Debt-to-income ratios among Canadians are currently at record high levels. Most retirees live on fixed incomes, so they are vulnerable to unpaid debt. The percent of retirees over the age of 65 with a mortgage on their primary residence and the percent with credit card debt have both increased over the past few years, according to the 2014 Canadian Financial Capability Survey that was cited in a recent report by the Financial Consumer Agency of Canada.
It is important to know — or at least have a good idea about — what income you can expect to have during your retirement. The following are some general numbers, but you can get more detailed information by going to the Government of Canada website and checking out Canada Pension Plan (CPP) and Old Age Security (OAS). In 2017, the average CPP was $653.27 per month (the maximum was $1,114.17) and OAS was $585.49 monthly or $874.48 with the Guaranteed Income Supplement (GIS). The amounts vary depending on your earnings, yearly income, marital status, etc. Plus, you also could have a company pension, Registered Retirement Savings Plan (RRSP), Tax-Free Savings Account (TFSA), and other savings that may contribute to your retirement income.
Money management and planning for retirement are important. You want to live comfortably when you retire and have the financial freedom to travel or do other things you didn’t do as much of when you were working. But if you are servicing debt, you will have fewer funds available for the extras. If you can retire debt free, you will have more choices on how you spend your money to enjoy your retirement goals. What can you do to be debt free at retirement?
Start saving for retirement as soon as you start working.
The longer you are saving, the more your funds will compound, even if you need to decrease the savings amount during the childrearing years. RRSPs encourage us to save now by offering tax assistance in order to replace earnings that stop in retirement.
Max out your TFSA every year.
This is a general-purpose savings tool that allows you to earn tax-free investment income that can complement your RRSP. If you can’t contribute the maximum every year, you can top it up at a later date.
Incorporate budgeting into your ongoing financial planning.
Budgeting promotes financial wellness. At Credit Canada, we offer budget and credit counselling by our certified counsellors as well as tools for creating the right budget plan for you and your family.
Consider your housing needs carefully from the very beginning.
Why not have a goal of becoming mortgage free? It is an achievable goal. Do you really need the house with five bedrooms, five baths, and a library? Plan for what you need. Your mortgage takes a large part of your earnings and your retirement income is going to be less than your working income.
Use credit wisely along the way.
Why carry debt into retirement? It can be easy to pay the minimum only on your credit card, but doing so could take you well into your retirement years. To pay off your credit cards sooner, check out our debt calculator to see how you can repay the balances sooner by increasing your monthly payment. Decide on a strategy to pay off your debts.
You may want to delay your retirement by a year or two in order to pay off the outstanding debt you are carrying. Make good use of the money you earn at this time.
Learn to say NO.
You aren’t the bank of Mum and Dad (or Grandma and Grandpa). Helping your kids/grandkids too much can affect your savings. After all, you need to look after your upcoming retirement needs.
A financial planner or advisor can assist you in determining your retirement needs.
These professionals also can help you figure out what you can do to have the funds you need to retire. Remember, knowledge is power.
Financial knowledge, skills, and confidence are very important to your overall well-being. Increasing these will improve your retirement living standards. You can’t wait until your 59th or 64th birthday to start planning for your retirement. You should be planning ahead as you move through life.
Making use of free expert advice and tools is an important part of retirement planning. You can retire debt free if you plan ahead.
About the Author