Jul 16, 2026
You’re in your 50s, carrying debt and want to retire in the next several years. Do you throw every spare dollar at your Registered Retirement Savings Plan (RRSP), or do you pay off the debt first?
Equifax Canada identified Canadians aged 46 to 55 as the group carrying the most non-mortgage debt of any age group — an average of $34,775 as of May 2026. Meanwhile, the average Canadian household carried $22,278 according to that same report. For anyone counting down to retirement, that kind of balance can turn a simple plan into a complicated one.
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Let’s consider this hypothetical situation. Stan is 50, has $42,600 in credit card debt and hopes to retire in only one more year. He has one key decision to make: Does he max out his RRSP contributions to prepare for the future, or focus on paying off the debt first?
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What is Stan’s best path forward
Maxing out retirement contributions might feel like the responsible move — but for Stan, or any other Canadian in his position, it’s probably not the smartest first step. Here’s why.
Credit card debt is expensive. The average interest rate Stan sees on his monthly statement runs around 21%. The average interest rate on a standard credit card in Canada sits between 19.99% and 25.99% for regular purchases. At 20% interest, Stan’s $42,600 balance would generate roughly $700 in interest every 30 days.
Paying off a credit card with a 20% annual interest rate delivers a guaranteed 20% “return” — because every dollar you pay off saves you 20 cents in interest charges that you would otherwise owe. No RRSP investment is likely to consistently match that. The stock market’s long-run average return is closer to 7% to 10% a year, and unlike paying off debt, investing always carries the risk of losing money.
There’s one exception worth considering first: an employer match. In Canada, many employers offer a group RRSP or a pension plan with matching contributions — commonly 50% to 100% of what you put in, up to a set percentage of your salary. If Stan’s employer offers one, contributing enough to get the full match is close to a guaranteed 100% return on that money. Beyond that, every extra dollar should go toward the debt.
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The bigger obstacle standing in the way
The debt itself probably isn’t the only thing standing between Stan and retiring next year.
Paying off debt should come before maxing out RRSP contributions — but the next step is to fix whatever created the debt in the first place, such as not having enough liquid savings.
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Without an emergency fund, an unexpected expense often ends up on a credit card, starting the debt cycle all over again. So beyond paying off what’s owed, cutting spending and building an accessible savings cushion — ideally in a high-interest saving account (HISA) — are key to staying out of debt for good.
Reviewing income sources
There’s another wrinkle for anyone hoping to retire at 51 with debt still on the books: Where’s the income going to come from?
In Canada, government retirement income isn’t available right away — and tapping into it too early comes at a permanent cost. Canada Pension Plan (CPP) payments can start as early as age 60, but taking CPP before 65 permanently reduces your monthly payment by 0.6% for every month you collect early — up to a maximum reduction of 36% at age 60.
Old Age Security (OAS) can’t start before age 65, though delaying it past 65 and up to age 70 permanently increases the monthly amount. For someone retiring at 51, that means at least nine years with no government retirement income at all — and claiming CPP the moment it becomes available at 60 locks in a smaller payment for life.
Early RRSP withdrawals don’t come with the same kind of permanent penalty as claiming your CPP early — but they aren’t free money, either. When you withdraw funds from an RRSP before retirement, your financial institution will immediately withhold tax, on behalf of the Canada Revenue Agency (CRA) as follows:
- 10% on withdrawals up to $5,000.
- 20% on withdrawals between $5,001 and $15,000.
- 30% on anything above that.
Withheld amounts are just a down payment on what you actually owe. The full withdrawal gets added to your income for the year and taxed at your full marginal rate when you file your income tax. And there’s another catch: Unlike a TFSA, the contribution room used for that withdrawal is gone for good — the CRA doesn’t let you add it back the following year.
Even with all that in mind, a Canadian in Stan’s position — carrying $42,600 of debt at age 50 — is almost certainly not ready to retire in a year. A more realistic plan starts with paying off the debt, building an emergency fund and then catching up on RRSP or TFSA contributions to build a retirement nest egg that can actually support decades of retirement income.
What Canadians can learn from Stan’s situation
- Pay off high-interest debt before maxing out RRSP. The guaranteed savings from eliminating a 20% interest rate beat almost any investment you’re likely to get.
- Always grab a full employer RRSP or pension match if one is offered. But don’t contribute beyond it until your high-interest debt is gone.
- Build an emergency fund in a HISA — ideally at the same time as paying down debt. Without one, an unexpected expense will likely end up back on a credit card and the debt cycle starts all over again.
- Know your CPP and OAS timing before you choose a retirement date. Starting CPP at 60 instead of 65 permanently cuts your monthly payment by up to 36% — a reduction that lasts the rest of your life.
- Understand what an early RRSP withholding actually costs. Your financial institution will withhold tax immediately, the full amount gets added to your taxable income for the year and the contribution room you used is gone for good.
- Talk to a fee-only Certified Financial Planner (CFP). They can help stress test a retirement date against your real debt load, expected income and government benefit timelines before you hand in your notice.
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Christy Bieber a freelance contributor to Moneywise, who has been writing professionally since 2008. She writes about everything related to money management and has been published by NY Post, Fox Business, USA Today, Forbes Advisor, Credible, Credit Karma, and more.
