How to Navigate High Debt and No Retirement Savings: 5 Steps Towards a More Secure Financial Future

In an economy grappling with inflation and a rising cost of living, all the while still recovering from the COVID-19 pandemic, a pressing issue has emerged for many Canadians, a looming “retirement crisis.” A concerning statistic reveals that 1 in 5 baby boomers (those aged 55 to 64) have no savings to fall back on, with nearly half possessing less than $5,000 in savings.

As for the younger generation? Research has indicated a widespread lack of awareness regarding tax-friendly retirement savings options and strategies. Only 56% of Canadians report having a registered retirement savings plan, and 55% say they need to better understand tax-friendly retirement savings options.

This lack of knowledge around savings, coupled with high debt, can lead to some overwhelming challenges.  

Balancing the need to manage debt while simultaneously building a retirement fund requires careful planning and disciplined financial decisions. In this blog, we’ll offer five actionable steps for those facing this tough financial situation to help chart a path towards a more secure financial future.

Look at your finances

The first step in tackling your financial challenges can often be the scariest one: taking a clear and honest look at your current situation. Create a comprehensive list of your debts, including credit card balances and any outstanding loans. Following this, prepare a monthly budget by calculating your monthly earnings and expenditures to establish a realistic picture of how much you can feasibly allocate towards debt repayment and savings.

Explore debt consolidation

If you find yourself juggling numerous high-interest debts, explore the avenue of debt consolidation. This involves taking out a single loan at a lower interest rate, designed to settle your various high-interest debts. By streamlining your payments, this approach can potentially decrease your monthly debt payment and the overall interest you pay, considerably easing your debt management process.

Start an emergency fund

Despite its seemingly counterintuitive nature while grappling with debt, establishing an emergency fund is crucial to preventing further financial setbacks. Aim to set aside a modest portion of your income each month until you have built up sufficient funds to cover three to six months’ worth of expenses. This financial cushion will prevent you from relying on credit during unexpected circumstances.

Open a low-cost retirement savings account

While the thought of a retirement savings may feel premature or overdue, even in the face of substantial debt, it is a crucial step. Look into low-cost retirement savings options such as a Tax-Free Savings Account (TFSA) or a Registered Retirement Savings Plan (RRSP). These accounts offer tax advantages and can be tailored to align with your risk tolerance. Start small, if necessary. The key is to begin building your retirement fund—every small contribution contributes to your future financial comfort.

Seek professional guidance

Navigating the complex terrain of high debt and no retirement savings can be complicated and intimidating. Don’t be afraid to seek professional financial guidance, which can provide clear and customized strategies. A Licensed Insolvency Trustee can help you create a plan to eliminate your debt so you can afford to save for your retirement.

Managing high debt and a lack of retirement savings is undoubtedly challenging, but it’s not impossible. With planning, patience, and a commitment to both debt repayment and retirement savings, you can gradually turn your financial situation around. By taking proactive steps and seeking guidance when needed, you can build a more secure and stable financial future for yourself and your family.

Ready to explore powerful, forward-thinking debt solutions? Contact the Faber team of Licensed Insolvency Trustees for a free consultation.