It seems as though debt and the debt load being carried by Canadians is becoming an ongoing issue discussed in our media. Recent poll numbers suggest that many Canadians are retiring with some form of debt. Carrying debt means you will have principal and interest payments to make. But the question I’m often asked, “Is all debt bad?” To which I generally reply, “No, not all debt is bad. However, it is important to understand how the debt is being managed, especially entering into or during retirement.”
Debt can come in many forms: mortgages, lines of credit, car loan, consumer debt. Some Canadian retirees are finding themselves faced with additional mortgage payments brought on by vacation properties. Others are fully financing post-secondary, new home purchases or a variety of other large expenses for their children and grandchildren. High interest payments and the transition into fixed retirement income, can have an adverse effect on some of your retirement plans. Debt is something Canadians have grown accustomed to living with. Your retirement, however, is a period during which you are often not accumulating capital. We want to ensure your retirement income can withstand the debt you will be carrying with you. So, if you let your debt get out of control, yes, living the retirement of your dreams can become extremely difficult, if not impossible.
So how do we address debt in planning for and entering into retirement? We develop a financial plan and begin evaluating how to reduce your debt to ensure your retirement goals are not sacrificed. We look at your revenue streams in retirement: are you drawing from a registered savings plan, pension or other investment vehicles. From there, we examine your cost of living and debt obligations. In reducing your debt load some options may be more transparent than others. If you own multiple properties, cars or recreational vehicles, we discuss downsizing or creating supporting revenue streams. If your children are your financial Achilles, perhaps it is necessary to guide them in embarking upon their own financial journeys. Credit card debt is readily obtainable and can have enormous interest rate implications. Prioritize paying off those credit cards with the highest interest rates and evaluate your current spending habits. Other debt restructuring ideas may be less transparent and require the services of a financial professional. We work to structure your debt to minimize interest costs, discuss payment options and help you budget your retirement savings.
Just as planning for your retirement does not happen overnight neither does reducing your debt load. Being in control of your financial situation and setting a course to allow you to pay down your debt, will also assist you in living out the retirement of your dreams.
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