WHAT kind of retirement do you envision for yourself? For some, retirement is decades away; still others are a few years to retirement, while others are already in retirement. Whichever situation you are in now, it’s not too late to take stock of the quality of life you want to enjoy during your retirement years.

Debt can be a hindrance to a comfortable lifestyle in retirement but a lot depends on your actions. The earlier you get out of debt the more money is available for savings and long-term investments. Quality of life in retirement depends on lifestyle choices made during the working years. Keep saving and investing early and do so often, while paying down on debt. Paying off debt at the expense of saving for retirement can prove detrimental if not enough is being saved for the years when your working life is over. Being debt-free at retirement can be the equivalent of being broke if there is nothing saved for retirement — therefore, wise retirement planning is required.

Ideally, the only debt one should take into retirement is a mortgage. For some mortgagors who are nearing retirement and have a few years remaining to pay off their mortgages, and where the monthly payments are not bothersome, paying mortgages in retirement is not stressful as they will still be able to make ends meet. For others it is best to clear mortgages prior to retirement if mortgage rates are high or if pension income will be significantly below their pre-retirement income.

Since monthly pensions payouts are fixed for life, retirees who want to live comfortably in retirement may choose to delay retirement for another five years or longer, depending on health and financial factors. Studies show that persons who carry debt into retirement are more stressed and live a lower standard of life than those who are debt-free. Those whose mortgages are paid off are better able to cope financially in retirement, especially with a reduced income. Credit card debt carried into retirement has proven to be quite problematic for many retirees who depend on a fixed income in retirement.

A survey by the American Association of Retired Persons (AARP) revealed that 33 per cent of American respondents between ages 40-59 stated that their most important goal was “to pay off a large debt”. In other words, they are paying down their debt before retirement. This confirms how difficult it is to save for retirement when debts are high. The survey revealed that 21 per cent were focused on building their retirement nest egg and 11 per cent wanted to increase their emergency fund. It’s important to note that three major pillars were cited in planning for retirement. They are debt, retirement savings, and emergency funds. These are key areas to manage in order to live a stress-free life in retirement. The challenges faced in retirement are universal and every retiree, regardless of their domicile, desires peace of mind in retirement.

A study by Pew Charitable Trust among small business employees showed that 75 per cent of workers who weren’t contributing to a pension plan said that they would be motivated to save for retirement if they paid down their debt first. This indicates why there is a worsening retirement crisis locally and internationally. Debt management plays a significant role in retirement planning. A report by Cambridge University Press revealed contributions to retirement plans by self-employed persons “declines with business debts”. Business owners tend to reinvest in their businesses instead of diversifying their investments. Liquidity problems impact their ability to contribute to formal pension plans.

Auto loans, credit card debt, and student loan repayment can hamper retirees’ quality of life. Don’t go into retirement with credit card debt. Some retirees are repaying student loans for their children. As much as possible, seek to clear student loan debt and auto loans prior to retirement. Recently a retiree had to close her long-term investment to cover car repairs due to a motor vehicle accident. She had third-party insurance coverage and there was no emergency fund in place. In order to have a debt-free retirement, saving and investing must be a priority. Diversify investments. Consolidate debt prior to retirement.

Remember, too, that as you age, health-related conditions are likely. Having long-term investments and an emergency fund are important in retirement to defray health-care and other costs. During the working years having a part-time income or streams of income will also help. Reduce expenses so you can save more. Make a budget and assess how much funds will be needed in retirement. While working, your debt-to-income ratio as a rule of thumb should be 43 per cent or below.

A qualified and experienced financial advisor can assist with your plan to enjoy retirement debt-free.

Grace G McLean is financial advisor at BPM Financial Limited. Contact her at: gmclean@bpmfinancial or visit the website: www.bpmfinancial.com. She is also a podcaster for Living Above Self. E-mail her at livingaboveself@gmail.com