Eliminating Debt Before You Retire

Most of the time when we think about preparing for our retirement years we generally think about saving; typically in our RRSPs and Pension Plans.  However, when planning for retirement eliminating your debt is just as important as creating an income stream.

The number of people retiring with debt is increasing every year.  In 2010, the number of people that carried debt into retirement was 40%, by 2012 this number increased to 59%. 

Debt and savings are two sides of the same coin.  If you have debt in retirement, your principal and interest payments will have to come from the same pool of money you are using to fund your retirement income. 

According to a recent homeowner survey, many Canadians do not feel confident they will be debt free by the time they retire.  In fact, 80% of those who have debt indicated it was very important to be debt-free by the time they retire, however only 56% feel confident they will actually achieve this goal.

What would you do if you were approaching retirement and still had debt?

Just under half of homeowners (47%) indicated they would continue working until the debt was gone, while 45% said they would retire anyway.  Whether you’d choose to continue working or not, incorporating a debt repayment plan as part of your overall financial plan will increase the likelihood of you becoming debt-free by the time you want to retire.

The good news is you can make a lot of progress in five to ten years, especially with changes to how you structure and manage your debt.  And, once you are debt-free, you can focus on the other aspects of your finances to prepare for a comfortable retirement.

What to do?

If your only debt is your mortgage, taking advantage of any pre-payment privileges is a great first step.  However, if you are like most people you are probably carrying several debts in addition to your mortgage, credit card and home equity lines of credit are the most common (60%).  As a society we have too many types of debts, and we tend to transfer debt from one source to another never really paying it off.   In addition, we tend to let the interest rate tail wag the dog; most people don’t realize the amortization on their mortgage is a much bigger expense than the interest rate cost.

If any of this sounds familiar, it is time to get the vicious cycle in the right direction.  I have recently upgraded by skills to include a Cash Flow Management process that will help you become debt free in a much shorter period of time.  If you want to feel more in control of your money and pay off your debts before you retire, give me a call.

Have a great weekend,

Tracey

 

 

 

 

 

Sources:  Manulife Solutions Fall Edition 2013, Stephanie Holmes-Winton, creator of the Money Finder