Retirement debt delusions - MoneySense

Retirement debt delusions

Your minimum payment habit could come back to haunt you.


I was c0-hosting a Toronto radio program last week when the topic of retirement and debt came up. According to Leger Marketing, 24% of Canadians surveyed said they plan to carry debt into their retirement. Of those, 80% say they have no plans to pay it off.

So you work hard to get to retirement, and when you do you’ve got some credit card and maybe some line of credit debt still lingering. No problem. You’ll just keep making your minimum payments. In fact, if you have to, you’ll get access to a couple of new cards so you can pull your minimum payments from those. Hey, you did it while you were working, what’s to stop you now that you’re retired?

Maybe the spectre of leaving your debt to your children? Nah, that’s not a problem. After all, you can’t bequeath debt. The only way for them to be on the hook would have been to actually sign on and you love your kids too much to have done that to them. Nope, you’re clear in your own mind the only one that will get screwed is the bank. Hey, they made plenty of money in interest off you all your life, right?

But what if two years into retirement, your bank calls you up and says, “Hey there, remember us. It’s time to pay us back.”

You say, “I’m making my minimum payments, what’s up?”

The bank says, “Didn’t you think we’d noticed that you’re getting pretty close to popping off this mortal coil? We’ve got your birthday on record you know.”

You say, “Okay, but I’ll need some time. I’ve got to juggle a few things,” as sweat starts to pour down the back of your neck.

The bank says, “Okay, you have 10 days. Then it’s pay up or we’re taking legal action.”

They can’t do that, you think. I’m a good customer. I’ve been a good customer all my life.

Hey, they can, and they may. Credit card debt, line of credit debt, overdraft protection, it’s all callable. That means any time the bank wants its money back, it can demand and you must pay.

If you think you can continue the same minimum payment habit you established while you were a working Joe, chances are you’re in for a shock. Would you be prepared to pull your investments with 10 days notice? What if the markets are down? Could you cash in GICs and how much interest would you lose? Would you even have that kind of money ready to pull? If not, are you prepared to sell your home?

Carrying debt into retirement is dumb. Thinking that lenders are just going to let you sit on it until you die, that’s stupid. You do know those guys are into making a profit, right? Are they about to let a whole bunch of debt-beat retirees put their balance sheets at risk? I think not.