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Credit Coach: Avoid the retirement debt trap

How to Avoid Retiring With Too Much Debt and Too Little Savings

Why do so many Canadians need debt help during their retirement years? 

That’s certainly not the impression of retirement that we’re presented with every day on TV. Think of those retirement TV commercials — a loving 60-something couple looking mature yet incredibly vibrant, the sailboat backdrop, a group of 60- and 70-something friends on deck looking just as vibrant are toasting with champagne, and the sun is setting on the horizon.

The scene invokes a vision of golden years spent in perfect retirement. Many Canadians dream about their own perfect retirement, and spend years working hard in the sawmill, pulp mill or classroom trying to reach that goal. So why is it that so many couples fail to realize on that dream?

I have practiced as a Licensed Insolvency Trustee for over 15 years. During that time I’ve helped many couples experiencing financial difficulties as they’re approaching retirement — couples that expected to retire comfortably. Instead they find themselves with overwhelming debt, looking for solutions.

While it’s important for each individual or couple to find the solution that works for them — be it better budgeting, debt consolidation,  consumer proposal or  personal bankruptcy — it’s equally important at to uncover why they are facing financial difficulty.  

Pulling from my own experiences helping struggling couples in the 55+ age group, here are a few things to think about as you plan for your own retirement:

Set clear financial limits for your adult children

Increasingly, I’m seeing 55+ couples that are jeopardizing their retirement by continuing to provide financial assistance for adult children, perhaps because their children are going through a divorce, have a medical issue or haven’t been able to “find their path.”

But, having a grown child living at home into their 20s, 30s or even 40s  has put a strain on the budget of many boomer parents in Canada. 

While I am not advocating against offering your kids financial assistance in a crisis situation, it’s important to keep an open dialogue about the limits of financial support you can offer.

For instance, you might be able to help your adult children with clothing purchases or their cell phone bill, but can you afford to use your credit card or line of credit to fund their automobile purchase or vacation? Very few parents can truly afford to help with non-essential expenses.

Clearly defining the differences between emotional support and financial assistance can go a long way in making sure you are not in need of debt help as you approach your retirement years.

Avoid becoming “house poor”

If you find yourself allocating a large portion of your income to home ownership — through mortgage payments, a home equity line of credit, maintenance costs, etc.  — you’re likely “house poor.” I am not advocating against the inherent investment value of home ownership. 

Being mortgage free and  having a home you can pass down to your children and grandchildren is a wonderful goal and ideal. All too often however, I advise couples who are entering retirement using a disproportionate amount of their retirement incomes to service mortgage debt. They may have consolidated earlier debts against the home equity or, in some cases, repeatedly borrowed against the home equity.

If you find yourself “house poor” in your retirement, letting go of your property might be the better path. It’s a good idea to speak to a Licensed Insolvency Trustee to determine if this will allow for greater flexibility in your retirement years.

Advise your adult children to start planning now

The previous point about becoming “house poor” also serves as a cautionary tale you can offer to your adult children when they become homeowners. Remortgaging their home to consolidate debt should only be undertaken with an active intent to change spending habits, decrease overall expenses, and follow a household budget. Encumbering hard-earned equity with mortgage debt without a solid repayment plan can inevitably just lead to additional debt.

If you’re nearing retirement, you know best that life can breeze by in a heartbeat. Going from zero to sixty is a measurement they use to grade the performance of sports cars, however life for many can zoom by faster than a Corvette racing down the track.

Encourage your adult children to make a plan now. Putting off budgeting and debt repayment until next year or the year after that can result in thousands of dollars of interest and debt servicing costs — dollars that could instead be put aside for their retirement. So to your adult children who are looking forward to retirement 20, 30 or 40 years from now, advise them to get started today on setting debt reduction and savings goals.  

The earlier your kids start planning, the more prepared they’ll be for their own retirement.

Jayson Stoppel is a Licensed Insolvency Trustee and Chartered Accountant with BDO First Call Debt Solutions. With over 15 years in practice, Jayson assists individuals, families and companies with financial difficulties in Thunder Bay and throughout Northwest Ontario. To reach Jayson by email: