By Dave Dineen
If you still have debt, you may not be ready to retire. Here’s how to quit debt-free and how to stay debt-free.
The weirdest thing I’ve heard about retirement lately is that some people believe they’ll still have debt when they retire.
Am I retiring while in debt? What an idea! I don’t think you’re ready for retirement if you’re still in debt.
Two years before I retired, my wife and I spent a lot of time making a list of what we wanted to pay off before that date.
On the other hand, we agreed that it was essential to go a little further. We wanted to make sure that we had paid for everything and that we didn’t have to replace anything in the first years of our retirement. We felt that being a single-earner family transitioning into early retirement, we couldn’t afford significant unforeseen expenses when we were beginning to live on a retirement budget.
Here is the list we have compiled:
Paying for the house We live in a new one-story house, which corresponds to our current lifestyle. Beforehand, we sold the big house that still suited us 15 years ago. As a result, we shouldn’t have to undertake significant repairs for many years. Still, we’ve had to set a tight budget to cover all the expenses that come with a new home:
- Landscaping.
- Covering the driveway.
- Building a deck and a fence.
- Buying furniture and appliances.
- Paying property taxes (that big bill can come up to 18 months after you move in!) and interior decorating.
To cover these expenses without going into debt, we had saved for two years thanks to a savings program with direct debits.
Paying for the car We only need one car, and ours is new enough that we probably won’t have to replace it for five years. We had done the necessary research to fix our choice on a car renowned for its reliability.
Maximum contributions to our RRSPs and TFSAs I have created a worksheet that allows us to consult our contribution limits quickly.
Paying off our credit card balances We have also opted for no-fee cards.
Keeping our dental care and eyeglass prescriptions up to date It’s important to take advantage of all the benefits you get while you still have a job!
Updating our wardrobe We’ve also made sure that our closet is as up-to-date and complete as we want it to be.
Buy a new computer and a new cell phone. When I quit my job, I had to leave behind a lovely laptop and a smartphone. To replace them, my wife bought a small computer that we can take with us on our travels. I also use his old laptop at home and wait to replace it, so I don’t have to deal with two old computers simultaneously. In addition, I bought a cheap prepaid cell phone that doesn’t lock us into an expensive contract. Finally, our television and digital camera should be enough for us for a few more years.
Saving for travel in early retirement We saved for our first two trips. To this end, we first established a savings program with direct debits at our bank. Then, when the exchange rates were favorable, we converted this money into euros and pounds. Knowing that the pocket money you will need on your next trip is already saved is quite a motivation!
We are delighted with the results of this systematic approach, which has allowed us to be debt-free in retirement. So why not make your list if you’re retiring in five years?
It may also seem contradictory, but as we approached retirement, we thought it would be prudent always to have access to credit in case of emergency.
Because we had proven to ourselves over the years (and thank goodness our bank, too!) that we managed credit responsibly, the risk of applying for a home equity line of credit (and possibly using it abusively later) didn’t make us nervous. Because it is a risk: lenders are somewhat reluctant to grant recognition to new retirees who have neither employment nor retirement income.
I don’t think we’ll use that line of credit, but if a big
