Debt in Retirement May Not Be a Bad Thing

The percentage of Canadians who go into retirement with debt is hard to pin down. A paper released by Statistics Canada in 2011 maintains the number as being 1 in 3 retirees, where a more recent Harris Decima poll conducted by CIBC places that figure much higher at 59%. Whatever the number is, the fact is that significant amounts of Canadian retirees are not able to retire debt-free.

Kinds of Debt and Reasons for It
The kinds of debt that most retirees are carrying, according to the Harris Decima poll, are lines of credit and credit cards. The StatsCan paper predictably found that those with a lower net worth were more likely to carry debt into retirement, but also found that homeowners of any income level were 37 percent more likely to have debt when they retire. This was for various reasons, but holding a mortgage was definitely one of them. StatsCan stated that “As expected, having mortgage debt was a significant and positive factor in the probability of holding consumer debt.”

Retirement Debt Isn`t a Bogeyman
While the ideal situation entering into retirement is to be debt-free, life does not routinely present us with ideal situations. Divorce, medical leave from work, starting a new business, and unexpected financial obligations of any kind can dig in to the retirement savings of Canadians. But the question remains for many retirees; what level of debt is acceptable to retire on? This financial planner says that the amount of debt you are willing to accept is far less important than what you are willing to do. Don’t sell the cottage in your golden years when you could be enjoying it when a small amount of financing will be enough to keep the property taxes on it going.

Half of Retirees With Debt Don’t Owe That Much
That being said, it’s nice to have a figure to shoot for. Around half of the people who chose to retire with debt owe less than $25,000, including their mortgages, so retirees do look to carry as little debt into retirement as possible. As with any other major financial decision, you have to do your math. Will your investments and retirement savings allow you to include debt servicing in your retirement plans? If the answer is yes, you can definitely retire with debt. However, you do want to plan to pay it down as much as possible heading into retirement.

Reverse Mortgages and HELOCs Viable Options
If you are looking at heading into retirement with debt, consider how much debt you have and think about paying it off with a reverse mortgage if it is over $10,000. If it is under $10,000, consider converting your debt to a home equity line of credit (HELOC) to save on interest payments. The reason for this is that a reverse mortgage does offer a better rate than most HELOCs, but does have costs associated with it such as closing costs, legal fees, and appraisals. Even with those costs, low interest rates are making reverse mortgages more attractive to many Canadians. If you can eliminate your debt, you may be able to retire earlier.

Contact Horizon Equity today for more information about the CHIP home income plan and see if we can help make your retirement dreams a reality.