Peter Boys, Boys Financial Services

Concerned About Debt and Retirement?


A recent Manulife Bank survey found that debt is a major concern for many people who are planning for retirement. Some people had no idea how much debt they expected to carry into retirement. This highlights the fact that, growth in a retirement savings portfolio is only part of the retirement planning strategy. It’s important to review both sides of personal balance sheets when putting together a financial strategy for retirement.


From this survey several notable points emerged:

Using home equity to fund retirement: About 20% of the people polled said they expected to have to leverage their home equity to supplement their retirement income. About 10% indicated that they want to continue living in their homes and will have to borrow against their home equity. 8% indicated they planned to downsize once retired.

Debt reduction a top priority: After good health, the majority considered being debt free is more important than stable income, traveling, volunteering or pursuing hobbies in retirement.

Many will retire with debt: Almost half indicated that they will retire as planned even if they still have significant debt. 10% felt that carrying debt into retirement would have no significant impact on their retirement lifestyle. But about a quarter anticipated having no choice but to scale back their lifestyle.

Different views on debt: Canadians have a wide range of opinions as to what debt actually is. About 25% of those surveyed believed that car or mortgage payments did not constitute a part of their overall debt because they lumped these payments in with their utility, cable and other routine monthly bills. This is a dangerous misconception because it indicates a misunderstanding of how debt impacts cash flow in a way that is difficult to manage.

Many people are struggling with debt management: A significant number of those surveyed indicated that they were not happy with how they were managing their debt. Less than half felt happy with how they handled their debt in the previous year, and around 15% were very concerned with their lack of progress in reducing their overall debt level.

Over the last couple of years I have worked with several retirees who were considering taking out reverse mortgages to access their home equity. For most, I believe there are better ways to access home equity that involve lower fees and cheaper interest rates, enable them to access more of their home equity, with minimal financial underwriting requirements. In addition, having a lien registered against their home provides a level of mortgage fraud protection, which is becoming an increasing concern for seniors.

Today’s low interest rates are a double edged sword for retirees. Borrowing is relatively cheap, but it’s tough to live on low interest earnings that is fully taxable without eroding their equity. Seniors may have to consider investing in balanced or dividend type funds with a slant to US and global investments to earn a reasonable level of income.

If you’re concerned about debt and retirement income, talk to a qualified financial professional and get some help with your retirement planning strategies.


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