While the ideal scenario is to be debt-free in retirement, carrying a mortgage and some debt into retirement is the new normal—
34% of Canadian retirees over 55 hold some debt.
With debts looming, Gen Xers may wonder if they can save enough to retire. But there is good news: if you’re still earning and learning, you still have time.
So, how can retirement still be possible if you’re in debt? And how can you balance saving for retirement while paying them down?
Not all debt is created equal
If you have significant consumer debt—debt incurred by purchasing goods—on a high-interest credit card or loan, that has to go. The average Canadian aged 46-55 has
over $30,000 in consumer debt.
Raising your monthly payment can have significant impacts. Let’s say you’re carrying $5,000 on a credit card at 20% interest—here’s how monthly payments impact how long you’ll be carrying that debt:
|
Minimum payment method |
Static monthly payment |
Accelerated bi-weekly payments |
Increased monthly payment |
Payment |
2.5% of balance, calculated at time of payment |
$150 per month |
$75 every two weeks |
$250 per month |
Years of payments |
30.75 |
4.2 |
3.5 |
2.1 |
Total interest paid |
$9,464.65 |
2,359.08 |
$1,992.50 |
$1,133.05 |
Total cost of borrowing |
$14,464.65 |
$7,359.08 |
$6,992.50 |
$6,133.05 |
If you can reduce your retirement savings contributions to pay off high-interest debt, you’ll almost always see greater returns by investing the difference after the debt is paid. You can also save money by consolidating your debt to a lower-interest loan, reducing your total payments and borrowing costs.