What to do if you outlive your retirement savings

Shannon works full-time in a public sector role that offers benefits and a small pension, and her husband earns a decent living from his job. But thanks to Canada’s high cost of living and a recent string of unexpected expenses, the couple struggles to make ends meet—let alone save for retirement. “We have good educations and somewhat good jobs,” she says. “But at the end of the month, there’s not much left over.”

Canadians today are living longer than previous generations, and not everyone has the financial means to support themselves throughout retirement. According to the latest data from Statistics Canada, 6% of Canadian seniors lived below the poverty line in 2022. And at present, nearly 8% of food bank clients are seniors. 

Between inflation, economic uncertainty and other factors, it’s reasonable to expect these numbers to rise rather than fall in the years ahead. These challenges have created instability for many seniors in Canada, as well as their adult children, who may feel obligated to step in and give financial support.

Planning ahead, saving and investing are critical to a successful retirement, but what if your opportunity to build a nest egg has passed? Many Canadians aren’t able to save enough to live comfortably in their older years. And those who do may run out of money for another reason: a flawed financial plan or money mistake, a serious illness, an expensive divorce, a tendency to overspend, or simply living longer than expected. 

So, while it’s true that some Canadian seniors actually underspend in retirement—out of fear of not having enough or because it’s hard to break old financial habits—others don’t have sufficient savings or run out of money over time. For Canadians in the latter camp, these financial strategies can help keep you afloat. 

File your taxes

One of the first things seniors should do is file their taxes accurately and on time, says Jackie Porter, a certified financial planner (CFP) in Toronto. “If you’re a low-income earner who isn’t filing their taxes, you’re missing out on all sorts of benefits. It’s one of the worst things you can do financially.”

In addition to the Canada Pension Plan (CPP) and Old Age Security (OAS) pensions, there’s the Guaranteed Income Supplement (GIS), which provides monthly payments to low-income seniors. If you file your taxes on time, you’ll be automatically enrolled for the GIS starting at age 65, and receive tax-free payments on a monthly basis. (Cheryl is too young to be eligible for the GIS, but she should qualify in a few years.) If you believe you should be receiving the GIS, you can apply online.

Seniors should also take advantage of the tax deductions specific to their age group and income level, such as the age amount tax credit. You may even qualify for support from a free tax preparation clinic in your region.

Reconsider your budget—and maybe your living situation

Having a clear understanding of what goes in and out of your bank account every month can also help, Porter says. (Try this free budgeting template.)

Take a good look at your budget and cash flow. Answer this question: does your income (including CPP and OAS and other government payments) cover your fixed and variable expenses? Expenses can include rent or mortgage payments, insurance premiums, car payments, groceries, entertainment, etc. If your income falls short of your expenditures, establish a budgeting goal based on the gap that you’ve identified. 

While young and middle-aged Canadians may be able to work part-time or monetize a hobby to increase their income, Porter recognizes that this isn’t always realistic for seniors. Instead, older Canadians should focus on reducing their living expenses. This may involve lifestyle changes, like limiting your discretionary spending, or more dramatic actions, like making changes to your living arrangements. 

Some Canadian seniors may be able to share an apartment with a friend, rent a room in a shared house, or move in with a family member. Government-funded housing may also be a viable option—check with your municipal and provincial representatives to see what’s available for your age and income level. For example, here’s an overview of the housing programs in Ontario and in British Columbia. 

If you’re a candidate for geared-to-income housing, start the process now, Porter advises. “It can take quite a while—the sooner you get on a list, the sooner you have the opportunity to get in.”

After years of being on wait lists for affordable housing, Cheryl gained access to geared-to-income housing shortly after turning 60. Shannon says there were specific spots available in her city for seniors on disability. “So after [my mom] turned 60, she was able to immediately move in somewhere.” 

Own a home? Tap into your home equity

While many low-income seniors rent or live with family, a reverse mortgage may be suitable for those who own a house and have equity in the property. 

Here’s how it works: If you’re 55 or older, you may be able to borrow up to 55% of your home’s appraised value. These funds are tax-free and can be received in a lump sum or monthly installments. Interest is charged on all borrowed funds, but the balance isn’t typically due until the home is sold or until the last surviving home owner dies (whether that’s you, your partner or a property co-owner).  

There are pros and cons to a reverse mortgage, but it’s a fairly safe option for many seniors, according to Porter. “You lose the flexibility of having that equity in your home, but you’ll gain access to cash that you need,” she says. “So, it’s about how much cash you’ll get and how long that cash will cover your financial needs.” 

For this scenario to work well, the home owner must have a reasonable amount of equity in their home, and they must be willing to give some of it up to access funds from their lender. Having a reverse mortgage likely means leaving fewer assets and a smaller inheritance to beneficiaries, but Porter says it’s a common option in Canada and is a good fit for many families.

Leverage the cash value of a life insurance policy 

Some seniors hold a term life insurance or whole life insurance policy. The latter can be a useful asset for seniors who don’t have savings in the bank. A whole life policy may have significant cash value you can access or use as collateral for a loan from your insurer. 

Cashing out the policy means you’ll have some money but no life insurance, while borrowing against the cash value means you’ll get a loan while retaining the policy. Taking out a loan means “there’s still something to leave behind for your beneficiaries, if that’s important to you,” notes Porter. 

You may want to get objective professional advice from an advisor or government support office before determining if this strategy is right for you.

Lean on community resources

Lowering your expenses and sticking to a budget may be sufficient for some Canadian seniors, but others will need additional help. Check out community groups and organizations that provide food, clothing and other necessities to those in need. For example, many churches offer weekly community dinners and/or clothing banks. You may also want to contact your local United Way of Canada branch or other non-profit organizations that offer help to seniors.

Should you ask your family for financial help? 

While you may be tempted to ask adult children for financial support, Porter generally doesn’t recommend taking that step. In her experience, it’s not usually necessary, either, because the younger generation tends to initiate. 

“The last thing most seniors want to do is be reliant on their children,” she says. “They want to maintain their independence. So oftentimes, it’s not the senior family member who asks for help—it’s their kids who recognize the need and step in.” 

In Shannon’s case, this has proved true: she was 29 and raising her daughter on a modest income when her mother first moved in with her. “I just saw the need,” Shannon says, adding that she continues to buy groceries and other necessities for her mom. 

Her actions, while generous, have caused some resentment. Shannon admits she worries about the rising cost of living, raising a child and her own retirement plans. “The amount of support and care mom will need in the years ahead is daunting,” she says, noting that her mom is still relatively young. “We’re just trying to figure it out.”

Read more about retirement planning:

• Why “unretirement” may be the fate of so many Canadians
• Do retirees need life insurance?
• How your net income gets calculated for tax and OAS
• OAS payment dates in 2025, and more to know about Old Age Security

About Erin Pepler

Erin Pepler is a freelance writer based in the Toronto area. A frequent contributor to MoneySense, she is also the author of Send Me Into The Woods Alone: Essays on Motherhood.