You’re going to carry that weight: taking Debt into Retirement

Our parents seemed very willing to make do with what they had and live within their means. There are very few Boomers out there who have not heard at least one story about how frugally and carefully their parents handled money or did without. In fact, this still holds true for how they live and spend in their retirement. This is mirrored in comical scenes from Seinfield, where Jerry’s parents, retired in Florida, rush to have supper at 4:30 in order to catch the less costly “early-bird special.”

But not so with the Baby Boomer generation. We are masters of spending not only what we earn, but even more than we earn. Thank goodness for credit, a tool our parents may have used for buying a house but not for many other purchases. But how would we, as Boomers, ever be able to keep up with our friends and relatives in terms of possessions or experiences if we weren’t able to buy now and pay later? For many Boomers, this was simply the way it was done, and we managed to find new ways to get more credit and more possessions. Credit allowed us to create a lifestyle pattern where we could continually consume more than we could afford. As a result, a lot of Baby Boomers did things when they wanted to rather than when they should have.

But retirement, and funding it, is totally different. In order to retire, we have to pay first and enjoy later. This is contrary to how Boomers have done most things throughout their working life. You can’t borrow to fund your retirement. That must be paid for in advance. You can really only consider retiring when you can afford to, not simply when you want to. It is a decision driven more by financial reality than by desire.

A retirement survey conducted in 2010 by RBC uncovered that four in ten retirees had some form of debt when they retired and nearly one in four had a mortgage on their primary residence. The issue here is that servicing a mortgage or a debt is a drain on cash flow that would otherwise be used to fund lifestyle in retirement. Chapter 8 in the book, “Your Retirement Income Blueprint” touches on this issue in more details.

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