The Best of Jonathan Chevreau by Jonathan Chevreau

Author:Jonathan Chevreau [Chevreau, Jonathan]
Language: eng
Format: epub
ISBN: 9781927402016
Publisher: HarperCollins Canada
Published: 2011-01-15T00:00:00+00:00

Chapter 16:

'Your debt needs to retire before you do’

17 August 2011

A CIBC poll released Wednesday finds almost half (46%) of Canada’s Baby Boomers are still striving to pay off their mortgages — despite an earlier survey that found saving for retirement is their top goal.

The Harris Decima poll focused on those still working, but only one in five Boomers aged 45 to 64 see a connection between paying down debt and saving for retirement, says CIBC senior vice-president Colette Delaney. “There is a bit of a disconnect.”

While 42% see debt as an obstacle to achieving their financial goals, even among older Boomers aged 55-plus, a third still have not yet paid off their mortgages and three quarters of all Canadian Boomers carry some debt.

After age 35, CIBC found the percentage of all Canadians still with mortgages steadily falls: 66% of those aged 35 to 44 still have one but this falls to 54% for the 45-54 group, to 33% for those 55 to 64 and to just 12% for those 65 or older: the traditional retirement age.

CIBC didn’t ask how many Boomers are carrying debt into retirement but no financial advisor I talked to for this column is in favour of it.

Obviously, entering retirement with high-interest credit card debt is asking for trouble. Mortgage debt is more acceptable since interest charges are much lower but it’s still not advisable. Most Boomers I know paid down their mortgages decades before retirement.

Markham, Ont.-based financial advisor Robert Smith likens retiring with debt to “tying a brick to yourself while you tread water. Prepare to struggle as the task becomes significantly more difficult. Without the earning years to pay it off, it will rarely end well.” He says paying off debts from one’s working years should happen at least a decade before retiring “but at the very least, your debt needs to retire before you do.”

Advisor Robert Cable, of ScotiaMcLeod, is similarly averse to the idea. “I cannot imagine going into retirement in debt. If need be, I’d find a part-time job and pay off that debt. My advice to clients, young and old, is to pay off any debt you have and then only borrow if absolutely necessary and for the very short term.”

Clay Gillespie, managing director of Vancouver-based Rogers Group Financial, says 10 years ago none of his clients carried debt into retirement but “it’s becoming a much bigger issue.” Even with today’s low interest rates, debt makes financing retirement a problem because it pushes retirees into much higher tax brackets. “I frown on the debt and, when I see it, analyze it to see how rates 2 or 3% higher will affect peoples’ standard of living,” Gillespie says, “Rates won’t stay low forever.”

As CIBC’s Delaney points out, the sooner mortgage and other debts are eliminated, the more retirement savings can be accelerated. “Paying off your mortgage sooner can free up significant cash flow each month, which in turn helps you build your retirement savings faster.”

From a cash-flow perspective, most home-owners are already accustomed to paying out $1,500 to $2,000 a month.

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