For many Canadians, retiring early after clearing all their debts happens to be a way of life! However, since around 25% of the retirees in Canada live with debt, it makes sense to establish your financial freedom as you plan for your long-term finances. In this article, the experts at Alpine Credits have developed a guideline that will drive you towards a debt-free early retirement.
Retirees often have limited sources of income, implying a fixed financial inflow every month. This explains why you need to secure yourself against unpaid debt in the first place. Professional money management and dealing intelligibly with your assets can mitigate your vulnerabilities as a retiree. Read on to know how you can retire by the age of fifty in Canada, paying off all your debts.
Early Retirement: What Does It Mean In Canada?
Officially, the age of retirement in Canada is 65. This is what offices and workplaces have mandated over the years. Even the Canadian Pension Plan (CPP) and Old Age Security (OAS) payments begin at 65.
However, with retirement trends gradually evolving, Canada has an average retirement age of 63.5 years. Therefore, when you think about retiring early, you must have an age of 50 at the back of your mind.
Considering the average longevity of 82.5 years, it makes sense to retire at fifty and enjoy your lifestyle with your accumulated funds. Therefore, planning your finances for early retirement is imperative, as you would love to spend your later years traveling or embracing a luxurious lifestyle.
However, your debts call for attention, and you need to clear them off as early as possible. Have a look at these statistics to understand how important it is to clear off your debts at the outset.
- Around 66% of retirees in Canada have unpaid credit card debts.
- While 26% are still making their car loan payments, 7% are yet to pay their healthcare expenses.
- Another 7% of Canadian retirees have holiday expense debts.
Retiring Early In Canada: What Do You Need To Do?
You need to prioritize two aspects if you want to retire at fifty. Firstly, you need to accumulate adequate savings to cover the basic expenses of your living. Secondly, you need to consider personal preferences related to luxury, travel, or other avenues where you want to spend money. Ideally, you should start investing early in your life so that you have enough funds by the time you retire.
The equation also involves clearing your debts, which ensures that you won’t be draining your savings or income continually. Here are specific strategies that can help you achieve this two-pronged financial goal.
Tips To Retire Early And Debt-Free In Canada
Here are a few tips that can help you retire early in Canada:
Cut Down Your Spending
When you start earning, it might be tempting to get carried away with extravaganza. However, you should cut down on expenses when you have an early retirement goal in mind. Don’t go for luxury cars, expensive holidays, or other expenses that might have alternatives.
Take care of your credit card expenses as well, as you might end up making impulse purchases. Initially, you might feel it intimidating to refrain from spending. Once you convert the best financial practices to your habit, you can start saving for the future!
Quickly Pay Off Your Mortgage
To clear off your mortgages faster, make sure to pay more than the basic requirement. For instance, if you are shelling out $1,750 on your mortgage, try and pay $250 more. This will accumulate over the month and eventually minimize your paid interest. This would also help in lowering the principal amount faster.
Each year, try to make a lump sum one-time payment. For instance, make the best use of your annual bonus or tax refund to cut down the principal amount as fast as possible.
Start Your Saving Mission Early On
When you have plans to retire by 50, don’t wait until your late 30s to save. Instead, you need to start saving as soon as you start earning comfortably. Remember, you can benefit from the compounding effect when you start saving from your twenties.
Also, you need to consider the expenses when you have kids. Regardless of all these cash outflows, saving early on can significantly strengthen your finances.
Think Of Your Housing Requirements
When you make being mortgage-free a goal, you can achieve it!
When you plan to get a house, think over your bare necessities. Simply go without them if you don’t need a luxury home with five bathrooms or a library. The reason is, once you fall for such an extravaganza, you would end up making high EMI payments for the rest of your life.
This would eventually mess up your savings plan, and you won’t have financial security by the time you retire.
Consolidate Your Debts Into A Mortgage
Consolidating several high-interest debts into a mortgage happens to be a strategic move when you try to save for your retirement. Even if you have a sizable debt, cutting down the interest rates would ease up your financial flow.
Many financial institutions and banks in Canada offer debt consolidation loans. With these loans, you can simply combine all your outstanding dues into a comprehensive mortgage payment. You need to shell out just one payment at a lower interest rate each month.
If you own a home, you may qualify for a line of credit or home equity loan. This would serve as a reliable financial resource that would stabilize your income. Simply reach out to one of the experts and have a word regarding your eligibility if you want to avail the benefits.
While you might be too engrossed with your future plans, missing out on proper investment would delay your retirement. Most successful Canadians who retire early go for a TFSA or RRSP. Alternatively, you can start investing in one of the recognized plans for your retirement. If you are unsure where to start, simply consult a financial planner. Being strategic with your plan can help you save adequately for early retirement.