Planning for Retirement? What You Should Know about Debt

When we’re young, we may imagine retirement as a carefree – and debt-free – time. But the reality is that many people are retiring with debt. According to Statistics Canada, in 2009, 34% of retired Canadians 55 or over had mortgages or consumer debt. The rate was even higher among the youngest retirees (those aged 55 to 64), almost 48% of whom had debt. The median amount owed was $19,000.

Without employment income to rely on, that’s a significant sum, especially when you consider that retirees with debt had a median annual household income of $42,000 and a median net worth of $295,000 – that’s not a lot when you consider that this amount includes a home for many people, as well as accumulated retirement savings that need to last many years.

To make sure you’re not hobbled by debt into your retirement, focus on paying down, or even eliminating debt as part of your financial plan — both leading up to and after retirement. Saving is great, and necessary, but reducing debt is also important when looking at your whole financial picture and planning for your future. It’s normal to have to take on some debt during your working years, but you must have a plan for eliminating it, especially when your resources may be limited after retirement.

You might be tempted to think that because you have a good job, you surely won’t have any debt by the time you retire. But Statistics Canada has found that retirees who owned homes, had higher household incomes, were better educated and had better financial knowledge were actually the most likely to hold debt! It also appears that debt may be preventing some people from retiring. Of Canadians aged 55 and over, the incidence of debt was much higher (almost double) among those in the age group who had not yet retired.

Divorce has a major impact on financial resources available on retirement. The Statistics Canada information reveals that divorced people who were retired had the highest incidence of debt at 43% (widowed seniors are the least likely to be in debt, at 28%). Divorced retirees also had the lowest annual median income and lowest net worth, compared with couples, never-married people and widows/widowers.

Talk to your financial planning professional as soon as possible about your plans to eliminate your debt as you save for retirement. Make sure you include in your plans all debt you may currently hold, including your mortgage, car payments, consumer debt such as credit cards, loans and any other debt. The award-winning planning experts at Dedicated Financial Solutions in Mississauga can help you both with your plans for saving and your arrangements to eliminate debt before you retire so that you can make the most of your work-free years. The earlier you start to reduce your debt, the less you will pay in the long run. Contact DFS for a consultation today.

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