Concerns about a possible recession are growing for Canadians, especially for those who may be on the verge of retirement as inflation continues to soar, markets decline and the Bank of Canada signals yet another interest rate hike.
According to a new survey, commissioned by debt specialists Bromwich+Smith and financial institution Advisorsavvy, four in 10 older Canadians say they have delayed or plan to delay their retirement because they have too much debt amid cost of living increases.
The survey, which was conducted by Angus Reid and released on Thursday, found that 62 per cent of those aged 55 or older have delayed retirement because they don’t have enough savings or investments.
The survey also found that 63 per cent of older Canadians are worried about never being able to retire, while 71 per cent said they feared running out of money after they retire or having to return to work (24 per cent).
“Canadians are all feeling a bit exhausted from the last two years, between multiple waves of COVID-19 and a tattered economy,” said Laurie Campbell, director of client financial wellness at Bromwich+Smith, in a press release.
“For those close to retirement, 2022 might seem like the best year to do so. But with inflation still high and bank accounts and retirement savings being depleted, it might be wise to ask yourself, ‘Can I retire in 2022?'” she added.
While economists are not sounding the alarm quite yet on a recession, there are some ways older Canadians can prepare for the possibility and ensure they are still able to afford retirement.
Anne Arbor, director of strategic partnerships at the Credit Counseling Society, told CTVNews.ca that the goal should be to retire without any significant debt.
Those currently aged 55 or older may still be carrying debt, Arbor said, and rising interest rates may mean it takes longer to pay it off and get to a point to retire comfortably. She suggest prioritizing paying it off.
“As interest rates are starting to creep up, your cost of just servicing that debt is going to go up and potentially eat into any retirement savings or your ability to be saving for retirement,” Arbor said.
Since an employee pension “isn’t a foregone conclusion for a lot of Canadians” these days, Arbor said those looking to retire are relying on a combination of government benefits, such as CPP and Old Age Security, and personal savings. However, if Canada stays in a prolonged period of inflation, Arbor says Canadians’ personal savings may no longer be enough to sustain people through retirement.
“If you budgeted that you would need X number of dollars to live and saved enough to give you that year over year, but now costs are going up, your money might not last as long,” she said.
For those older Canadians who may have retired within the last few years and are now on a fixed income, Arbor said they will likely have to make “tough choices” regarding their spending.
Arbor said Canadians should think of budgeting like a jigsaw puzzle, treating the corner pieces as basic necessities, such as food, housing and gas first, and then allocating money elsewhere as needed.
“A puzzle has fixed boundaries and you need to know how all the pieces fit together… you can’t take something that’s the wrong size and try and put it in a space where it doesn’t belong,” she said.
Arbor explained that Canadians need to understand their finances and how they all fit together in a single budget that accounts for future retirement.
“If one piece — let’s say your groceries — becomes more expensive and that piece gets bigger, unless your puzzle adjusts to fit that new size, something else has to get smaller so everything else keeps fitting,” she said.
Spending less on non-essentials is one of the key ways for older Canadians to regain control of their finances, Arbour said, as well as cutting costs at the grocery store and taking public transit where possible.
Arbor also suggests speaking with a credit counselor to help assess one’s financial situation and offer advice on where to cut costs. She also says using a budget calculator may be useful.
Arbor said it is “very important” for all Canadians, regardless of age, to understand their personal finances in order to manage their spending and plan for the future.
“You’ll see where your habits are, you might be spending less on some things than you thought you were and potentially more in some areas than others — and where the opportunities are to make some tweaks here and there to be able to weather the storm of inflation,” Arbor said.