The Pitfalls of Carrying a Mortgage into Retirement


I’ve written many times before about my concern for Canada’s seniors. Our annual Joe Debtor studies have shown that the trend toward seniors and pre-retirement debtors filing bankruptcy continues. More specifically, the share of insolvency filings for debtors aged 50 and up increased to 30 percent in our 2015 study, up from 27 percent in 2013. This bankruptcy rate has shown an upward trend among seniors since we first started doing the study.

To be clear, senior debtors are still in the minority—the majority of debtors are between the ages of 30 and 49. Yet it’s safe to say that seniors potentially have more to lose when dealing with debt, particularly once they cross into retirement. And according to Statistics Canada, roughly one-third of retirees carry debt.

We all know that credit cards and other high-interest debts should ideally be paid off before retirement, but what about the larger, long-term debts? What about a mortgage?

My answer is simple: Seniors should work hard to pay off all debts prior to retirement—including their mortgage. There are two main reasons for this:

Flexibility—Your retirement years should be about enjoying life—not worrying about how you’re going to pay the bills, or how much interest you’re racking up on your credits cards. By entering retirement debt-free, you can use your hard-earned retirement savings to spend on what you really need and want.

Security—Seniors are more at-risk than most other age groups, with an increased likelihood of experiencing illness, injury, or other health problems. The potential challenges of “grey divorce”, supporting aging parents or adult children, or the death of a spouse—all on a reduced or fixed income—could jeopardize debt repayment, resulting in serious financial problems. That’s why it’s much safer to retire without debts.

No one wants to retire with debt—so why do they? Debt naturally accumulates over time, which is why seniors carry more credit card debt than any other age group ($33,355).

When they reach retirement age, seniors may be faced with the challenge of supporting more debt on less income than they’re accustomed to. And because they have an honest desire to repay their debts, they may even turn to payday loans borrowed against their retirement income, resulting in a terrible downward debt-spiral.

How can you avoid the risk of dealing with financial issues in your golden years? The secret is in starting early, if you can. Recognize that your income will change, and take the necessary steps to get prepared.

Preparing for a Debt-Free Retirement

  1. Understand what your income and expenses will be when you retire, and create a post-retirement budget with any adjustments in mind.
  2. Don’t wait to change your lifestyle until after you retire. Instead, start making small changes as you approach retirement age so any shifts in spending won’t be so dramatic.
  3. Tackle consumer debts such as credit cards and lines of credit first of all. Start with the highest interest debts and work your way down the list until you’re out of credit card debt—and no longer reliant on them.
  4. Next up, move onto term loans. Make extra payments toward your mortgage whenever you can. Remember: Your house should be your asset, not the bank’s asset. If you are dealing with a high-risk mortgage, it may be a good time to sell the house and buy something more affordable.
  5. Be sensible about big-ticket purchases. Ready to buy an RV and take that cross-country road trip you’ve been dreaming about? Don’t do it—at least not until you’re completely debt-free.

Doug Hoyes has extensive experience resolving financial issues for Canadians. Doug is a Chartered Professional Accountant (CPA), Licensed Trustee and Chartered Insolvency and Restructuring Professional.

Learn more about Doug Hoyes