Don’t Allow Debt To Derail Your Retirement Plans

Many people approaching retirement may be delaying those plans due to their debt loads.

Boomers are not known for thrifty living. They have earned the title of the “most indebted generation.”

According to a Statistics Canada 2012 Survey of Financial Security, 70% of people aged 55 to 64 are carrying some debt. One-third still have mortgages, 38% are carrying credit card debt and 29% have vehicle loans. The average debt level is $107,900 compared to $60,000 (adjusted) in 1999.

Debt levels for people over 65 has doubled from $31,000 in 1999 to $61,700, with 43% of this age group in debt.

Related: Can this late starter get her retirement back on track?

Credit rating company, Equifax, says seniors, now with reduced incomes, are accumulating more debt to help maintain the lifestyle they enjoyed before retirement. The average debt for consumers over 65 climbed more than any other age group, and people over 60 are the fastest growing age category for bankruptcies.

Don't Let Debt Derail Your Retirement Plans

Why so much debt?

The boomer generation has lived in a culture of spending. They have always had a more casual attitude towards debt than their frugal parents who lived within their means.

“They are used to borrowing money to live well, and now they’re carrying those same habits into retirement, with potentially dangerous consequences.” Gordon Pape


“Because people now live longer and healthier lives, Canadians are more optimistic about being able to pay back their debts as they grow older.” Susan Eng, CARP

Another key reason for having more debt is that more are supporting adult children (or grandchildren) for longer. Increasing real estate values have encouraged them to take out bigger second mortgages and lines of credit to help pay for their offspring’s education and down payments on homes.

Many boomers say their retirement strategy is to keep on working as long as necessary to pay their bills, even if that’s not what they prefer. Others will sell off valuables or downsize their homes.

The great asset transfer

Economists are predicting an inter-generational asset transfer of approximately one trillion dollars during the next several years.

Many boomers are depending on the Bank of Mom and Dad to pay off their mortgage and other debts, as well as fund their retirement.

This is a risky plan. Financial planning experts warn that boomers who are counting on a big windfall to fund their golden years may be in for a rude awakening. The inheritance may not be the pot of wealth that they are counting on.

As individual lifespans extend into the 90’s and past the century mark, living expenses continue for longer periods of time. These expenses can be substantial (retirement residence, home care, medications). Payments come from savings, eating up intended inheritances and resulting in a smaller amount being passed on to boomers who themselves may be in their 60’s, 70’s, and even 80’s before amy money arrives. Taxes can take a bigger bite than the beneficiaries expect.

Consider an inheritance a gift, not a guarantee.

Final thoughts

Many people in their 50’s and 60’s have more debt and little in the way of savings. This means they are facing a reduced standard of living and financial stress in their retirement years. Consider the drain on cash flow that will result from making monthly debt payments.

Monthly CPP and OAS cheques will help, but government support combined with meager savings may not be enough to stay ahead of poverty level.

Do you want to be looking for a job years after retirement to pay your bills?

If you are getting ready for retirement you need to seriously address any debt you have and take the necessary steps to pay it off. It’s not going to take care of itself. Plans for eliminating debt should be part of your overall financial strategy.

This is one of the best investments you can make.

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1 Comment

  1. Ken on March 22, 2017 at 5:25 pm

    Debt doesn’t derail retirement plans; it delays them Unless someone is less than fifty, having non tax-deductible debt is an indicator of not having a realistic retirement plan. Turning an interest cost of $500 per year into income of $500 per year means retiring a debt of say $5000 (with interest of 10%) and saving a further $10,000 if you can earn roughly 5% per year. This is a swing of $15000. If we change the $500 to a monthly amount, we are talking 12 times that or $180,000! This could be done in five years time by socking away $3000 after tax dollars each month
    I was fortunate that I worked for a company wth a defined benefit pension which was a forced saving and provides a comfortable pension. Never a debt fan, I paid off my mortgage as quickly as possible which allowed me to build a small investment portfolio. A couple of years before retirement, real estate prices jumped and I took advantage by downsizing further increasing my investments. One of the things I have learned is that just like mounting credit card debt, once an investment portfolio gets to a certain size it grows quite quickly.
    So for any readers who do have debt as they approach retirement, please make a huge effort to aggressively reduce the debt before retirement and start an investment portfolio which will augment your pension

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