Canadians Retiring With Debt

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Remember when Canadians used to save for retirement? Now, just the opposite is happening. More and more seniors are reaching retirement age with not only zero savings, but considerable debt as well.

It's a disturbing trend. A recent survey by CIBC revealed that nearly half (46%) of Canada's Baby Boomers are still paying off their mortgages. 75% of all Boomers are in debt.

As retirement creeps closer each day, these financial straits spell bad news on the horizon. The average Canadian plans to retire at the age of 61. However, with some carrying debts in the hundreds of thousands of dollars, it could be an unlikely goal. A recent Ipsos-Reid poll found that 48% of Canadians between 45 and 60 did not feel financially prepared for retirement. 49% of these respondents believed that they would carry debt into retirement, primarily high-interest credit card debt.

Paying off debt in retirement is almost impossible. Seniors do not have the earning potential they did while employed. While working, the focus should be on paying off the house. Mortgage brokers stress that paying off a mortgage should be a first priority. It should be done before even thinking about saving for retirement. The benchmark they recommend is to have the first mortgage paid down at least ten years before retirement.

Another bugbear is the American debt crisis. A recession down south could spell out higher unemployment, forced retirement, and slower growth. Pensions can be affected, and those planning to retire in the near future may have to put off plans for a few years to recoup losses.

The market has been unstable. Last week's plummet caused Canadians with equity mutual funds lose 10 per cent of their retirement savings overnight. The CPP continues to be stable, but it is tumultuous times to have money put away. Paying down debt, however, is the best investment of all.

TransUnion recently reported that the average Canadian, in the last January-to-March period, had almost $26,000 debt through credit cards, loans, lines of credit, and credit options. This is not even counting mortgages. A lot of this debt is accrued through frivolous spending and making poor financial decisions. This means they will be bringing the burden into retirement.

Credit card debt is the worst kind of debt for Canadians entering retirement. Ironically, it is also more prevalent than a mortgage or line of credit, which charges lower interest rates. By leveraging the equity in their homes, Canadians approaching retirement can pay down their high-interest debt with a second mortgage. Done properly, this is a financially responsible way to begin saving money for retirement sooner.

Mike Catherall is the founder of Vancouver advertising agency Immersion Creative.
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