Will you be able to retire without loads of debt? If you’re like 25% of the retired baby boomers in a recent survey by Sun Life Financial, you could have stopped working and still be struggling with a mortgage and unpaid credit-card debt:

  • 1 in four (25%) of retirees are living with debt.
  • 1 in five (20%) of retirees are still making mortgage payments.

According to the survey, many retirees are carrying credit-card debt from month to month. They’re making car payments, they owe money for health expenses and they’re in debt for holiday expenses or vacation property. And while retirees face lingering debt, working Canadians are compromising their retirement savings.

  • Almost one-quarter (24%) of working Canadians are dipping into their retirement savings.
  • 63% of those Canadians pulled cash out of their RRSPs because they needed the money – to cover health expenses or pay off debts, for example.

Helpful advice about debt and retirement

Start with a clearer understanding of how interest rates and loan terms affect what you actually pay for what you buy. For example, financing a car over seven years is much more expensive than buying it outright or even financing it over a shorter term. Or, think about how much a $1,000 sofa actually costs when you buy it with a credit card and take six months to pay it off.

Acting on the following tips can help you avoid withdrawing money from your retirement savings and retire without debt:

  1. Reduce your spending. It might be hard at first, but stop buying things on credit if you can’t clear the balance each month. Pay off your credit card debt first, and make payments every month.
  2. Pay your mortgage off faster. Use these three strategies to avoid carrying mortgage debt into retirement:
    1. Pay more than the minimum. Let’s say your mortgage is $1,500 a month, but you can comfortably afford to spend another $200. Raising your monthly payment to $1,700 will reduce the amount of interest you pay and save potentially years of mortgage payments. With interest rates still at low levels today, most of any increased mortgage payments will help you bring down the principal.
    2. Make a large, one-time cash payment every year. You could use your tax refund, annual bonus or any windfall. Most mortgages let you make additional payments per year, usually between 10% and 25%. Over the long term, these lump-sum payments can reduce the amount of your mortgage payments and interest.
    3. Make bi-weekly payments. Divide your monthly mortgage payment in half and make that payment every two weeks. You’re ultimately making 26 half-payments in a year, the equivalent of one full additional monthly payment. This works particularly well if you get paid every two weeks.
  3. Start now. Begin saving and investing as early as possible to set yourself up for success.
  4. Don't leave money on the table. If your employer offers a pension plan and will match your contributions, try to contribute as much as you can.
  5. Invest wisely. If you don’t have access to a defined contribution plan, seriously consider saving for retirement with an RRSP; a TFSA also works for retirement savings.
  6. Have a plan and stick to it. It's never too late to build a financial strategy that will get you to where you want to be. Start by setting achievable goals.

If you’re a millennial, it’s never too early to start managing your debt and saving wisely for retirement. You have a long time until retirement, so you might considering adding a bit more risk to your strategy, in order to maximize the return on your investments. Discussing your risk tolerance, time horizons and investment strategies with an advisor is a great place to start.

These helpful tools and resources can help you get on the right track and build the income you want and need to retire:

  • Financial check-up. Assess your current financial health by answering a few questions about your spending, borrowing, saving and investing habits.
  • Net worth calculator. Understand the difference between what you own (your assets) and what you owe (your liabilities) to help you plan for the future.
  • Retirement savings calculator. Use this tool to work out how much you’ll need to save for retirement. See how adjusting your various retirement income sources can help you meet your retirement savings goals.
  • RRSP calculator. Are you currently contributing enough to your registered retirement savings plan? What would be the impact of taking money out of your RRSP before you retire? This tool will help you see how changes to your RRSP contributions can affect your retirement savings.

Some final advice: If you can avoid taking on debt, that’s a great financial strategy. But if you have to borrow, be conservative about the size of the loan you take. Both the Bank of Canada and the U.S. Federal Reserve have told us to expect higher interest rates in the future. Both interest rates and the amount you borrow affect what you pay creditors.