Managing your debts before you retire – Real-life Case

People spend less money in their retirement years, but they also earn less. Ideally, you should reach retirement with as little debt as possible.


When retirement approaches, expenses are reduced, but so is your income. Ideally, you should aim to start your retirement with as little debt as possible. “People who are nearing retirement are increasingly in need of debt management assistance,” says Pierre Fortin, President of Jean Fortin & Assocés.

To explore this issue, this financial expert presents the real-life case of Lise and Jacques, who turned to the services of Jean Fortin & Associés to resolve their debt problems and make their impending retirement financially less stressful.

What are the warning signs of financial difficulties before retirement?

Lise and Jacques are 60 and 63 years old, respectively. Following a failed business venture in 2017, they were forced to sell their house and take on some debt. They have been renting since then and have found a certain balance in their budget. However, they still owe the government $25 000 for unpaid sales taxes in their business, which they must repay $1,200 per month, in addition to their 2 credit cards totaling $12,500.

Their two salaries were sufficient to maintain this precarious balance until chronic back problems recently forced Lise to quit her job. With this loss of income, they are now unable to meet the monthly payments of $1,575 for their debts. This situation worries them, especially since Jacques is set to retire in 2 years. They have retirement savings (RRSPs) amounting to $68,000, which will provide them with a supplementary retirement income for two people but not excessively so.

They considered using their RRSPs to pay off all their debts, but even if Jacques works until he’s 70, he will never have enough time to financially recover that amount.

The 4 biggest financial concerns of potential retirees who are in debt

  1. Is it too late to settle my debts before my retirement?
    No, but it’s important not to put-off taking action. The sooner you act, the more options will be at your disposal.
  2. Should I withdraw my RRSPs and savings to pay-off my debts?
    This solution is possible; however, before cashing out RRSPs, it’s important to consider the tax implications and long-term consequences on your retirement income. Discussing this with a professional will give you a clear picture.
  3. What are the consequences of debt consolidation, a consumer proposal, or bankruptcy approaching my retirement?
    Since each option has its own advantages and disadvantages depending on each individual’s situation, the best way to understand the pros and cons is to consult a personal finance advisor like those at Jean Fortin for a free analysis.
  4. Should I postpone my retirement if I have too much debt?
    Few people want to delay their retirement, but there may be solutions to your debt load that would allow you to avoid doing so. A consultation with a personal finance advisor like those at Jean Fortin will help you understand your options and make an informed decision.

What to do when you believe you can no longer settle your debts as retirement approaches?

There is no perfect timing to experience financial problems, but there are certainly worse times. Pierre Fortin mentions that “as we age, we are more at risk because our ability to maintain our income and rebuild a financial cushion is more limited.” Lise and Jacques made the decision to share their challenging financial situation and questions with the professionals at Jean Fortin & Associates.

After an initial information session with an advisor in their area, here are the solutions that were evaluated to settle their debts before retirement:

  • Debt consolidation:
    With Lise being off work and the decrease in income when Jacques will retire in 2 years, they will not be eligible for debt consolidation through their financial institution. Considering that a consolidation loan for the amount of their debts would result in a monthly payment of $835 over 5 years, this would be an impossible solution in the present context of reduced income.

    Furthermore, when applying for a loan, it would be harder to convince their financial institution that they would be able to repay it over a 5-year term. Indeed, as in many cases, Jacques has no choice but to retire in 2 years, and even if he finds another job, it may not be as lucrative as his current one. This is without considering the surprises that life may throw in terms of health.

  • A new agreement with the government:
    After Lise stopped working, the couple tried to extend the repayment period for the $20,000 debt, but without success. The solution proposed by the creditor at the time involved cashing out a portion of their RRSPs. To obtain a net sum of $25,000, they would have had to cash out approximately $40,000. Considering that their current RRSP balance will already struggle to cover their retirement income, it was inconceivable to withdraw more than half of it to pay off only part of their debts.
  • Consumer proposal:
    Their insolvency advisor explained that this is an offer submitted to creditors by the trustee and has several advantages when made under the Bankruptcy and Insolvency Act. In fact, a consumer proposal allows for protection against the seizure of any assets (including RRSPs, which become automatically exempt), furniture, a bank account, and salary, even for a creditor such as the government. Furthermore, no interest fees can be charged on these debts.

What is the best financial solution for managing debts as retirement approaches?

After exploring all possible solutions to their debt problems, Lise and Jacques opted for a consumer proposal. Faced with the fact that a refusal of a reasonable offer would lead the couple to bankruptcy, and in the absence of seizable assets, the creditors accepted an offer of $12,000 payable in 60 installments of $200.

As retirement approaches, the elimination of debts should be done as quickly as possible. Otherwise, the closer you get to the ultimate date when incomes drop, the less room you have in your budget for solutions like the consumer proposal. Moreover, as you age, the financial burden of debt can become much heavier to bear, and the risks of discouragement, anxiety, and stress are often greater than when you are in your forties.

“Financial problems tend to cloud one’s vision and make the consumer more pessimistic. Moreover, trustworthy individuals to confide such a personal situation in are rare, which is why seeking advice is important. Sometimes, we can be surprised by the results. This is the case with Lise and Jacques, who can now look forward to retirement in a better light,” concludes Pierre Fortin on an optimistic note.

The names of the individuals have been changed to preserve their anonymity.