Will you carry debt into retirement?

For the past few decades, the number one fear people have had about retirement is that they will outlive their money. (Prior to that, we didn’t live long enough after retirement to worry about it.)  The common concern has been whether what we have put aside will last our lifetime. I remember my father spending a good deal of time looking over his investment portfolio with a furrowed brow after he retired and watching closely what he and my mother spent each month.

Like most frugal Canadians in his generation, his fear was unwarranted. According to the BMO Wealth Institute, as much as $1 trillion in family wealth is being passed down over the next couple of decades from the so-called Silent generation raised during the Depression and the Second World War.

And even though members of the Boomer generation are the likely recipients of the bulk of that wealth, we still have the same fear – that we’ll outlive our money.  This time, the fear may be justified.

There are several circumstances pointing in that direction – increased life spans, decreased company pensions, the recession of 2008 and low interest rates resulting in reduced investment portfolio growth – but the biggest factor is debt.

On the whole, we Boomers love to spend money. Often, much more than we make. So much so, that we’ve only managed to accumulate a little over half of what our parent’s generation did in liquid assets (i.e. about $250,000 vs $440,000 per household on average). But we’ve incurred considerably more debt.

In fact, our debt load has been climbing since 2008. Equifax Canada, a credit monitoring bureau, estimates the average Canadian aged 56-65 is carrying $27,000 in consumer debt, such as credit cards and car loans. But, the biggest debt load we carry is our homes. Last month, a Bank of Montreal survey reported just over half of Canadian homeowners plan to carry their mortgage into their retirement years. In places like BC, where housing prices are higher, that number is closer to 60%

That’s a little scary when you consider half of Boomers say they are relying on the rising value of their homes to fund their retirement, and have put aside less than $100,000 in savings. If the real estate market starts to falter as is constantly being predicted or interest rates start to climb, the impact on home equity and Boomer retirements could be significant.

Even if housing values stay around the levels they are now, you actually have to sell your home and move to something less expensive to realize the benefit. That’s not what Boomers are doing. Another trend coming out of the BMO survey is people moving into more expensive, upscale homes after retirement.

So, even if you are anticipating an inheritance, it may not be enough to cover the debt you have accumulated and the amount of money you’ll need to fund your retirement years.  As most financial experts will agree, carrying debt into retirement is a threat to your financial security.  Paying it off before you retire — whether that means working longer, downsizing, or selling your home or other assets to reduce your debt load — is your best option to ease the fear of outliving your money.

To learn more about how you can plan for and live your ideal retirement, contact me at: info@youridealretirement.ca for a complimentary consultation. 

Your Ideal Retirement Coaching offers a variety of coaching programs and workshops for individuals, couples and groups to help you assess your readiness to retire and how you can create a smooth transition from the workforce or enhance your current retirement lifestyle.


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