Canadians retiring with lots of debt

Retirement should be a worry-free period of well-being and enjoyment, but a recent survey by Sun Life paints a much different picture and shows that many Canadians are going into the later stages of their lives saddled with debt.

The survey found that 22 per cent of Canadian retirees are carrying an average of $10,000 or more in non-mortgage debt. One in five (20 per cent) of retirees are still making mortgage payments and the financial strain doesn’t stop there.

Sixty six per cent of retirees have unpaid credit cards, 26 per cent are making car payments, seven per cent have unpaid health expenses, seven per cent owe money on holiday expenses or vacation property and six per cent have unpaid home renovations.

At the same time as retirees face lingering debt, 24 per cent of working Canadians are dipping into their retirement savings. The survey found that 63 per cent did so because they needed the money for things like health expenses or to repay debt, 24 per cent withdrew money as part of the first time home buyers’ plan and 13 per cent because they wanted the money for other purposes such as vacation or a car.

A recent report from BMO Financial Group has found that Canadians withdrew an average of $20,952 from their RRSPs in 2017, an increase of $3,739 from the previous year. According to the study 40 per cent of Canadians have made a premature withdrawal from their RRSP.

Perhaps the biggest no-no associated with an RRSP is to take out money from it early before it is converted into a Registered Retirement Income Fund at age 71 because of the heavy taxes you pay, with two exceptions – the first-time home buyers plan and the lifelong learning plan.

“Our survey results highlight the importance of getting ready for retirement,” says Tom Reid, senior vice president, group retirement services, with Sun Life Financial Canada. “Although it can seem far away, retirement creeps up faster than you think. Building a financial plan and making meaningful contributions will pay off in the long run.”

Reid says the survey results are “not all that surprising” when you look at the savings plans of many working Canadians.

Of the some 17 million working Canadians between 25 to 30 per cent have some sort of a workplace savings plan yet employees are failing to take advantage of $3 billion each year of employers’ matching contributions in pension plans.

“When you look at employees’ savings plans it’s clear Canadians are leaving a lot of money on the table and simply aren’t saving enough for their retirement,” Reid said in an interview. ‘Not enough Canadians have a retirement savings plan and are sticking to it.”

People who work with a financial adviser tend to be more disciplined when it comes to developing and sticking to a plan. Advisers can also help people find other ways to get money than dipping into their RRSPs and retirement savings accounts as well as cheaper borrowing options.

Reid recommends beginning saving and investing as early as possible to take advantage of compounding over time.

Don’t leave money on the table. If your employer offers a pension plan and will match your contributions, contribute the maximum amount possible. “This is a very low-cost and effective way to save,” Reid says.

Invest wisely. If you don’t have access to a defined contribution plan, RRSPs and Tax Free Savings Accounts are other great options to consider.

Have a plan and stick to it. It’s never too late to build a plan to help get you to where you want to be. And seek professional advice.

“A financial adviser can help you create a financial plan, set achievable goals and guide you through each life stage,” Reid says.

Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors.

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