Carrying Debt Into Retirement

Many seniors are now carrying debt into retirement.  We are all use to hearing the word “work” referred to as a “4-letter word”.  Nowadays, the new 4 letter word is now “debt”, especially in retirement. Retirees are carrying more debt into retirement, even as they find themselves with static income and ever increasing costs for basic living items.  Statistics Canada says that about one-third of retirees have debt and among those 55 and over who are not yet retired, two-thirds are in debt. While half of retirees with debt owe less than $25,000, about one-sixth of them say they are in debt greater than $100,000.

A 2012 study by BMO found that more than half of Canadian homeowners expect they anticipate carrying debt into retirement with the highest levels generally on mortgages on principle residence. Furthermore, a recent CIBC poll also confirmed that 59 per cent of retired Canadians were carrying some kind of debt with them into retirement.

In past generations, classically, retirees paid off our homes and retired at 65 debt-free. Today this would be the exception rather than the rule. Certainly those entering retirement are still aiming toward the “debt free at retirement” goal, but the reality is that most retirees are entering their “Golden Years” without so much gold… or even silver… and perhaps not much bronze. And what exactly does that mean for those carrying debt into retirement? What happens if we have already pulled the plug on our 9-5 job and still owe money? What are the best ways to protect our savings and pay off our debts without ruining our nest egg?

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Restructuring or consolidating all debts can lower the overall monthly payment but it won’t cut the total amount owed and it may stretch out the payback period. Refinancing high mortgage rates with today’s lower rates can be a huge savings and also reduce stress, especially for people on fixed incomes. Reverse mortgages may be appropriate for some low-income retirees who want to stay in their homes for a few more years, but by deferring repayment of the money borrowed, sometimes for decades, the remaining equity in the home can be entirely eaten away.

Everyone’s goals in retirement are different. Some want to remain in their own homes as long as possible; others don’t mind renting or moving into retirement villas. The main thing is to have a sound financial plan and stick to it. People need to be realistic about their future and all the inevitable uncertainties including rising interest rates. After all, what goes down will always come back up again, and probably sooner than later. Adult children might need financial help or health problems might arise.

If you haven’t accepted the retirement watch just yet and are still carrying debt, you may want to hold onto that job a little longer. if you can work a few years longer, during which time you could significantly pay down your debt, retirement should be delayed. Once retired, with income fixed and with interest rates poised to rise, our options become much narrower and all roads do not lead to Gold. Most of us can live comfortably with our Silver years but not many are looking forward debt laden Bronze.

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