Retiring with Debt

by Achieva Financial
Feb February 06

It’s becoming more and more common to retire with debt, whether it be a mortgage, car payment or consumer debt. According to Statistics Canada, 1 in 3 retirees are in debt. Retirement isn’t necessarily impossible for you if you have debt, but it is something you have to consider when looking at your retirement readiness.

How large is your debt?

Do you only have a few years left on your mortgage, or have you just purchased a new home? If your home has almost been paid off then soon you will be able to expect your expenses to decrease. However, if you have a large amount of debt, this can quickly become overwhelming on a fixed income, which can affect your ability to enjoy the retirement lifestyle you were planning.

What do your retirement finances look like?

Whether you have debt or not, it’s essential to look at what you expect your retirement finances to look like in retirement. How much do you have saved in your RRSP, TFSA, and other non-registered investments? Are you expecting any sort of pension? If you are anticipating you will be downsizing to a smaller home, or receiving an inheritance, take this into account, as well. Downsizing your home can reduce or even eliminate your mortgage debt, and additional money from the sale of your home can be used to pay off other debt.

Consider working part time

If you crunch the numbers and determine that your current debt load would overwhelm you in retirement, one thing you may wish to consider is working part time. This would allow you to earn more money to put towards paying off your debt. However, if you choose to work part time, consider supplementing your finances with your tax-free savings account and non-registered investments, and not your RRSP. You may also be better off taking money from your RRSP on a short-term basis rather than officially converting to a RRIF right away.