There has been a lot of press lately about the growing amount of personal debt in Canada.  The Governor of Bank of Canada has raised it as an underlying concern within the Canadian economy.

A main sub-set of this conversation, and the more alarming one for me is the statistical growth in the number of people that are retiring with debt.

Why Debt in Retirement

My personal financial planning always included an overall goal to be debt free at my chosen retirement age.   For me this was a key part of our ongoing financial plans.  As we monitored and modified our objectives usually on an rolling five year plan the long term goal of being debt free was always key.

Based on anecdotal information, a lot of analysts and statisticians are laying the cause of debt in retirement on poor planning.

Is Retirement Debt Bad?

To be fair there is nothing intrinsically wrong with carrying a personal debt load in retirement.  The caveat would be, if it was  planned.

If you have a good understanding of your post retirement expenses and have planned your income commensurately, whether these expenses included debt service or not is irrelevant.

The Reality

Lots of people calculate their retirement income needs as a percentage of their earnings during work years.  The idea is you don’t need as much income in retirement as your expenses are low.  Things like downsizing housing, reduced need to support dependents, education costs, lower taxes and commute costs lead to lower ongoing expenses in retirement.  Income needs are therefore calculated accordingly.

One key expense that is usually thought to be eliminated in retirement are usually debt service related to life style purchases (i.e., home mortgage, car loans, vacation loans etc).

My concern is these folks that have debt in retirement but planned their income with the above thoughts in mind and did not plan for the income needed to match the debt they still have on retirement .  Maybe they thought it would magically disappear.

This portion of the population is feeding the B of C Governor’s concerns.  He worries, as I do, of a potentially high number of bankrupts impacting the health of the economy.

Boo!

This post is just a little fear mongering doom and gloom  before Halloween.   (I didn’t start it)