If you are retired, you probably find that the weight of inflation weighs heavily on your finances, to such an extent that you have to take on a little more debt each month to manage to balance your budget. Unfortunately, you are far from being an isolated case…
Thus, according to the latest survey published by the credit agency Equifax, the indebtedness of Canadians continues to grow.
So much so that average non-mortgage debt is nearing $21,200 per consumer, levels not seen since the start of 2020.
A spreading plague
More than half of those surveyed said they worried about not being able to pay everyday bills and rent, especially those aged 65 and over.
More retirees than ever are knocking on the doors of firms of licensed insolvency trustees, says Éric Lebel, partner, turnaround and insolvency at Raymond Chabot.
“We are seeing accelerated growth. Today, one client in 10 is over 65,” notes the licensed insolvency trustee.
A trend confirmed by statistics from the Office of the Superintendent of Bankruptcy of Canada. According to these data, in 2021 consumers aged 65 and over represented more than 15% of insolvency files in Quebec. In 2014, this rate was only 10%.
What explains this sharp increase? Éric Lebel points out that retirees who consult his office may face various difficulties.
“For example, they weren’t able to contribute enough to their RRSP during their working life. They have to live on government pensions alone, which is not always enough. In addition, income decreases in retirement, but basic expenses remain the same, and they will use credit cards to compensate for the shortfall, ”he illustrates.
Other frequent cases: the death of the spouse which places the survivor in a precarious position, but also a divorce or a separation. Health problems leading to costly expenses can also precipitate the retiree into financial problems.
Precautions to take
To avoid finding yourself in a precarious situation at retirement, you should ideally arrive debt-free at this stage of life.
“We should even stop using credit a few years ago, in order to have eliminated all of our debts when we have left the labor market,” recommends Éric Lebel.
He also reminds us that making a budget based on real income and sticking to it is the best way to avoid getting into debt.
To avoid being tempted to use your credit cards, close your accounts and keep only one card that you will use only when necessary. Pay off the full balance and not just the minimum payment before using it again, so you don’t have to pay interest charges.
If, despite everything, you find yourself in a situation of insolvency such that you must consult a trustee, he will generally offer you two options: bankruptcy and a consumer proposal. With the latter, you will have to repay more to your creditors than if you had gone bankrupt, but some people prefer this solution for a matter of pride. However, remember that in either case, your credit report will be badly damaged. And once you have left working life, it is extremely difficult to rebuild your credit. The ideal is not to go that far!
- Even if you are retired and no longer have employment income, do not neglect to file your income tax return. In fact, you will be able to claim the credits and deductions to which you are entitled, while splitting your income with your spouse if applicable, which will be advantageous for tax purposes.
- Are you taken by the throat and considering consulting a licensed insolvency trustee to declare bankruptcy or file a consumer proposal? Know that in both cases, your retirement income is protected. RRSPs are also exempt from seizure, with the exception of contributions for the last 12 months.
- Retirement must be prepared well in advance: you must start as soon as possible to benefit from the multiplier effect of compound interest. A small amount accumulated over a few decades will be a pretty penny in retirement.