Understanding Retirement Debt in Canada
Retirement should be a period of relaxation and enjoyment after years of hard work. However, many Canadians find themselves asking, “Are You Retiring With Debt in Canada?” The reality is that a considerable number of Canadians enter their golden years saddled with financial obligations.
Statistics Canada reveals that one in every three retirees carries some form of debt.
This could range from mortgages, credit card debts, to payday loans. This article aims to shed light on the implications of retiring with debt in Canada, and the possible solutions available.
Interested in planning your financial future? Here’s a podcast on budgeting and saving for retirement.
The Reality of Debt in Retirement
Retiring with debt in Canada is not an uncommon occurrence, and there’s no reason to feel alone or ashamed if you find yourself in this predicament. Unfortunately, retirement doesn’t make your debts disappear. In fact, it often exacerbates the financial strain as your regular income dwindles while your expenses remain more or less the same.
A study shows that only 20% of retirees aged 75 and over have some form of debt. This figure jumps to 48% for individuals aged between 55 to 64. Some Canadians delay their retirement to address this issue, while others look for alternative income sources during retirement to manage their debts.
Contemplating Bankruptcy Post-Retirement
When debts become overwhelming, bankruptcy might seem like an attractive option. However, declaring bankruptcy in retirement isn’t always the best solution. While bankruptcy can help clear your debts, it’s not the only reason people opt for it. It also serves to protect individuals from creditors, preventing wage garnishment and asset seizure.
Retirees typically don’t have a regular wage to protect from garnishment. As such, bankruptcy might not be the most beneficial route. If you’re grappling with significant debt during retirement, it’s advisable to consult a Licensed Insolvency Trustee (LIT). They can guide you through your options, which may include Personal Bankruptcy or a Consumer Proposal.
Impact of Bankruptcy on Pension
A common question among retirees contemplating bankruptcy is, “Will I lose my pension?” The good news is that Canadian laws safeguard certain types of pensions during bankruptcy.
Under the Bankruptcy and Insolvency Act, contributions to Registered Retirement Savings Plans (RRSPs) or Registered Retirement Income Fund (RRIFs) made over 12 months before declaring bankruptcy are protected from seizure. However, contributions made within the last 12 months can be seized. Here’s a list of pension plans exempt from seizure in bankruptcy:
Registered Retirement Savings Plans (RRSP)
Except for contributions made within 12 months before declaring bankruptcy, RRSPs are protected.
Registered Pension Plans (RPPs)
Accumulated funds in an RPP are safe from creditors’ claims during bankruptcy.
Locked-In Retirement Accounts (LIRA)/Lock-In Retirement Savings Plans
Funds in a locked-in registered plan cannot be seized during bankruptcy.
Canada Revenue Agency and Your Pension
While regular creditors cannot garnish your pension, the Canada Revenue Agency (CRA) can. As a government agency, the CRA has more power than typical creditors. For instance, if you have tax debts and receive Old Age Security (OAS), the CRA can withhold some or all of your monthly pension payments.
You have options. You can negotiate a repayment plan with the CRA or consult with your LIT on how best to manage your debts.
Reaching Out to a Licensed Insolvency Trustee
Your retirement years should be a time of enjoyment, devoid of financial stress. If you’re saddled with debt and need support, consider reaching out to a Licensed Insolvency Trustee for a free consultation.
At Bankruptcy Canada, our professional LITs have years of experience helping individuals settle their debts and enjoy their retirement. They offer professional and supportive advice tailored to your financial situation. Don’t let debt cloud your golden years – Contact us today for a consultation. We can help™.
