Are You Financially Prepared To Retire Debt Free?

2017-11-30   minute read

Sandra Landry

Lifestyle Debt

Almost everyone looks forward to retiring some day. Many even dream of retiring early. But few have concrete plans for how that will look or what they need to do to get there. Unfortunately, at the rate most Canadians are going, early retirement looks out of the question and age 65 doesn’t seem likely either. Whatever you want to do and however you want retirement to look, none of it is achievable without a clear and actionable plan.

Here’s how to determine whether you’re financially prepared to retire and how to ensure you’ll be debt free when that time finally comes:


Income Reduction

It seems obvious, but living on a fixed income is incredibly challenging. Whatever you’ve set aside in RRSPs, company pension plans, investments and savings will need to last you for the rest of your life. That could be 30 years or more. So, you’ll want to consider what you can reasonably draw on every month to maintain an adequate standard of living and finance all the activities that make retirement worthwhile.

It is also important to decide when you will begin drawing on government benefits, as the payment amounts will be different for each year after you become eligible. You may begin receiving Canada Pension Plan benefits as early as age 60 and Old Age Security as early as age 65. Alternatively, you can defer both until you’re 70. Though you will receive more money the longer you wait, you’ll need to find the balance between maximizing your earnings and making the most efficient use of your savings.

Expense Changes

Following a dramatic shift in your lifestyle, your expenses will also undergo a significant change. Ideally, your life will become less expensive. Hopefully your mortgage will be paid off. Perhaps you’ll even downsize to a condo or apartment to save on energy costs and property taxes. You won’t be driving to work every day so you’ll also save on fuel and insurance costs.

However, you will also encounter new expenses. If you would like to travel or spend more time on the golf course, for example, these activities will need to be accounted for. As you age, you will also invest more in healthcare, such as prescription drugs or mobility aids. You may even require expensive supported living in your later years. Unfortunately, those all tend to be extremely costly.


Your retirement is meant to be a time to relax, enjoy life and celebrate the fruits of your labour. Having your limited resources held hostage by one or more creditors achieves none of that. While debt is never ideal, managing it is exponentially more difficult after you retire. Working overtime is no longer possible. Taking on a part time job is not ideal and cutting expenses or making short term sacrifices negate the benefits of retirement, which you worked your whole life to achieve. Besides, given your fixed income and unpredictable expenses, can you really afford to keep paying interest charges every month?

In a perfect world, you will not retire until you’ve freed yourself from all your debts — including credit cards, lines of credit, mortgages, car financing and personal loans. Even if that means delaying by a few years, you’ll be better off for it in the long run.

Make a Plan

Whether you’re 26 or 62, it’s never too early or too late to start planning for retirement. Create an outline of what you want your life to look like. Go into as much detail as possible. This will give you freedom to make changes as your situation becomes clearer and allows you to control how your golden years will look.

Timeline – When would you like to retire? Write down a specific date 30, 10 or even five years in the future. Work backwards from there to establish definitive checkpoints to mark your progress.

If want to retire by age 65, start by setting a goal to cut your debt in half by age 45. Next, figure out when you want to reach half, three quarters and 100% of your retirement savings goals. Decide when you could reasonably pay off your mortgage and remaining debts. Finally, establish when you’ll start drawing Canada Pension Plan and Old Age Security benefits.

You may want to add even more detail to make your plan as robust as possible. The more specific and granular the timeline, the more likely you will hold yourself accountable and the better your chances will be of reaching (or even surpassing) your goals.

Income – How much income will you require to maintain a reasonable standard of living throughout your retirement?

Multiply your expected monthly post-retirement expenses by 12 and then multiply that by the number of years you hope to live past retirement — that’s what you need to save by the time you retire. Divide that by the number of years between now and your expected retirement date, then divide by 12. That is how much you need to put away every month to reach your retirement goal.

If you anticipate needing $3,000 per month for living expenses, hope to live for 20 years past retirement and have 25 years until your desired retirement date — not accounting for government benefits, you will require a retirement savings of $720,000. To meet that goal, you will need to save approximately $3,000 every month.

Budget – How do you plan to hold yourself accountable to your timeline and savings goals? A budget is just as important for long-term planning as it is for keeping your monthly spending in check. When you draw out your monthly budget, add separate line items specifically for debt-reduction and retirement savings. Contribute your retirement savings to an RRSP, mutual fund or investment account. Make debt payments directly against the principal value, starting with the smallest debt first.

In difficult months, it may be tempting to “borrow” from these baskets to offset shortfalls elsewhere, but remember your future self is counting on these investments. Your next checkpoint is just a few short years away and falling short is not an option your 70-year-old self can live with.

Help is Available

Even the best plans can get sidetracked. If you feel like overwhelming debt is getting in the way of your retirement goals, don’t give up hope. A Licensed Insolvency Trustee can help. During a free confidential consultation, we will review your current financial situation and provide unbiased advice so you can determine the option that’s best for you. Whether you qualify for a Life-Changing Debt Solution such as a consumer proposal or bankruptcy, or you just need to be pointed in the right direction, it is possible to defeat debt and work toward the financial fresh start you need.

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