More than half of Canadian mortgage holders are choosing to pay down what they owe on their home rather than save for retirement. That’s according to the 2014 Sun Life Canadian Unretirement Index, released today. Fifty-seven per cent said they are focusing on mortgage payments instead of saving for their golden years.

Is that the right thing to do? Like so many other money decisions, it depends on you and your financial plan.

There’s a simple way to look at this, assuming your mortgage allows you to pay more than your monthly or biweekly minimum. The decision boils down to whether you can earn more by investing than you would save by making extra mortgage payments. 

Say you have a 5% mortgage on your home. Payments are as good as a 5% after-tax return on your money. You are lowering the amount you owe the bank, on which you’re charged interest. That’s guaranteed, at least for the term of your mortgage.

Could you do better than 5% by investing? It’s possible. The S&P/TSX Composite index was up almost 11% for the year ended Feb. 14, 2014. But you can’t predict future returns based on past performance. So your decision will be driven at least partly by your comfort level with investment risk. (Remember, too, that investments in a registered retirement savings plan can carry tax benefits, which makes retirement investing a more attractive option.)

But there’s a more fundamental question here: How will you fund your retirement? If you plan to leverage your home equity to fund part of your retirement income, then those mortgage payments are also contributions to your retirement plan. If you don’t, then a decision to forego retirement savings for the sake of the mortgage leaves less time to save.

According to this year’s Unretirement Index findings, almost a quarter of homeowners (24%) believe their residential real estate will serve as their primary source of retirement income. We asked Canadians to estimate how much each source of retirement income would contribute to their overall plan. On average, the numbers broke down this way:

  • Government plans: 30%.
  • Personal savings/investments: 27%.
  • Employer plan: 23%.
  • Home equity: 10%.
  • Inheritance: 5%.
  • Other: 6%.

But 58% of Canadians told us they have no plans to leverage their home equity for retirement income purposes. These respondents are more likely to live in Saskatchewan and Manitoba, or in the Atlantic provinces. They’re also more likely to be age 55 to 65 (the full universe was Canadians 30 to 65).

Can we assume these folks have access to enough retirement income that they won’t need to tap into their home equity? Some will, of course. Others may be kidding themselves.