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Early retirement 101: how to get debt under control before you retire

When it comes to personal finances, there is one thing 54% of education members would like to get under control.

And that thing is—debt.

This should probably come as no surprise. It also happens to coincide with 47% of your peers who don’t think their pension will be enough to fund the entirety of their retirement years.

Could the thought of going into retirement with debt be the underlying reason for all of this uncertainty?

Possibly—and yet if it isn’t, it definitely should be.

Especially when you consider that according to Equifax (one of Canada’s two major credit bureaus), those who are 65 years of age and older have the largest percentage increase in debt, year-over-year.

Canadians aged 56 to 65 follow closely behind with the second largest debt balance owing.

While those between 46 and 55 ultimately carry the largest non-mortgage debt balance at an average of $32,654 each.

Considering education members tend to retire at age 59, here are 4 ways to get your debt under control by your pension years.

#1: Begin paying off all outstanding debt, well in advance of retirement.

Whether it’s your mortgage, car loan, or other debt—review your budget to see if you’re on track to having everything paid off by retirement. If not, you may want to consider accelerating those monthly debt payments if you can.

This is naturally the best-case scenario.

However, we totally get that when it comes to financial goals, it’s easy for even the greatest of intentions to get a little (or a lot) off-track.

Which leads us to our next tip…

#2: If you foresee the need to consolidate debt—do so before retirement.

That’s because it’s far easier to obtain new loans (such as debt consolidations or mortgage refinancing) while you’re still employed and earning 100% of your current income.

You have a pension, but will you have enough to retire?

Use our new Pension Income Gap Calculator to find out you’re on track to fund your retirement dreams.



Keep in mind, for debt consolidations, the solution may take priority over the interest rate. The lowest rate isn’t always the best consolidation solution for your personal needs. Be sure to ask plenty of questions (and do your homework in advance so you are aware of what questions to ask).

Educators Financial Group offers exclusive rates for education members and their families—learn more.

#3: If a loved one has fallen on difficult times, avoid co-signing on a loan before ensuring your own financial security is solid.

For those of you who are parents and grandparents, there is a natural desire to look out for your own. This includes financially. However, make sure you completely understand the risks and ramifications of applying for or co-signing on loans for family members.

Educators Mortgage Agent Level 1-Mortgage Specialist, Federica Screnci explains why.

“Taking on debt for loved ones is a very common theme that I’ve seen with many of our clients,” says Federica. “But doing that puts yourself in precarious position financially—particularly as you approach retirement. Because should the unexpected happen where they are no longer able to pay that debt back, the burden (of that debt) falls back onto you. And you don’t want to suddenly find yourself deeper in debt at a stage in life when it’s so much harder to pay it down.”

So, what does Federica recommend doing instead?

“Always put yourself first,” suggests Federica. “And don’t feel bad about doing that. More often than not, your loved ones will understand that ensuring you have all of your financial ducks in a row should ultimately be your number one priority. If you find yourself in a position to help them out once you’ve done that, then by all means do so. But never sacrifice your own financial wellbeing—and ultimately your peace of mind—by taking on debt for family or close friends if you can’t afford to. It’s not worth the stress, especially in your retirement years.”

#4: Learn how to spend within your means leading up to retirement.

In order to do this effectively, you need to first understand your essential expenses (such as shelter, food, medical, gas, phone, clothing)—this is where having a budget becomes essential.

But keep in mind that your budget will need to change once you enter retirement.

That’s because you will typically need to account for expenses your benefits may no longer cover, or for benefits you/your significant other may no longer have. This includes everything from any medications you’re on to dental check-ups and prescription eyewear. These are all increased expenditures education members usually forget about come retirement (as you’re used to these things being covered).

When it comes to credit usage and your overall debt, there are a few things you can do to keep from falling down the proverbial rabbit hole.

The most important of which is to only use your credit card based on your pre-established budget (i.e., only putting on the card what you can afford to pay off, in full, every month). And while lowering your credit limit to avoid overspending can be a good pre-emptive measure to put into place for retirement, you’ll want to ensure your average credit card/line of credit spending stays under 30% of the limit at any given time.

In other words, don’t lower the limit too much, as it can have a negative impact on your credit score.

Want to get your debt under control before retirement? Educators can help you with that.

Since 1975, we’ve been providing financial advice exclusively to education members and their families. This means we have a unique understanding of everything from how your pay structure works during your working years (pay grid) and in retirement (pension). It’s the kind of insight that puts us in the perfect position to help you maximize every bit of available cash flow so you can achieve your ultimate goals for a debt-free retirement.

Let’s start chipping away at your debt: have an Educators mortgage agent contact you

And be sure to check out more articles in our Early Retirement 101 series:

The importance of being financially and emotionally ready

What retiring early means for your investment strategy

The 85/90 – can you retire before reaching it

How to narrow the pension income gap


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