Retirement with debts, a common Canadian phenomenon today

By Marie Singer

Retiring with debts is becoming more common in Canada. About 20% of Canadian homeowners expect to use their home equity to supplement their retirement income, a new study by Manulife Bank of Canada revealed.

A growing number of Canadians are struggling to reduce their debt while at the same time preparing for retirement.

According to the Manulife Bank Debt Survey, involving 2,373 Canadians, almost 20% of homeowners saw their home as part of their retirement income mix. Ten percent of respondents said they planned to remain in their homes and borrow against home equity, while an additional 8% planned to downsize and use the left over money towards their retirement income.

Rick Lunny, President and CEO, Manulife Bank of Canada, said:

“Often homeowners think of their home equity as a fallback plan for retirement income. The fact that one in five is proactively planning to use this strategy suggests they may be struggling to balance retirement saving with debt repayment.”

Retirement mortgage not debt

One quarter of Canadians don’t see mortgage as debt!

Most want debt-free retirement

Eighty-one percent of Canadians would like to reach retirement without any debts, with just more than half expressing confidence that they would achieve that goal.

Respondents aged 50 to 59 were the least confident of being able to reach retirement without any debts, closely followed by 40-49 year-olds. Reaching retirement debt free has become much more difficult than it used to be.

Just under half of respondents said they would continue working if they reached retirement age with debts.

Of the 46% who said they would retire as planned even if they were still in debt, 26% said they’d tighten their belts until their debts were gone, while 10% said they would sell assets, and 10% insisted they would simply learn to live with loan repayments.

Many don’t see their mortgage as debt

Surprisingly, one quarter of respondents do not see their mortgage or car loans as “debts”, illustrating how living “debt-free” does not have the same meaning for all people.

When asked what makes a successful retirement, respondents placed good health in first place, followed by being debt-free. Other priorities included having an income that allows one to maintain a desired lifestyle, being able to travel, and staying occupied with a hobby or volunteer opportunity.

While three-quarters of those surveyed saw adequate income as vital for a successful retirement, almost half of homeowners said it was becoming difficult to prepare for retirement.

Just over one third of respondents believe they will have enough income to guarantee their desired lifestyle when they retire.

Mr. Lunny said:

“Homeowners that don’t adequately plan for retirement may earn substantially less once they have left the workforce. In addition, retirees who use home equity to supplement their retirement risk leaving no legacy for their children or grandchildren. If home values fall, they could end up further in debt and have negative equity in the house.”

“Saving for retirement and paying down debt are both important goals – but they both draw from the same pool of money. Having a financial plan that addresses both needs is central to your financial health. To be successful, the plan must be tailored to the individual. A financial advisor is in a great position to help you create a plan that not only aligns with your goals and preferences, but also complements and supports your other financial goals.”