video Watch the ‘Retirement planning: Working with debt’ video, and read the full article below.

For many Canadians, saving for retirement isn’t a priority. In fact, debt reduction remains Canadians’ top financial priority across the board, with 34% rating paying down their personal debt as their number one financial priority.1 Our country’s debt level is skyrocketing as we continually live beyond our means. The trouble is, when you have debt, it’s hard to justify saving for things like retirement.

So what do Canadian debt levels look like? Let’s consider some key statistics:2

  • At the end of 2015, consumer credit debt in Canada stood at $574 billion, a $55 billion increase from 2014.
  • Canadian households, on average, held $1.65 in debt for every dollar of disposable income.
  • This is the highest ratio of debt-to-income ever recorded in Canada.

When we break down the Canadian demographics, we start to see that clients of all ages have unsettling debt levels:

For those who are building for the future – This segment has the highest level of debt, specifically those with children. Couples with children account for one-half of all household debt, with an average debt level of $144,600.3 What’s more, 38% of parents say they, or someone they know, have borrowed money (either through a credit card, line of credit, personal or family loan) to put a child in extracurricular activities.4

For those who are getting ready for or are in retirement – According to Statistics Canada, 70.3% of Canadians aged 55 to 64 have debt, and 42.5% of Canadians 65 and over still have debt — that’s a 55% increase since 1999. This means close to half of all Canadians will retire with some form of debt.5 Not to mention, in 2014, 10% of Canadians who declared bankruptcy were 65 and over. This is an increase of 20.5% from 2010.6

Let’s take a closer look at how debt has an impact on clients at each life stage; how you can have conversations about their debt realities and help them plan to retire their way.

Building for the future – Career builders and younger families.

Getting ready for retirement – Those who are about 10 to 15 years from retiring.

In retirement – Those who are going to retire in the next year; are ready to convert retirement savings into income; or are already retired.

Building for the future

Burdened with debt, clients who are building for the future will have a hard time thinking about, let alone talking about, saving for retirement. But, addressing clients’ debt ratios early on can set them on the right path. It’s simple advice, but it’s true: the earlier they start saving, the more time they’ll have to build a retirement nest egg.

Here’s an example to explain how making simple spending changes can make a difference over time:*

  • By brewing their own coffee, clients can save $5 per weekday, for a total of $88,471 over 30 years.
  • By making a lunch, they can save $10 per weekday, for a total of $176,941 over 30 years.
  • And when they do both, that’s a grand total of $265,412 of savings over 30 years.7

How you can help: In this stage, it’s important to understand where clients are spending their money, and to show them the growth opportunities to reach their goals. Explain how their debt levels play a role in their planning, their ability to save for retirement, and how they’ll miss out on the opportunity to take advantage of compounding interest. Plus, an untimely death of an income earner would have a negative impact on their ability to repay debts.

Questions to consider for clients who are building for the future:

  • How much debt do you have?
  • Do you have a plan to sustain your lifestyle without incurring debt?
  • Are you putting extra money to work by investing it for future spending?
  • Are you the primary income provider? If you got sick or died unexpectedly, could your family’s lifestyle continue without your income, or would they be able to pay off this debt with only one income?

Getting ready for retirement

Before they retire, if clients aren’t having conversations about their debt levels and addressing their debt needs, they may not have enough money to retire with confidence. And if they’re carrying debt into retirement, a time when they’re no longer generating an employment income, they’ll have to use their savings to pay it down or eliminate it.

Considering the average Canadian retirement savings is about $316,0008 and retirement could last 30 years (and often more, as Canadians are living longer), a client would have an approximate retirement income from their savings of about $10,500 per year. But, the general rule is to replace 70% of income. So if someone makes $70,000 a year they need $49,000 per year in retirement. That’s an almost $39,000 shortfall per year.** How will this be possible if they’re also loaded with debt?

How you can help: In this stage, some clients need help identifying the key priorities for the present and the future, and identifying the trade-offs necessary to meet their goals. When it comes to debt, it’s vital to get a plan in place to cover their debt levels now, or they might be up against a serious risk of outliving their retirement savings. As their grown children move out of the house, or they pay off their mortgage, clients will have additional funds in their budget to help speed up debt repayment. It’s all about making the most of their income before they retire.

Questions to consider for clients who are getting ready for retirement:

  • When do you want to retire?
  • How much debt do you have?
  • Do you have grown children moving out soon? How much of a mortgage do you have left to pay?
  • Are you protecting your plans from the risk of an illness?
  • Have you discussed your retirement vision with your partner?

In retirement

It may be surprising to learn that some Canadian retirees are facing bankruptcy, but it’s also alarming that many still have a mortgage. Among homeowners 65 years or older, 35% have a mortgage, with an average loan-to-value ratio of 33%.9 If interest rates rise, their retirement savings will be at higher risk, at a point in their lives when they can’t handle larger payments. Being in retirement and struggling with debt will no doubt have an impact on a client’s discretionary spending for their lifestyle, investing for growth opportunities, the level of health care they’ll receive and the legacy they can leave behind. Those wishing to leave a legacy may not be able to if they don’t have savings or assets left after they cover their debt.

How you can help: In this stage, clients will be enjoying the life they’ve been saving for. You can help them determine their debt repayment, spending rates and any investment needs. Debt can include anything from a mortgage, credit cards, car loans, lines of credit and more. Their debt will impact their retirement income and the legacy they may want to leave. Creditors will seek payment from the estate before the beneficiaries have access to it. This could significantly reduce or completely deplete the value of the estate for the beneficiaries.

Questions to consider for clients who are in retirement:

  • Now that you’re in retirement, what are your plans? Have these changed at all?
  • Do you have any debt? (Mortgage, credit cards, car loans, lines of credit, etc.)
  • Do you have a plan to make your money last through retirement?
  • What are your legacy goals?

As an advisor, your role in all of this is vital. We know that advised households save at twice the rate of non-advised households10 and that 86% of Canadians say that advice from advisors is critical to reaching their most important financial goals.11 Imagine the impact you could have on those Canadians who are more concerned about debt repayment than retirement savings.

Resources to help you get started:

Helping clients manage their risks and plan for their needs is part of Money for Life — Sun Life Financial’s customized approach to financial and retirement planning.*** For more information about Money for Life, visit

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* Calculations are based on a 5% annual rate of return.

** Assuming the client has chosen a low risk investment approach, generating little or no returns.

*** Only advisors who hold CFP (Certified Financial Planner), CH.F.C (Chartered Financial Consultant), F.Pl. (Financial Planner in Quebec), or equivalent designations are certified as financial planners.

1 2016 Sun Life Financial Retirement Now Report

2 Statistics Canada, National balance sheet and financial flow accounts, fourth quarter 2015.

3 Statistics Canada, Household debt in Canada, a component of Statistics Canada Catalogue. No 75-001-X, Perspectives on Labour and Income, by Raj K. Chawla and Sharanjit Uppal, March 23, 2012.

4 Canadian Scholarship Trust Plan, Canadian parents are willing to go into debt to put a child in hockey, November 2013.

5 Statistics Canada, Study: Changes in debt and assets of Canadian families, 1999 to 2012, released April 2015.

6 The Federal Office of the Superintendent of Bankruptcy, 2014.

7, Saving a little can mean a lot (infographic), October, 2014.

8 Investor Economics, 2015 Household balance sheet

9 Canadian Association of Accredited Mortgage Professionals, 2014.

10 Ipsos Reid ‘Canadian Financial Monitor’, special analysis for IFIC.

11 The Investment Funds Institute of Canada. CIRANO research paper: New evidence on the value of financial advice by Dr. Jon Cockerline, Ph.D., November 2012.