# Anyone planning on REtiring with Debt?



## Cal

Just curious, hadn't really thought that anyone would do this, but after reading the following article, I guess it does happen.

http://www.theglobeandmail.com/glob...burden-overshadows-retirement/article1540364/

Perhaps some of you closer to retirement could give some input on this article.


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## cardhu

No consumer debt, and no mortgage debt, but I would not rule out a modest leverage debt or margin debit.


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## the-royal-mail

But a lot of seniors end up living in apartments anyway, so they don't have the burdens and responsibilities of owning a house.


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## OhGreatGuru

One wonders what planet these people are living on.


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## Maltese

Cal said:


> Just curious, hadn't really thought that anyone would do this, but after reading the following article, I guess it does happen.
> 
> http://www.theglobeandmail.com/glob...burden-overshadows-retirement/article1540364/
> 
> Perhaps some of you closer to retirement could give some input on this article.


I'm about 4 1/2 years away from retirement and plan to be debt-free. Unfortunately due to a hefty medical bill that threw a wrench into all my carefully thought out plans, I have a loan now. Thankfully it will be paid off in a year and then I can return to power saving mode.

Most of my friends however, don't grasp how beneficial it is to be debt-free when they retire. I've been told that retiring with no debt is the "old fashioned way" and no longer necessary.

I have 3 retired friends, aged 68 to 71, who all have mortgages and no intention of trying to pay them off. Two do fine with their payments but the third is struggling. She constantly laments that she wished she'd made better financial choices when she was younger.

Many in my own age group (50s) still have ridiculously high mortgages and car loans and just don`t understand the benefits of paying them off and saving money for retirement. They have no idea how much they`ll need to supplement public benefits or how much their private pensions will be. They can barely live on their current salaries so trying to live on much less in retirement will come as a shock. They think they`ll be able to keep their homes with mortgages, travel and so whatever they want to do without having saved a dime. 

We`ve had many discussions over the years about retirement and I`ve directed them to resources to help them learn how to get a better handle on their finances. But as they say, "You can lead a horse to water but you can't make him drink."

We're all in the same profession, have earned the same salaries for the past 30 years and all raised kids on our own. Yet because of how they've managed their money, they'll be working at jobs they dislike for longer than they anticipated. Or, they may retire and be shocked that they don't have enough money for even basics after making their payments.


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## Square Root

Debt and retirement don't mix very well. This includes investment leverage in my view. The sooner you pay the loans off the better off you will be. Seems trite but I think important.


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## OptsyEagle

If you are spending other people's money like a drunken sailor, why would a person quit doing it simply because they retired? They never really intended to pay it back anyway ... or should I say, they never created a plan to pay it back. Same thing.


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## Four Pillars

Maltese said:


> ...
> 
> Many in my own age group (50s) still have ridiculously high mortgages and car loans and just don`t understand the benefits of paying them off and saving money for retirement. They have no idea how much they`ll need to supplement public benefits or how much their private pensions will be. They can barely live on their current salaries so trying to live on much less in retirement will come as a shock. They think they`ll be able to keep their homes with mortgages, travel and so whatever they want to do without having saved a dime.
> ...


I just can't understand this. How hard is it to figure out that if your work income stops one day then you will need something to replace it? (or a significant part of it at least).


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## Jungle

Maltese said:


> Many in my own age group (50s) still have ridiculously high mortgages and car loans and just don`t understand the benefits of paying them off and saving money for retirement. They have no idea how much they`ll need to supplement public benefits or how much their private pensions will be. They can barely live on their current salaries so trying to live on much less in retirement will come as a shock. They think they`ll be able to keep their homes with mortgages, travel and so whatever they want to do without having saved a dime.


My parents are like this and it concerns me very much. For the sake of their senior life, it's not a good thought.


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## MoneyGal

I think about this issue very frequently. I'm pretty sure I've said this in another thread here someplace: I sometimes wonder if people are just fundamentally much more optimistic than I am. 

I mostly think about that in reference to mortgages. In Toronto, where I live, the "norm" (at least in much of my peer group) is to have what seem like enormous mortgages to me - with $500K or more of mortgage debt in your mid- to late-40's. 

Maybe people are just earning way more money than I am, or they have some other plan to pay off that debt, or they just don't actually have a plan to pay it off.


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## brad

MoneyGal said:


> Maybe people are just earning way more money than I am, or they have some other plan to pay off that debt, or they just don't actually have a plan to pay it off.


I think it's basically the ostrich mentality -- just stick your head in the sand and pretend the problem doesn't exist. My brother and sister-in-law are university professors and have a huge mortgage that they told me they will "never pay off." My other brother is 61 and has nothing saved for retirement (he did have about $40K saved but he lost his job last year and has been using the money to live on).

I think for many people, just dealing with today and their immediate needs is challenging and draining enough that they don't have the time or energy to think clearly about the future and start planning for it.


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## Ben

MoneyGal said:


> I mostly think about that in reference to mortgages. In Toronto, where I live, the "norm" (at least in much of my peer group) is to have what seem like enormous mortgages to me - with $500K or more of mortgage debt in your mid- to late-40's.


Wow, I can't imagine. 

If their income were high enough to pay that off in 10-15 years (I would like to imagine this income for myself!), then more power to them.

But more likely for the majority that they are either very optimistic, or upside down birds.


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## Steve19

brad said:


> I think it's basically the ostrich mentality -- just stick your head in the sand and pretend the problem doesn't exist. My brother and sister-in-law are university professors and have a huge mortgage that they told me they will "never pay off." My other brother is 61 and has nothing saved for retirement (he did have about $40K saved but he lost his job last year and has been using the money to live on).
> 
> I think for many people, just dealing with today and their immediate needs is challenging and draining enough that they don't have the time or energy to think clearly about the future and start planning for it.


I think a large mortgage is what often ruins people in their quest for retirement, particularly if they want to retire early. What I find amusing about your brother's comment is that he simply doesn't care that he'll be in debt in retirement. Looking at the "big picture", we're eventually all going to die (maybe sooner than we expect), so what's the big deal if we're in debt in retirement? Sure our kids (if you have any) may not receive a cash gift when you pass, but they should be worrying about taking care of themselves and not relying on parents for income. So, although I'm a saver and have a personal early retirement goal, I understand how your brother and sister-in-law think... in the end it doesn't really matter... I personally feel it's whatever decision makes you sleep better at night.


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## OptsyEagle

It doesn't help that the government sets up senior's programs like Guaranteed Income Supplement, prescription drug benefits, first in line for low income housing, not to mention the 10% off for seniors, everywhere you look.

I am not without heart for our senior citizens, but the problem is, we see some poor unfortuneate senior who either couldn't or didn't save enough for retirement and so we throw money at them and then turn around and ask "gee why do we have so many seniors that didn't save enough for retirement?" Duh !


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## the-royal-mail

Yes exactly eagle. We're headed down a very slippery slope when we plan to die with debt. Realistically what happens is those seniors, many with some type of disability, become a social case and start lobbying the gov't for more money or changes to accomodate them. I have a fundamental problem with that because I do not feel my taxes should support seniors, disabled or not, who are poor as a consequence of their financial mismanagement earlier in life.

People in this country have really got to stop being so dependent on the gov't to take care of them. Look after yourself!


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## cardhu

> This includes investment leverage in my view.


Depends how its used.


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## Dr_V

OptsyEagle said:


> I am not without heart for our senior citizens, but the problem is, we see some poor unfortuneate senior who either couldn't or didn't save enough for retirement and so we throw money at them and then turn around and ask "gee why do we have so many seniors that didn't save enough for retirement?" Duh !


I've lost track of how many of my friends and acquaintances either don't have an RRSP or don't contribute enough to their RRSP for retirement. 

Personally, I think that they're robbing from Peter to pay Paul -- they're enjoying the "easy life" now, but will pay for it in their golden years.


K.


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## andrewf

I think this one of the better reasons to support expanded CPP. It helps with freeloading as people are forced to save a higher minimum of their income. Doesn't help so much with people who earn little during their working years.


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## Square Root

I am sure a case can be made for investment leverage in retirement. But in my opinion returns are risky enough that they shouldn't be multiplied through leverage when you are retired. I'm sure some advisors would recommend otherwise?


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## 411guy

MoneyGal said:


> I mostly think about that in reference to mortgages. In Toronto, where I live, the "norm" (at least in much of my peer group) is to have what seem like enormous mortgages to me - with $500K or more of mortgage debt in your mid- to late-40's.


I know exactly how it is with mortgages. I was in that situation when I lived in Vancouver over 10 years ago. Fortunately for me, my employer gave me an offer I couldn't refuse to move to Ottawa. With the difference in real estate prices, I am now mortgage free. And am loving Ottawa.

I recently paid off all my debts (car, line of credit, etc.). In these uncertain economic times, I think it is much better to be a lender than a borrower. Makes me sleep better at night. Makes me more prepared for retirement. Probably will not return to Vancouver when I retire. Nice place to visit, too expensive to live there.

I do not belong to a defined benefit pension program so am planning to rely on my savings for retirement income. Give us a heads up, MG, when your book is to be released.

PS. I have become more conservative in my investing as retirement creeps up on me. Whereas I used investment leverage earlier in my career, I have stopped that. I still have a fair amount of equity, but I tend to favor dividend yielding cos.


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## MoneyGal

brad said:


> I think for many people, just dealing with today and their immediate needs is challenging and draining enough that they don't have the time or energy to think clearly about the future and start planning for it.


Several posts ago, Brad said this - and I've been thinking about it ever since. Here's my thought: it isn't that I think or realistically expect the average Canadian to have even a basic financial plan. I don't. 

However, someone who is (say) 45 years old and renews a mortgage for (say) 30 years - at some point in that process, they sign off on an option (you could even say it is a _default plan_) that has them not paying off a mortgage until age 75. 

That's the moment I'm interested in. Does that (hypothetical) person:

- not even add up 45+30 and remain willingly blind to the age implication?

- recognize the age implication but say, "yes, this mortgage term is for 30 years - but that's just for now...my fortunes will change and I will pay this off well before then"

- say, "this mortgage is for 30 years but I am not going to live in this house for 30 years - if the payments get unmanageable, I'll just sell and live somewhere else"

- say, "well...this is what works for me now and I am totally willing to impoverish my 75-year-old self in favour of my 45-year-old self"

I'm really curious about what rationale is chosen in that moment. Not that there's any way of finding out, of course!


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## brad

I think for some people the monthly payment amount is the deciding factor. If you can only afford to pay $500/month for your mortgage, you're going to go for a 30-year mortgage even if it means you'll be in debt for the rest of your life.

Some people may expect that their fortunes will change and they'll eventually be able to pay it off, but I think for many folks it boils down to "what can I afford now?" In that sense, it's a simple cash-flow issue.


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## the-royal-mail

brad said:


> I think for some people the monthly payment amount is the deciding factor. If you can only afford to pay $500/month for your mortgage, you're going to go for a 30-year mortgage even if it means you'll be in debt for the rest of your life.
> 
> Some people may expect that their fortunes will change and they'll eventually be able to pay it off, but I think for many folks it boils down to "what can I afford now?" In that sense, it's a simple cash-flow issue.



Agreed. When I bought my condo I looked at the total monthly payments including all extras. I then plotted those numbers into my spreadsheet to see if my income could sustain it. It resulted in less savings, basically, and a little belt tightening on wasteful spending.

I knew that it was a 5 year term/25 year commitment to pay it off. In this day and age, with companies relocating offices willy-nilly, layoffs, divorce, disability and other personal problems, it is very difficult for the average person to commit to living in the same house and location for 25 years. The world changes too much, too fast. In my experience, at least. I do realize some people are luckier than I have been but when I look around at work there aren't many. People move all the time as a result of the above.


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## MoneyGal

Yes, for sure; what you are both saying makes sense. 

But aren't these arguments in favour of renting, not buying? (I know, kind of a different topic.) Or at least renting until you can pay cash? (Don't shoot me.)

Or do people honestly think, "well, my real estate 'investment' will just grow in value, and even though I'm personally never going to pay it off, I'll just cash in and move somewhere cheaper."

Actually, that must be what people are thinking. Right? 

I am always glad I am not in retail sales: I would never be able to handle trying to predict what people in aggregate will do or find appealing. "But the purchase of a Pet Rock is not _rational_!"


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## the-royal-mail

MG, I think your confusion stems from the fact that you are trying to determine the long range vision of older home buyers. From where I sit, there is NO long term vision. It's usually logic like, they are paying $x in rent now, it went up by a factor of 2 this year, if it goes up by this amount every year for the next x years, it will be unaffordable. Better to lock in a mortgage now, start saving some equity and pay slightly more than current rent, but get more space etc.

IMO only, there are not many people (especially those older than 45) who are thinking ahead that far into the future. By that age, they've had enough life experience to know that it's impossible to know where they'll be in 5 years, much less a quarter of a century from now.


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## MoneyGal

Well, I'm 42, and I think about the future all the time.


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## brad

MoneyGal said:


> But aren't these arguments in favour of renting, not buying? (I know, kind of a different topic.) Or at least renting until you can pay cash?


I think there are two irrational factors at play:

The first is that there is a lot of social pressure on people to buy rather than rent. Our society makes us feel like we aren't really grownups until we buy a home. It's not rational, it's a societal expectation. It's one of any number of societal expectations that force us into bad decisions or force us to spend more money than we should. Furthermore, in a couple situation, one person may have more of a "nesting" instinct than the other and may demand that they buy a home even if the other partner doesn't feel they're ready to take on the debt.

The second is that cash flow is the primary consideration in many people's financial decision making. There's a lot of evidence to support this: people are willing to lose hundreds, thousands, or in the case of mortgages tens of thousands of dollars over the long term in exchange for having what they want now. 

Education could help address the latter issue, but it's not going to be easy.


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## Cal

Brad - agree with both of your points.

I would rather buy at the right price or rent, than buy because everyone is doing it. I work hard for my money, and what some of these asking prices are today, I don't think people realize how many years of hard work it will take to really call it their own.


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## brad

I guess it all goes to show that people don't behave like the rational economic optimizing machines that economists used to assume they were. Corporations are more likely to behave in economically optimal and efficient ways because they have financial experts and analysts on board (assuming they get listened to). But individuals don't necessarily choose the optimal path because their financial decisions are influenced by other criteria.

I see this in my own behavior all the time. I stubbornly maintain my TFSA that is earning all of 3% because I want to maintain an emergency fund, but at the same time I am paying for a mortgage on my house at 5.2% interest. If I were economically rational, I would use the $10K in my TFSA to pay down my mortgage and open up an equity line of credit for my emergency fund instead. But I won't do it, which is irrational and I know it. But I'm pigheaded.


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## OhGreatGuru

brad said:


> I stubbornly maintain my TFSA that is earning all of 3% because I want to maintain an emergency fund, but at the same time I am paying for a mortgage on my house at 5.2% interest. If I were economically rational, I would use the $10K in my TFSA to pay down my mortgage and open up an equity line of credit for my emergency fund instead. But I won't do it, which is irrational and I know it. But I'm pigheaded.


No, you're not pig-headed, you are making a rational risk management decision. You have decided to "pay" the differential in interest as a "cost" or "premium" in return for the security of having that emergency fund. This is not the same as doing no long-range financial planning at all.


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## brad

OhGreatGuru said:


> No, you're not pig-headed, you are making a rational risk management decision.


Well, if you say so. ;-)

Actually the security is exactly what I was going after, but from a bottom-line accounting perspective it's not the smartest thing to do.


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## the-royal-mail

brad said:


> I see this in my own behavior all the time. I stubbornly maintain my TFSA that is earning all of 3% because I want to maintain an emergency fund, but at the same time I am paying for a mortgage on my house at 5.2% interest. If I were economically rational, I would use the $10K in my TFSA to pay down my mortgage and open up an equity line of credit for my emergency fund instead. But I won't do it, which is irrational and I know it. But I'm pigheaded.


There is nothing irrational about keeping a bunch of money safely stashed away someplace in case of life adversity. Forget about interest rates. The money is not there to earn interest. The money must be there, every dollar of it, on short notice in case something happens.

Companies are heartless, soul-less entities with the single purpose of making money for themselves. That is their goal. As a human being, your actions of getting educated, going to work and saving your money are all designed for basic survival. Yes, we all like life's extras, but when we talk about e funds we are talking about survival.

You're not irrational and you're not pigheaded. You are doing what's right for you, just like the companies you mentioned do what's right for them.


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## brad

Maybe I should have said "economically irrational," since from a pure-economics standpoint I'm not maximizing my bottom line.

At any rate, to get back to the point of the thread, I think this same concept of economic irrationality applies to people who take out long-term mortgages relatively late in life. It's a decision that works for them now because they can afford the monthly payments, but it's economically irrational. But it's also irrational from a personal finances perspective due to the risks it entails and the quality-of-life issues it implies for one's retirement years.


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## Maltese

MoneyGal said:


> Yes, for sure; what you are both saying makes sense.
> 
> But aren't these arguments in favour of renting, not buying? (I know, kind of a different topic.) Or at least renting until you can pay cash? (Don't shoot me.)
> 
> Or do people honestly think, "well, my real estate 'investment' will just grow in value, and even though I'm personally never going to pay it off, I'll just cash in and move somewhere cheaper."
> 
> Actually, that must be what people are thinking. Right?
> 
> "


Many of my co-workers/friends think like this. It drives me crazy that they base financial decisions on payment amounts and don't take into consideration how much is actually spent after the interest has been paid for many years. 

One friend, at the age of 59, just purchased her first house after renting all her adult life. She had no money saved and on the advice of a FP, borrowed to purchase an RSP and then after the required time, took it out to put toward her down payment. She sees this as equity in her home and doesn't understand that it just debt with another name. She also borrowed money from her parents to make up the rest of the down payment. So here she is, at 59, not in great health, with a $230,000 mortgage and no hope of ever paying it off. She's stretched to the max and has no excess funds to fix any of the things that she's discovered are wrong with the house. She tried to save money by getting a friend of a friend assess the home before she made the offer to purchase rather than an experienced Home Inspector and he missed tons of problems. Sometimes it's just not worth it to go the cheapest route. As they say, "Penny-wise and pound foolish." Money Gal, her thinking is exactly as you stated. She expects to cash in when she sells the house and move somewhere cheaper. She's always talking about retiring but doesn't have a clue what that means financially. She's under the illusion that she'll either make a ton of money on her home and use the proceeds to supplement her limited pension or will stay in the house and have enough money from her pension, CPP & OAP to continue paying her $1500/month payments. She can't live on $45000 net now so how she'll manage on $27000 net is beyond me.


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## Maltese

MoneyGal said:


> Well, I'm 42, and I think about the future all the time.


I've thought about the future since I was 23. LOL That is when I purchased my 1st RSP and attended my 1st Retirement Seminar. The other attendees wondered why the heck I was there.


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## MoneyGal

My dad gave me a copy of The Wealthy Baker when I was a teenager and I purchased my first stocks when I turned 18. Try being a teenage girl interested in personal finance and stock market investing. 

(On the plus side, I work in finance now and my younger brother is an analyst at an investment bank, so my dad's wisdom paid off. But it isn't as though he was some big pro-business guy - he was a science professor. He just wanted us, including his daughters, to know about money, feel comfortable investing, and save for the future.)


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## Doug Out West

I have in-laws that have a pretty big mortgage and they are in late 60s early 70s. Have always lived like that. Even had $500K inheritance come there way. We're just hopeful that once they sell their house and down size they won't be looking for money down the road.

We on the other hand were mortgage free at 40, even with lossing money on our last two houses(1995 &2000). 

However we may retire with some debt. Have a secured investment loan that took out not even a year ago. Would consider keeping it after selling house ( secured on cabin) as the original intent was invest in shares where the dividend after tax would pay for the interest on th loan plus make $2-3k a year. Have to see what interest rates are when the term is up.


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## Cal

http://www.theglobeandmail.com/glob...ealthy-and-retiring-with-debt/article2003857/


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## Square Root

cardhu said:


> Depends how its used.


Yes OK. Relatively small balances or very stable underlying asset would be OK. But anything big or risky enough to make much of a difference should in my opinion best be done when you have a paycheck or flexible retirement date. Just in case things don't work out as planned.


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## sags

I think the lenders are going to have the biggest problems if a lot of people retire with debt...........pension income is creditor proof.


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## I'm Howard

Retirees generally have a guaranteed pay cheque, part or all may be indexed, good cash flow as kids have probably gone, cannot get fired, why would you be afraid of debt??

You will always have payments of some kinds, it is not the source that should be a concern but the amount.

Two retired Teachers are probably getting a $100,000 a year, indexed. why would debt be a concern?


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## Square Root

I'm Howard said:


> Retirees generally have a guaranteed pay cheque, part or all may be indexed, good cash flow as kids have probably gone, cannot get fired, why would you be afraid of debt??
> 
> You will always have payments of some kinds, it is not the source that should be a concern but the amount.
> 
> Two retired Teachers are probably getting a $100,000 a year, indexed. why would debt be a concern?


I suppose, but for me having debt decreases flexibility. Also, if rates go up, this could make things tight at some point in the future. I think debt free is better all else being equal(of course it wouldn't be).


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## marina628

I hear enough complaining from my older relatives with no mortgages about how expensive things are,I CAN'T imagine retiring with any debt.


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## I'm Howard

marina, everyone is complaining about how expensive things are.

A meal at a restaurant, add HST, add 15% Tip, that's almost 30% more than the meal cost.

Milk in the U.S costs $2.35, in Canada $4.45, WHY?

Left in October, Gas was $.94, came back in April, $1.37.

$45 to fill up in the U.S, $70 in Canada.

HST is crippling the consumer, the poorer people who spend a larger % of their income on necessities are hurt the most.


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## marina628

We eat at home most meals for that reason.I can go get a feast of seafood including Lobster for $50 at the grocery store ,the 4 of us can't go to Swiss Chalet for that.Can't wait til Sobey's has their mothers day live Lobter sale lol.
Thanks for reminding us how crazy the gas prices are , next couple weeks we will put our boat in the water and be paying the gas bill on the V-8 to drive to cottage!


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## Jon_Snow

In short, to answer the question posed by the OP: NO FRICKIN' WAY!

My wife and I hate debt with equal passion. Once our mortgage is paid off in less than a year, everything we buy in our lives moving forward will be bought with CASH we hold in our accounts. We are of one mind in this and it feels good to have made this pledge.


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## DanFo

I'm with snow..no debt going into retirement. I hate oweing money...if I can't pay cash I don't need it...And I'll never buy a new car again...learned that lesson...2 years on the mortgage then 20 to sock money away for retirement...my lifes prob simpler though having no kids to put through school.


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## I'm Howard

Jon, what is better No Mortgage on a $300k Home or a $100k Mortgage on a $650k Home??


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## Jon_Snow

I see where you are going with that, Howard... But better yet, how about that very same 650k house with NO mortgage. That would be our choice, even if we had to save for a couple of years to do it. Our savings rate is not typical of most canadians I realize... My point is that if you are fortunate enough to be able to avoid debt (even mortgage debt) you should do it.

As DINKS, we know that we live in a different financial reality than alot of folks. Sometimes we are a bit sad we won't have children, but at least we don't have pressing debt or money issues. It's something I guess.


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## Plugging Along

I generally think no debt going into a retirement, especially if it's on something that is not going generate any positive cashflow. I look at retirement as a time you should be tryng to minimize your negative cashflow. If the person is willing sell the $650K house with $100K mortgage, and then move into a $350K house no mortgage, that would be my first choice. If they plan to keep the house no matter what, then I say being completed out of debt is better in this case. 

I do see nothing wrong with debt that pays off itself with a positive cashflow.


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## marina628

Jon If you are sad about not having children ,We can work out a deal lol


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## Jon_Snow

Marina, I am a happily married man... I am shocked by your suggestion.


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## marina628

Jon I have a 18 year old that we can share when you feel sad you have no kids lol .Before you say no 18 is perfect age to adopt lol


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## Financial Cents

Our plan is to have no mortgage and no outstanding LOC when we retire.

Any moderate purchases (up to $5,000) could be paid in cash if we wanted to.

That's the plan, we're on track to accomplish this in another 15 years; shortly after age 50.


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## cardhu

Square Root said:


> Yes OK. Relatively small balances or very stable underlying asset would be OK. But anything big or risky enough to make much of a difference should in my opinion best be done when you have a paycheck or flexible retirement date. Just in case things don't work out as planned.


Yup. Note that my original comment of a year ago referred to "modest" leverage. Debt is a tool, and like many other tools, it can be used conservatively or recklessly.


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## sags

It's all about the relative. 

Not a rich relative, leaving an enormous treasure to plunder.......but the relative income to debt loads.

I think most people would rather have a 100,000 income and 500 a month in debt, than a 25,000 income and no debt.

No debt is good..........higher income is better.


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## Plugging Along

I agree about the ability to afford debt is relative. Someone with a higher income, could have a little debt and not have much, if any impact, whereas someone with a 1/4 of the income with the same debt could be in trouble. 

However, the point is debt (non cashflow/asset appreciating debt) is still debt, which means that the person will have paid more for it than they needed to, irregardless of how high their income is.

I just don't understand why you can't have a high income AND no debt? Of course I perfer higher income with $500 debt, vs. $25000 income and no debt. Why can't it be high income and no debt? I don't see the correlation.


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## sags

I suppose it depends on what the "debt" is for.

They can have "debt" on a new vehicle, but pay 0% interest on the loan.

Maybe they wangled the dealership into paying for the life insurance on the loan as well........even better.

Or.......maybe their money is tied up with a financial advisor and they just dont want to fiddle with it.........so they run a credit line balance.

I know one guy who retired and owns a payday loan franchise. He has a lot of "debt". 

He uses his personal credit line to loan out money to other people at 21% for two weeks.

There could be lots of reasons.


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## Plugging Along

I do agree about different types of debt. That's why I said debt that brings in a positive cashflow, or helps build an asset, is fine, but still needs to be managed, especially near retirement. I think if you're really 0%, then by leaving the money in the bank, you're making money still.


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## I'm Howard

Florida is our home for six months, and when I speak to some people they say they would love to do it but can't afford it.

The fact is they can, but they won't, sitting in a very large mortgage free home they could easily re-mortgage, pay the mortgage from their pensions, extend their life and I have no doubts escaping our winters adds years to their lives, but they won't, they can't.

I know several others who do the same thing, the differance is that they have huge savings but won't touch them because they are going to the kids when they die.

Debt is good if it adds to your quality of life, you are a long time dead.


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## sags

I think it is a result of a ultra frugal lifestyle. They are so accustomed to not spending money for anything that it pains them when they have to.


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## sags

Yes, time is one thing money wont buy.


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## Square Root

@Howard. I think you have constructed an example of where debt might be a good idea. However, for most people in retirement their pensions are probably not that big to support the debt required for a reasonable second home. (although I know there are some very inexpensive places available). In addition for many people whether retired or not, debt is often poorly managed. So in my opinion, although in some cases it can be a reasonable stategy, for most people nearing retirement debt is not a smart idea.


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## Eclectic12

Square Root said:


> @Howard. I think you have constructed an example of where debt might be a good idea. However, for most people in retirement their pensions are probably not that big to support the debt required for a reasonable second home. (although I know there are some very inexpensive places available). In addition *for many people whether retired or not, debt is often poorly managed*. So in my opinion, although in some cases it can be a reasonable stategy, for most people nearing retirement debt is not a smart idea.


The management is the key, IMO. 

Retirement changes the flexibility to pay off the debt but at the end of the day, it is a combination of the use as well as the management that matters.

A retiree who used their HELOC to buy a bank stock in early 2009 at a maximum 3% rate is much farther ahead than another with a "0%" car loan.


Cheers


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## Square Root

Eclectic12 said:


> The management is the key, IMO.
> 
> Retirement changes the flexibility to pay off the debt but at the end of the day, it is a combination of the use as well as the management that matters.
> 
> A retiree who used their HELOC to buy a bank stock in early 2009 at a maximum 3% rate is much farther ahead than another with a "0%" car loan.
> 
> 
> Cheers


I agree except that in early 2009 it was impossible to know how things were going to turn out. The market thought dividend cuts by the banks was likely and if that had happened all bets were off.


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## Square Root

sags said:


> Yes, time is one thing money wont buy.


Actually it can. Examples: early retirement, hiring people to do mundane tasks, hiring a personal financial planner. I think I could come up with a few more.


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## Plugging Along

+1 w/ Square Root. Some time can be bought with money. I found when my spouse and I were not working, that we had a lot more time to do things ourselves, save money which wasn't coming in. Now that things are much more normal, we will hire people to do things, or buy things that save us time, as time is the scarcity right now. Its all about a balancing act. 

I do think Howards example, may be one of the few times I think it may be okay to have debt. Again, I'm assuming the asset is an appreciating asset.


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## cannon_fodder

Looks like I'll be retiring with debt. But it will be early retirement and the debt will be a HELOC which was used to jumpstart an investment portfolio in late 2008 near, but not at, the bottom of the market.


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## Eclectic12

Square Root said:


> I agree except that in early 2009 it was impossible to know how things were going to turn out. The market thought dividend cuts by the banks was likely and if that had happened all bets were off.


Hmmm ... so one should incur debt only when the outcome is known and presumably safe? 


If one thought that the market was over-reacting, the rewards ended up ranging from 100% to 300% capital gain and a healthy dividend income. One could have spread the risk by buying the index, say XIC but then the reward would have been a 60% capital gain plus dividends. 

If one was looking to place borrowed money in Mar 2009 - where would the results be known?


Also - I didn't catch it one the first go round that you were referring to a cheap place to live in Florida to extend one's life by minimizing winter exposure. 

What is your definition of a "reasonable second home"?

If a forty foot mobile home with attached sun room works - around about 1992, they could be had for $2K US in the Clearwater/Dunedin area, near Tampa Bay, Florida. There'd also be park fees of about $400/month. In most cases, the contents were included such as couches, beds, air conditioners, fridge, stove etc.


Cheers


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## Square Root

Eclectic: Always pretty easiy in hindsight. At the time fear was palpable. I did buy more bank stock for my RSP at this time but a major debt fuelled buying spree seemed a little reckless at the time. Would have been "brilliant" though.
The comments re Florida were not mine.


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## Four Pillars

Agree with SquareRoot - 20/20 hindsight.

The American banks had the same kind of drops - what if someone leveraged hard on those?

Their banks all went bankrupt, ours didn't - I had no idea the American banks were so bad. I wanted to think the Canadian banks were better (and they were), but I had no way of knowing that for sure back in 2008/09.


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## I'm Howard

eclectic, I think you meant $20k, and that would not be much of a park.

$25,000 up would get fully furnished in a good 55 Plus Community.


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## cannon_fodder

Square Root said:


> Eclectic: Always pretty easiy in hindsight. At the time fear was palpable. I did buy more bank stock for my RSP at this time but a major debt fuelled buying spree seemed a little reckless at the time. Would have been "brilliant" though.
> The comments re Florida were not mine.


I suspect eclectic's timing was better than mine but a lot of analysts were saying this is probably the best buying opportunity of a lifetime. And I felt confident that, within no more than three years, the markets would rebound nicely. 

Itnot only tookconviction to buy but it also took conviction to hold as the market continued to plunge. Anyone can fill out a form saying they have a high tolerance of risk but it's an experience like that which is the real indicator. 

As long as I can continue to generate great returns with my HELOC funded investments I will continue to slowly pay down that debt before and during retirement.


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## Square Root

I recall thete were analysts on both sides of the question at the time. In particular the highly ranked BMO analyst thought things were going to get much worse in a report dated Feb/2009. Hindsight tends to filter out some of them from memory I think.


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## Eclectic12

Square Root said:


> Eclectic: Always pretty easiy in hindsight. At the time fear was palpable. I did buy more bank stock for my RSP at this time but a major debt fuelled buying spree seemed a little reckless at the time. Would have been "brilliant" though.
> The comments re Florida were not mine.


*shrug* - part of the equation is following the market or a stock a while. Some "fear" situations then can appear more as an opportunity.

As for the "major debt" - that's where the debt management is key. If fear is palpable with risk of losing all - then stick to what one can comfortably pay off (i.e. a calculated risk) and keep current on it. 

This is also why I prefer to avoid the swings of margin compared to the more predicatable loan, Line of Credit or Home Equity LoC.




As for the Florida comments - sorry for any confusion.


Cheers


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## Eclectic12

Four Pillars said:


> Agree with SquareRoot - 20/20 hindsight.
> 
> The American banks had the same kind of drops - what if someone leveraged hard on those?
> 
> Their banks all went bankrupt, ours didn't - I had no idea the American banks were so bad. I wanted to think the Canadian banks were better (and they were), but I had no way of knowing that for sure back in 2008/09.


Yes - leveraging American banks would have been a bad thing. But then again, there was also plenty of reports by March 2009 to show massive exposure across several US banks. 


As for the Canadian banks ... 

Say one reads about wide gaps between US/Canada underwriting practices, remembers the Canadian bank CEOs screaming for major changes to "keep up with the US banks" which were turned down, has several years of bank annual reports showing the broad strokes of where each bank is making money and then concludes there is an exposure but is limited.

Now add in a couple of advisors reports with basically the same conclusion and far more detailed numbers.

Is it really hindsight?


Bear in mind - that since it is a risk, the leverage is limited to what can reasonably be paid off. So it is by no means "leveraged hard".


Cheers


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## Eclectic12

I'm Howard said:


> eclectic, I think you meant $20k, and that would not be much of a park.
> 
> $25,000 up would get fully furnished in a good 55 Plus Community.


I meant $2K. 

Five years previously the same mobile sold for $22K US but for a long time, if they sold, most were going for this price - assuming the owner was willing the spend the time instead of walking away. 


Incidently, when the couple from Barrie across the lane sold, the mobile was sold for $2300 and they managed to sell most of the contents for a little over $4K. The new owners were planning on gutting then re-doing it anyway so it worked out for both parties.

Lots of people expected prices to improve after Hurrican Andrew - which didn't materialise.


As for the park, I'm not sure what more one would want beyond the pool, shuffleboard, clubhouse, lawns being trimmed etc. but to each their own.


BTW - I loved going up to New Port Richey to a gold course. As I recall, it was
about $9 for a round. If one still had the energy and the course wasn't busy, the second round was free. The PGA course was closer and much better but also much more expensive. One had to watch the water hazards for alligators though.


Cheers


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## Eclectic12

cannon_fodder said:


> I suspect eclectic's timing was better than mine but a lot of analysts were saying this is probably the best buying opportunity of a lifetime. And I felt confident that, within no more than three years, the markets would rebound nicely.
> 
> Itnot only tookconviction to buy but it also took conviction to hold as the market continued to plunge. Anyone can fill out a form saying they have a high tolerance of risk but it's an experience like that which is the real indicator.
> 
> As long as I can continue to generate great returns with my HELOC funded investments I will continue to slowly pay down that debt before and during retirement.


I didn't hit rock bottom but was close. I'd also watched for a while, checked reports, ran through scenarios etc. and then when the March drop hit, acted.

I also had decided my limit and spread that amount over a couple of sectors/strategies. Interestingly enough, one of the two losers was a construction firm I expected to benefit from the economic action plan. But since of the other eight or so, two are at 30%, five are at 100% and one I sold in March gained 200%, I'm not complaining.

In hindsight - I could have afforded from of the 200% one but them's the breaks.


And yes - conviction is important. It is much easier having lived through several other downturns - as well as thinking through what the options are if all tank.


This is where, leading to and into retirement, I can see going through cycles of buy a percentage and then pay-off - if conditions are right.


In hindsight, I'm glad I had the HELOC in place before the opportunity presented itself.


Cheers


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## Square Root

Well, I think there is plenty of room for different degrees of conviction and agree that hindsight can be rationalized as "really knowing my stuff". I was fairly convinced that at least some of the Canadian banks were not going to be severely hurt by the downturn directly. I felt that the markets were irrational but that old saying that the markets can stay irrational longer than you can stay solvent came to mind.
Eclectic: Congrats that things worked out so well for you. I still beleive that the Canadian banks offer excellent investment returns. Their domestic businesses are bulletproof: ROE's over 30% and growth of 5-10% for the foreseeable future. Dividend yields close to 4% what more could you ask for?


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## Larry6417

*Talking of bad debts*

John Mauldin wrote a recent column about bad Eurozone debts. Some American banks/ financial institutions are exposed to Greek/Portuguese/Irish debt via...you guessed it...credit default swaps. The financial crisis in Europe looks like it's just starting, and the last financial crisis taught us that we're all connected.


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## Square Root

Larry6417 said:


> John Mauldin wrote a recent column about bad Eurozone debts. Some American banks/ financial institutions are exposed to Greek/Portuguese/Irish debt via...you guessed it...credit default swaps. The financial crisis in Europe looks like it's just starting, and the last financial crisis taught us that we're all connected.


Canadian banks are generally not involved in the Euro debt crisis- at least not directly.


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## I'm Howard

Argentia was in exactly the same situation as greece, they defaulted, the world did not collapse and they emerged with no contagion to Brazil or other neighbouring countries.

Greece must default, as must Portugal, Ireland, and Spain, and the debt holders who are mainly large Foreign banks will lose some monies.

Ignoring the problem won't make it go away, short term pain for long term gain.

The U.S is not far behind.

Buy Gold, we will go back to some standard where currencies are tied to hard assets.


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