Don’t Let Debt Delay Your Retirement Plans

The baby boomer generation is the most debt ridden in history.  My husband and I have had plenty of experience with debt.  We’ve had two mortgages and a home equity line of credit, numerous credit cards, and made more than our share of car payments. 

Have I ever been debt free? Yes, the first 18 years of my life!

Now that we’re retired though, we’ve reached that state of equanimity once again.  Yet according to the Statistics Canada 2016 Survey of Financial Security, almost 74% of people aged 55 – 64 are carrying some debt with 14% still holding mortgages going into retirement.

Apparently, being debt free in retirement isn’t always the ultimate goal.  But many people approaching retirement may be delaying those plans due to their debt loads.

Why so much debt?

The boomer generation has lived in a culture of spending and are not generally known for thrifty living. They have always had a more casual attitude towards debt than their frugal parents who lived within their means. They borrow to consume.

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). Increasing real estate values have encouraged them to take out bigger second mortgages and lines of credit to help pay for household improvements, as well as their offspring’s education and down payments on homes.

Unrealistic expectations

According to the Globe and Mail, retirees believe their cash flow will be enough to service their mortgage and other debts.  That may be true for those who expect substantial defined benefit pension payments.  For others that assumption can be quite risky.

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.

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.

Even if you can currently afford it, there’s no way of knowing if the payments will stay the same.

Related: 5 Myths About Retirement Planning

Debt can drain your fixed income

When looking at your retirement plans you need to employ sound money management practices.  This includes reducing your obligations – including your mortgage – as much as possible before you retire.

Debt payments will place unnecessary demands on your income, which most likely will be fixed once you reach retirement.   Consider the drain on your cash flow.  This can have a real negative impact on your lifestyle.

A solid plan to be debt-free leaves you free to spend more of your money as you wish.

The bottom line

It used to be rare to retire with a mortgage or other debts.  But carrying debt into retirement is a dangerous move that can imperil your financial future and drain your retirement savings too soon.  It’s a sure way to outlive your money.

Plans for eliminating debt should be part of your overall retirement planning strategy.  And the faster you pay it off, the more money you will have to work for you.  This is one of the best investments you can make.

It may be hard to learn to live within your means, but it will be even harder to learn to live with no means at all.

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