Retiring with a mortgage

The harsh reality of owing money after age 65

Retirement. It's the light at the end of the tunnel; the reason most Canadian women hike up their pantyhose and head to the office day in and day out. Work hard now, squirrel away a little cash every month, and by the time you turn 60, you'll be able to live your golden years on a beach in sunny Florida.

Except, that's not actually the case.

According to a housing survey published by Royal Bank back in November of last year, the majority of Canadian seniors will still be paying off their mortgage long after they become eligible for seniors discounts. A staggering one-third of Canadians surveyed were found to have at least 16 years left on their mortgage term.

But that's not even the biggest issue. According to RBC's recent Myths & Realities Poll, 74 percent of Canadians over the age of 50 believe they'll have the ability to travel frequently during retirement. Another 40 percent want to be mortgage free by the time they're 55. The truth of the matter? Less than 58 percent of retirees are financially stable enough to spend their time globe trotting, while nearly one-third will likely still be carrying a mortgage when they turn 65.

The recession and your retirement

Post-retirement debt has become a major issue over the past five years as many Canadian seniors have struggled to bounce back after the markets tanked in 2008-09. Recovery has been slow; although stock indexes showed signs of recovery in 2010, global economic issues in the summer of 2011 have many investors worried. To put it into perspective, one of the best-known pension funds in the nation lost close to 5 percent last year…in the third quarter alone.

And that's just half the story. Another major problem lies in the amount of debt Canadians are amassing in their golden years. According to a report from Toronto Dominion Bank, Canadians 65 and over are racking up debt at three times the average pace.

What to do if you're retired and tied to a mortgage

If you're one of the many retirees looking at a future full of mortgage payments, you have options. Your home is still a major asset and can be leveraged to your advantage.

First, talk with a mortgage broker to see if there's any way to refinance at a lower rate. This won't make your mortgage payments go away, but it could help you save a sizeable amount of interest. If possible, try to accelerate your payments to cut back on interest and pay off your property faster. There's no downside to paying off your mortgage, so if possible, make this your number one priority.

For many this will mean staying in the workforce long after reaching retirement age. Statistics Canada research has shown that the average 50-year-old can expect to continue working for another 16 years – that's 3.5 years longer than would have been the case a decade ago.

Of course, it could always be worse. Nearly 25% of respondents from a United States financial survey estimated that they would need to work until they were 80 before they would feel financially stable enough to retire.

Ouch.

Other options to consider

If you have little equity in your home or are thinking about relocating, selling is probably the most logical option. Take the money from the sale to purchase something smaller or simply rent a place and invest the rest. The real estate market is relatively stable right now; so if you think selling is the way to go, don't wait. The market won't stay this high forever.

Of course, this means leaving your home and all the memories it contains. If you're determined to stay put, consider looking into a reverse mortgage or home income plan to help handle outstanding mortgage dues. A reverse mortgage enables seniors to wipe out their bi-weekly mortgage payments using the equity in their home. The homeowner is only required to pay back the borrowed amount, plus interest, when they sell the property.

Get informed & think logically

When it comes to making decisions with respect to your mortgage situation, don't be hasty. Contact a mortgage professional and your financial advisor to review your options and develop a smart approach. Home ownership, mortgages, cash flow – all of these things contribute to your retirement plan, so think logically and get informed. Ultimately, your dream of retiring to a condo in Fort Myers will depend on the decisions you make now.