you resolve your debt at a reduced repayment amount. If repaying a debt in full jeopardizes a person’s ability to survive, a reduced repayment plan is the best option. In other words, if a person’s ability to afford shelter and food is thwarted by a debt owed, the person has a responsibility to him/herself to seek professional help to have the debt negotiated and resolved..
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