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Debt and Retirement

By Ryan Brown

Debt and Retirement

Whether retiring at 55 or at 65 years of age, a majority of Canadians will be carrying debt and that debt will be gathering interest for many more years. Waiting until retirement to then start looking to solve debt may seriously limit options; in fact the switch to living on a fixed income makes paying debt harder. So now is the time to get started on looking to the future and the one that you want to be a part of.

“While retired Canadians carry less debt than the national average, their debt could be stagnant and may end up costing them more in interest costs over a longer period of time,” says Christina Kramer of CIBC. “You really have to think about the debt you are retiring with because the regular repayments you make will directly affect the discretionary income you have.”

Preparing for retirement needs to begin years before it actually happens. It is imperative that as much debt as possible be eliminated before your retirement so that you are not forced to take drastic measures later in life. Older age brings with it increased healthcare costs and aging homesteads that may be in dire need of repairs.
In fact, a recent survey from RBC found that Canadians may not be taking retirement as seriously as they should be when it comes to their debt:

• 4 out of 10 Canadians have retired with some form of debt
• 1 out of 4 have entered retirement still carrying a mortgage on their primary residence
• 17% of retirees had consumer or credit card debt
• 7% had other kinds of debt or were co-signers on loans (associates, children)
• 5% had mortgages on investment properties or cottages

The fastest growing area of bankruptcy filers are senior citizens and college-aged persons, and many financial planners are working with their clients to develop 5 and 10 year goals for debt reduction so that retirement is not a time of great stress. No one plans to lose their home or their ability to maintain a lifestyle that they are accustomed to. Once retired do you really want to consider returning to the workforce or selling off the family home? These are all actions that may come into play if you do not take the time to address these issues well before retirement.

Here are 5 tips on how to help steer you onto the right path:

• Take a close look at your current budget and really take stock in where you are and where you need to be.
• Calculate what your post-retirement budget will need to be and how to best set this up. Do not be afraid to ask for professional help, as most of us are not experienced in predicting what the markets will be looking like in 1 year, let alone 5, 10, or 15!
• Do the math on your mortgage. Depending on your interest rate, it may make sense to use a mortgage calculator to figure out how to erase your debt sooner or to consider a cash-in refinancing to a shorter-term loan.
• Stagger your retirement with your spouse. Planning to retire at the same time may seem ‘right’ or ‘romantic’ but the smart thing to do would be to have one spouse work a few extra years, save and postpone withdrawing from your savings/portfolio as long as you can.
• Have adequate life insurance for you (and your spouse) to ensure your estate planning for surviving dependents does not leave anyone with your debt.
• Have your legal paperwork in order. This includes health care Power of Attorney, a Will, and other ownership arrangements for your assets and the transfer of these assets.

Retirement should not be a time of stressing about money and the future. It is a time to slow down and enjoy life. A well-thought out strategy for debt reduction and careful planning, are the first steps to get you there.

About 4 Pillars:

Since 2002, at 4 Pillars Debt Solutions, we have been helping Canadians from coast to coast get out of debt and get on with their financial lives. Our sixty offices across Canada are collectively helping Canadians solve almost $1 million dollars of debt every single day so far in 2016! Since inception, we have been able to help tens of thousands of Canadian families solve billions in debt. Our clients are typically debt free very quickly. We have, what we believe, are the best stats in Canada at helping people become debt free. We are not bankruptcy trustees and we do not take funding from creditors. We represent solely the interest of our clients!
We help our clients retain assets, improve cash flow, and get out of debt.

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