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Retirement and debt – what you need to know

Published on: January 20th, 2020

Not long ago, most Canadians wouldn’t have considered carrying debt into retirement. That attitude has changed. One 2018 study from a major Canadian financial institution, for example, found that 25% of Canadians are living with debt in retirement. And 20% of retirees are making mortgage payments.

Is this a good idea? The answer is: it depends. Low interest rates mean that carrying debt into retirement is much less of a burden than it was when interest rates were sky-high.

However, there is still a cost, which could increase if interest rates should rise.


Factors to consider


The decision that’s right for you will depend on a number of factors.


What kind of debt are you carrying and what is the interest rate?  It’s important to understand the difference between “good” debt and “bad” debt. Good debt includes borrowing for items that are likely to increase in value, such as your home, or borrowing when the interest is tax-deductible (for example, when you borrow to generate taxable investment income). Bad debt is usually high-rate consumer debt for items that have no long-term value — for example, using your credit card to pay for your retail therapy.


Are you a pre-retiree, semi-retired, or already retired?  Sometimes, age matters. If you are still earning a salary, with the potential for increases, you are more likely to be able to focus on eliminating debt before you retire. If you are already retired, it becomes a question of managing your debt on a fixed income so that you can continue to live the lifestyle you want.


Do you want to leave an estate for your children or for charity?  If you have no children or grandchildren and no desire to support a particular charitable endeavour, you may be quite comfortable carrying debt in retirement. When you pass away, the value of your estate can be used to repay any remaining debt.


Are you planning to downsize to a smaller home at some point?  For many Canadian families, the largest debt they are ever likely to take on is the mortgage on their home. If you are carrying a mortgage and plan to stay in your home throughout your retirement, you’ll need to make sure you have sufficient cash flow to cover the payments.

However, if you are planning to sell and perhaps move to a smaller home, you may realize a substantial capital gain, even after repaying the mortgage balance, which is tax-free if the home was your principal residence. You can reinvest your gain to help provide you with the income you need to achieve your retirement goals.


Each situation is different

In the end, there is no single solution that is right for everyone. There is a whole range of circumstances and many variables to take into consideration. Whatever your situation, we can help you find the solution that’s best for you and your family.



The Sun Life Financial Barometer survey, conducted by Ipsos, released February 21, 2018.

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