Conventional wisdom – and a good rule of thumb – suggests you should not have any debt when you retire.

However, a recent Globe and Mail article reports that people are more comfortable with carrying debt into their retirement years than past generations and that more than half of all retired Canadians are carrying some debt.

A survey by Equifax shows consumer debt rose by 6.5 percent among people 65 years of age and older.

Related: Things to consider when you turn 60

Apparently, being debt free in retirement isn’t always the ultimate goal.

Sufficient cash flow

According to the Globe, retirees believe their cash flow is sufficient to service mortgage and other debt.

One commenter remarked that he spent his discretionary working income on trips and enjoying life while he could.  Instead of paying off his mortgage he put money into his pension and retirement accounts and now has a good nest egg to live off.

He makes a good point that if you wait until retirement to enjoy the good life, health may become an issue and not allow certain activities such as travel, and insurance is expensive.

Using mortgages as a financial tool

For many there is an emotional component behind the desire to live in a home that is owned free and clear.  For others, whose homes can be 50 percent or more of their assets, refinancing mortgages and taking out Home Equity Secured Lines of Credit makes financial sense and can fund a wide range of expenses.  Lines of credit have seen the biggest growth increase.

One financial planner with Investors Group suggests that a client with sufficient investments to pay cash for a property may choose to use a mortgage instead of cashing in their portfolio, which could trigger increased income tax payments or other fees.

Related: Are you expecting an inheritance?

People are borrowing to fix, renovate, or make their homes “aging-in-place” friendly.

Some people are passing funds on to children so they can buy their own places.

Unexpected expenses due to health are huge financial issues for some.

Financing your lifestyle

Alarmingly, many people are using credit to finance their lifestyle by using it for income replacement.  Those who have used borrowed money to live well in the past are now carrying those same habits into retirement.

Related: Does a reverse mortgage make sense for seniors?

Lines of credit, especially, are so easy to dip into.

Low interest rates

People are taking advantage of low interest rates that make mortgage and loan payments more affordable.  But, even if you can currently afford it, there’s no way of knowing if the payments will stay the same.

We tend to assume that the stock market will rise forever, and interest rates will remain low, but make no mistake about it, it will come to an end.  It’s a question of when – not if.

The danger with rising interests rates is, the more you owe, the higher your payment.  A $75,000 line of credit that requires interest only payments will cost you $188 a month at the current 3 percent.  At 4 percent the payment increases to $250 and at 6 percent it goes up to $375.

If your income is not sufficient you may have to withdraw more from your RRSPs to cover the increased debt payments, resulting in a higher taxable income and the potential for OAS to be clawed back.

Related: What’s all this retirement planning for, anyway?

Or you may be forced to go back to work.  Not a happy prospect when you are in your 70’s and moving a little slower than previous years.

Another danger is, if payments increase, creditors may call in loans or trim the size of allowable credit.


Freedom in retirement used to mean growing old without having to work or owe money to the bank.  Retirement means adapting to living on a fixed income.  One survey suggests that managing day-to-day expenses is the number one financial priority.

However, unpaid mortgages are becoming the norm for many seniors with some retirees adding even more mortgage debt.

People who are expecting to live longer and healthier lives are more optimistic about being able to pay back their debts compared to previous generations.

Although retirees have less debt than those still working, they are more likely to be carrying debt over a longer period of time than anticipated, costing more in interest payments and affecting cash flow, discretionary income, and future living standards.

Related: RRIFs (Good God Y’All!) What Are They Good For?

Carrying debt in retirement can be a dangerous move that can imperil your financial future and drain your retirement savings too soon.

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