Retirement. This is supposed to be the time where you enjoy your life. You travel a little bit, spoil the grandkids. But there's one thing that can quietly derail it all, and that is debt. So whether you are a single retiree, whether you're planning your retirement as a couple, debt can be the hidden weight that pulls everything down. It takes away your financial freedom. Now, the new reality is more and more Canadians are actually heading into retirement, still carrying loans. How bad is it? What should you do about it? Well, let's talk about that in this episode. First off, let's talk about why debt matters so much when you retire. During your working years, you have that steady income coming in. You got paychecks, bonuses, maybe some side hustle money. But once you retire, that regular income that gets replaced by fixed sources, CPP, OAS, pensions, withdrawals from your own investment accounts like your RRSP and your TFSA. Here is the problem. If you're still making monthly payments on credit cards, on loans, or even a mortgage, those payments don't go away, but your income flexibility does, and that can really eat into your retirement lifestyle. A lot of retirees do end up with enough to live, but not enough to live well. Now, this is episode four of our 12-part series, Second Act, is designed to help you fully prepare for your own retirement from both a financial and lifestyle perspective. In this episode, we're going to tackle something that affects more retirees than ever before. and that is debt. We're going to look at why carrying debt into retirement can derail your plans, different types of debt to watch for and which ones are most dangerous, how much debt is too much, and some smart strategies to pay it down without sacrificing your peace of mind. I would like to take a moment to say thank you to Harvest ETFs who have partnered with us for this entire series. I'll be talking a little bit more about them later in this video. Let's have a quick look at some of the most common types of debt that Canadians carry into retirement and what each one really means for your financial future. A growing number of Canadians are going into retirement with mortgage balances still on the books. Now, sometimes that's because they bought later in life. Often times, it's due to refinancing or renovations, maybe helping family or maybe just living in one of those areas that has really, really high real estate prices. Monthly mortgage payments are often the largest fixed expense for retirees. Now, here is the debate. Some retirees feel perfectly comfortable keeping their mortgage if their investments are earning more than their interest rate. Others prefer the security of being debtree, even if that means cashing in investments or downsizing. If you're trying to decide for yourself, here are some things that you do need to consider. Are you on a fixed or variable rate? How much time is left on your term? Would paying it off hurt your liquidity or increase your tax burden? This is often a math and mindset question. Speaking of real estate, some retirees are turning to reverse mortgages. And this allows you to access home equity without actually selling your home. But of course, it does come with some costs. Interest accumulates. Repayment often comes from the eventual sale of your home. If you are house rich but cash poor, if you plan to stay put longterm, it might be something worth exploring. Just be cautious. Of course, the fees can be high and it may reduce the estate that you leave behind. Okay, credit card debt. This one is flashing a red light and this is especially true if you are in retirement. Debt rates often hover between 18 and 24%. If you are only making your minimum payments, of course, that balance is barely going to move and the interest will compound quickly. Even if you have a relatively small balance, that can spiral into something that quietly eats away at your financial security. Here are things you need to consider. Are you using a credit card to fund your everyday expenses or to bridge income gaps? If you are, that is a problem. Do you have a strategy to pay off the full balance each month, or is it growing? In most cases, paying off high interest debt should be one of your top priorities before or immediately after your retirement begins. A $500 car payment might not seem like a huge deal, especially if you're used to it. But over a year, that's $6,000 that's no longer available for things like your travel, your medical needs, or even just a cushion for emergencies. Personal loans, those can be even trickier because they often have shorter repayment periods, higher rates, and fewer options for restructuring. So, what would you consider here? How much longer are you making payments? Could you sell a vehicle and buy something less expensive outright? Is this debt helping you like in a medical or family emergency or is it just funding lifestyle upgrades as you head into retirement reducing or eliminating these fixed monthly obligations? This is going to give you more flexibility and less pressure on your savings. Now, by the way, to help you get the most benefit from this video, I've put together a summary of the key points of this episode. You can download your own copy and supplemental material for every episode in this series by visiting the link. You can see the QR code on this screen. HELOCs, home equity lines of credit. These are a little bit of a wild card. On one hand, they do offer flexible access to your cash, often at lower interest rates than credit cards or personal loans. In fact, many Canadians have used HELOC to renovate their homes or even help their children with down payments. But there is a catch here. Most HELOCs are variable rates. So that means that your payments can go up if interest rates rise. And in retirement, when income is fixed or semifixed, these rates can be a real burden. Here are things you need to consider. Are you only paying interest? Or are you making regular principal payments, too? What is your backup plan if rates continue to rise? Could this loan be restructured into a fixed income loan that would protect your cash flow? HELOCs aren't inherently bad, but they do need to be managed very carefully, especially when you're in retirement. Now, this might come as a bit of a surprise, but according to Statistics Canada, a lot of retirees are actually still carrying student loans when they go into retirement. Now, for some others, the issue with this might be co-signing loans for your children or your grandchildren. And these are loans that may not get repaid. And this is one of the more emotionally charged forms of debt. You want to help your family, but if those loans do go unpaid, you could be fully responsible, right? As you're trying to preserve your nest egg. What should you consider here? Are the loans in your name, or have you just co-signed for them? That might be a difference. Is the borrower keeping up with payments? Could this impact your credit score or could it require you to start making payments unexpectedly? If this is the case, the best approach here is to get clear on your liability and set boundaries if needed. And consider being open with your family. No doubt that money conversations can feel awkward, but unspoken expectations, these can definitely create tension later. Debt can put a serious strain on relationships, especially if one spouse or family member feels that they got caught off guard. Remember, your retirement security needs to come first. As they say, you can't drink from an empty cup. Another debt related topic here is that not all debt is equal. Some of your debt may be strategic, other debt is just draining. And in retirement, the difference becomes even more important. Ask yourself, is your debt manageable within your retirement income? Is the interest rate reasonable? And is it helping or hurting your long-term security? Also think about how repaying your debt could affect your government benefits. For example, large RRSP withdrawals to eliminate your debt that might push you into a higher taxable income over the threshold for your OAS clawback or reduce your GIS eligibility. You always need to look at the big picture before you make any lumpsum payments. At the end of the day, when it comes to this, tackling debt before or early in retirement does put you in a stronger position to enjoy the lifestyle that you've worked so hard for. Let's shift gears for a moment here and have a look at some strategies to pay off or manage your debt before retirement. But first, I would like to thank Harvest ETFs for partnering with us in 2025 to bring you this very important series. Managing debt in retirement, it's not just about cutting back. It's also about building smart, reliable income. And that's where ETFs and specifically income generating ETFs can help. One option that has become increasingly popular with retirees is the use of covered call ETFs like those offered by Harvest ETFs. And Harvest has funds in strong stable sectors like healthcare and low volatility Canadian equities. These are used with a covered call strategy to generate consistent monthly income. For example, the Harvest Healthcare Leaders Income ETF, HHL, or the Harvest Low Volatility Canadian Equity Income ETF, HVOI. These offer large cap healthcare stocks and blue chip Canadian equities with steady cash flow which can help offset debt payments without forcing you to dip into your capital. This isn't just about chasing yield. It's about building a strategy that aligns with the realities of retirement. Because if you can create dependable cash flow from your portfolio, you may not need to withdraw as heavily from your RRSP or your TFSAs. And that flexibility can make managing debt a whole lot easier. Bottom line here, debt in retirement is a challenge, but it doesn't have to be a crisis. To learn more about income generating ETFs with Harvest ETFs, scan the QR code on your screen. I will also put a link in the description of this video. So, what are the main risks of carrying debt into retirement? There are a few big ones, and they go beyond just numbers on a spreadsheet. So, let's take a look at those now. Number one is cash flow risk. And every dollar that you spend on debt repayment is a dollar that is not available for your daily living, for emergencies, or for enjoying your retirement. When you are working, income tends to be flexible. You can work some overtime. You can pick up a contract, maybe even a side hustle if things get tight. But once you retire, most of your income that's going to come from fixed sources like CPP, old age security, a company pension, or planned withdrawals from your investment accounts. Now imagine layering your monthly debt payments on top of that. A mortgage payment here, a car loan there, a few hundred on credit cards, and suddenly your fixed income starts feeling a little bit inflexible. If your budget doesn't have any breathing rooms for small surprises like a higher utility bill, maybe a medical expense or helping a family member, that can throw you entirely off course. I'll say it again, not all debt is created equal. And if you have variable rate loans like many of the helilocs, mortgages, or lines of credit, you are exposed to something that a lot of retirees can't easily adapt to, and that's rising rates. Let's say you have a $50,000 HELOC at 3.5%. Well, a few Bank of Canada rate hikes later, then you're paying 6.5% or possibly more, and that could be a massive jump in your monthly payment with no change in your income to offset that. Retirees who are living on fixed income don't get raises per se. So, if interest rate costs go up, that money has to come from somewhere. Usually, it's your savings, which then, of course, shortens how long your money will last. And this is especially dangerous if you're using credit cards to cover your basic expenses. This one is harder to quantify, but it's just as real. Even if you are technically managing your debt, carrying it into retirement can create emotional strain. And this is true especially for those who have always sort of thrived to retire debtree. You could feel guilt. You can feel anxiety or pressure about every dollar that you spend in retirement. Another thing too, this can also lead to fear-based decisions like withdrawing too much money from your RRSPs too quickly or delaying important purchases like healthare or home maintenance just to keep your balance from growing. Now, stress can also cloud your judgment and lead to financial choices that feel better in the moment but are actually worse long term. Retirement should be about freedom and peace of mind, not stressing about the next money conversation that you may be forced to have. Now, the fourth big risk in retirement is the snowball effect. And this is if you're using debt to supplement your retirement income. You're not just managing the debt, you're actually growing it. And this can often start small. A little bit of credit card use during the holidays, a one-time withdrawal from your HELOC for a new roof, maybe a shortfall in your monthly budget that you just kind of make up with a line of credit. Before long, this becomes a bit of a pattern. And because your income doesn't naturally increase in retirement the way it might during your working years, there's no easy way to dig yourself out of this hole. And if this is left unchecked, this kind of compounding debt can quietly snowball and eventually it's going to come back down that hill and it could crush you. It could force you to liquidate investments early. It could force you to take on more risk than you're comfortable with or drastically scale back your lifestyle. Also, make sure to stress test your debt under different scenarios. For example, could your spouse continue to make payments if something happened to you? Would your estate be forced to sell assets just to cover balances? These are the kinds of questions that a good estate plan should answer. And life insurance wills, these should be reviewed regularly if you're carrying debt into retirement. Okay, so you have some debt in retirement and you ask how much is too much? Well, there's no magic number for this, but a helpful benchmark is your debt to income ratio. And this is applicable even in retirement. If your monthly debt payments take up more than 30 to 35% of your income, that can be a concern. Let's have a look at a couple of quick examples. Ellen is a retired school teacher and he brings in $5,000 a month from pensions and savings. He's also paying $1,800 in mortgage and loan payments. So that comes out to 36%. And that puts him right at the cusp of a comfortable debt load in retirement. Now, on the other hand, Joe and Joanne, they have combined retirement income of $7,000 a month. They also have a mortgage with a low locked-in rate and $100,000 balance. Their mortgage payment is around $740 a month. So, in their case, they should be fine. Their debt to income ratio is around 10%. So, as long as they have a plan to manage their withdrawals, they should be well within the comfort zone. Bottom line, it's not just the amount of your debt, it's how much strain it puts on your cash flow and your long-term savings. If your retirement is still a few years away, the best time to start tackling your debt is right now while you still have the full power of your income behind you. Here are a few practical strategies that can help you make real progress. Number one, the snowball method. And this approach focuses on paying off your smallest debts first, regardless of the interest rate. As each of those balances disappears, you roll the payments into the next debt on the list. Now, this obviously is not always the most cost-effective way, but in this case, it builds momentum and it can build confidence and sometimes that emotional win is what you need to keep yourself going. The second method is the avalanche method. And here you prioritize debts with the highest interest rate first, like credit cards or personal loans. And this method will save you the most money over time. It's a smart choice if you are more motivated by math rather than milestones. If you are juggling multiple highinterest debts, consolidating them into a lower loan or using a heliloc can simplify your payments and lower your interest costs. Just be cautious with this strategy, though. It only works if you avoid racking up any new debt on those now empty credit lines. That can also be a trap. Now, the last strategy I'm going to talk about here is downsizing. And this is selling a larger home and moving into something more manageable. And that can free up some home equity to eliminate your debt. It also lowers your future living expenses. Now, this is a big decision, but for some people, it's sort of a reset button that brings the lasting peace of mind. Finally, stop adding new debt. This is not the time to finance big purchases like cars or renovations or vacations unless they're part of a very wellthoughtout financial plan. Every new loan, this means fewer options and more pressure down the road. If you are unsure about which method makes the most sense for your situation, remember you do not have to go this alone. You can speak with a certified financial planner, a credit counselor, or even a tax professional who may be able to help you choose the right strategy and avoid some of the common missteps like triggering unnecessary taxes or draining your emergency funds. Here's a common question that you hear quite a bit. Should I dip into my RRSP to pay off debt? The answer is it depends. RSPs, remember, they are fully taxable. So that means if you pull $20,000 out to pay a loan, you might lose 20 to 30% of that on taxes. It depends on your other income sources. That debt may be gone, but so is a chunk of your retirement savings. If you have one, a TFSA is often a better choice for this. Withdrawals are taxfree and then you can recontribute the money later. But again, this comes down to balance. Don't drain your future security just to be debtree, especially if your debt is low interest. You can ask yourself, is this bad debt or is it manageable? If the interest rate is say under 4%, your investments are earning 6%, it might be a better choice to keep the debt and let your money go. But if your credit card debt is running at 19%, that's usually a no-brainer. You should probably pay that off. Now, also don't forget to factor in how these withdrawals will affect your government benefits. Taking that 20,000 from an RRSP could increase your income enough to trigger that OAS clawback or make you ineligible for the GIS if in fact you are collecting that. Sometimes the tax and benefit consequences actually outweigh the interest savings. Now, let's talk about something that doesn't really show up in a financial plan, but it can often weigh the heaviest, and this is the emotional side of debt. For a lot of retirees, the very idea of carrying debt into retirement just feels wrong. It sort of goes against everything that they've ever worked for. You may have spent decades saving, budgeting, planning, and the thought of still owing money that can feel like a personal failure even when it's really not. And this kind of mindset can lead to stress, fear, and in some cases even shame. You can start secondguessing your decisions. Maybe you feel embarrassed to talk about it even with your spouse or with an adviser. And that's why some people are led to making snap decisions. You might pull a large sum of your RRSP, trigger a huge tax bill, or you might rush out to sell investments at the wrong time just to get rid of the debt. Here is one thing though. Not all debt is bad. And this is true even in retirement. Carrying a small mortgage, for example, or a manageable loan, that might actually be the right call if it means that you get to maintain your lifestyle or avoid liquidating investments during a market downturn. Still, if this debt is keeping you up at night, if it's causing you anxiety every time the credit card bill comes in, then it's probably worth addressing because peace of mind obviously matters, too. And more than ever, I would say retirement should be a time where you feel you're in control and not burdened by financial baggage. Remember, too, that debt doesn't just affect you, it can affect your relationships, too. A lot of couples will argue more in retirement than they did while working. Finances are often at the heart of that. Be honest with each other. Create shared goals. Remember that peace of mind and peace in the home, they kind of go hand in hand. Debt in retirement can feel overwhelming, but if you have the right plan, you can take control and you can move forward with confidence. In the next episode, I'm going to be shifting gears and talking about something just as important, your health. I'm going to look at how to prepare for health care expenses in retirement, what you can expect from government coverage, and also how you can protect yourself from unexpected costs down the road. Don't forget to subscribe. As always, thank you for watching. We'll see you in the next episode. Yeah.