Retired and in debt? Here’s what you can do

Debt in retirement is more common than you’d think. The rising cost of living, healthcare expenses and financially assisting children or grandchildren can quickly create a deficit. Before reading our recommendations, bear in mind that debts do not define your value and it’s never too late to act.

How to regain control and reduce your debts?

1. Don’t dip into your RRSPs

   Regardless of how tempting it is, withdrawing money from your RRSPs to pay off your debts is not generally a good idea. These savings are for your retirement. If you withdraw funds too early, you could end up with a high tax bill and penalties.

2. Clear the most costly debt first

   Concentrate on paying off the debt with the highest interest rate first. This usually includes debt from credit cards and department store cards. Their interest rates can be as high as 24%. If you make only the minimum payment, the interest costs will be extremely high.

3. Set a realistic budget

   Make a budget that aligns with your retirement income. This requires listing all your cash inflows. What are your sources of income? A few examples are:

   • Old Age Security (OAS) pension.
   • Québec Pension Plan (QPP).
   • Employer pension funds.
   • Personal savings (RRSPs and TFSAs, for example).

   Then divide your expenses into two groups.

   Essential expenses:

   • Rent or mortgage payments.
   • Electricity and heating.
   • Groceries.
   • Prescription drugs and healthcare.
   • Insurance.

   Non-essential expenses:

   • Cable TV and streaming subscriptions.
   • Hobbies, outings, restaurants.
   • Gifts.
   • Travel.

   Pinpoint where you can cut back without completely depriving yourself. Changing your TV subscription, shopping around for insurance or cooking more meals at home can sometimes make a huge difference. You may find our free online budget tool useful.

4. Negotiate with your creditors

   Many people are hesitant to call their creditors (the people or banks they owe money to). However, it’s often the best thing you can do.
   Calmly explain your situation. You could be offered:

   • An interest rate reduction.
   • A temporary payment holiday.
   • A repayment plan with reduced debt or lower payments.

   Banks prefer to help clients rather than handing files over to debt collectors. Try it and see! You have nothing to lose.

5. Protect your income and assets

   Many retirees are unaware that certain income is protected. For example, your pension funds and retirement plans cannot be seized. In most cases, your RRSPs and RRIFs are also out of the creditors’ reach.

   Our Licensed Insolvency Trustee will explain everything. They will also go over how to retain your essential assets (car or furniture, for example) even if you file a consumer proposal or file for bankruptcy.

6. Seek professional help

   If your debts have piled up, don’t wait until you’re at the end of your rope. Our insolvency counsellors can help you to find a solution that’s tailored to your reality.

   Here are the main options available.

   • Debt consolidation which involves combining your debts into one payment that often has a lower interest rate.
   • Consumer proposal which allows you to repay a portion of your debts based on your means without losing your assets.
   • Personal bankruptcy where you start over if your situation is unsustainable.

   Our Licensed Insolvency Trustee will explain your rights and help you to choose the most advantageous solution. Your first no-obligation meeting is free of charge.

Act now!

Many seniors keep their financial problems to themselves because they feel ashamed or don’t want to worry their loved ones. However, seeking help and discussing your debts is the first step towards regaining control. You deserve a peaceful retirement without fearing calls from creditors.

Whether you’re retired or planning your retirement, our advisors will listen without judgment and help you regain your peace of mind. Don’t wait any longer. Make an appointment with an insolvency counsellor at Raymond Chabot.