Should you own a mortgage in retirement?  How you can retire even with debt

Should you own a mortgage in retirement?  How you can retire even with debt

For a few years now, I’ve been inspired and motivated by early retirement.

We continue to be a fair distance away from realizing our financial goals – but we are getting closer every month.  This is one major financial goal.  I hope we can get there in another 5-10 years.

This is another one – retire debt-free. 

Those goals (and more) shape our plans for the next 10 years.

Not everyone shares our financial goals though.  That only makes sense.  Personal finance is personal.  That includes the desire to live a debt-free life including in retirement.

In fact, from what I’ve read in various money makeovers and other media articles, becoming debt-free prior to retirement is not something some Canadians believe in.  This latest retirement essay will also tell you why.

Using this site to chronicle our financial freedom journey I’ve been fortunate to meet a number of fine folks who are willing to share their financial independence financial stories with me.  Today’s post is another story that I hope you can learn from, to help tailor your own plan.


  • Name: Gruff403
  • Age: 55+
  • Retired since: June 2018
  • Retirement plans: Six month self-imposed staycation, ski once per week, house projects, coffee with friends, walk dog, coaching, part time work, volunteer work, improving personal fitness, travel.
  • Retirement worries: Dying early with too much money. Not taking enough risks in life.

Thanks for taking the time to chat with me Gruff403.  Let’s start from the beginning.  How did you get started in investing?

My interest in personal finances really came into focus when I got married and the kids came along.  Now there was more than myself to be responsible for.  I have been a self-directed investor for many years and used to pay $30 per transaction!

My original plan was to work until 60 but as I got closer to being eligible to take my pension, I started crunching numbers in earnest.  I realized that I could feasibly work less and make more.  Our savings rate over the years averaged about 25%.  Pension contributions were 12-14% of that, CPP another 2-3%, RRSP/TFSA 2-4% more, and mortgage pay down 8–12%. I consider my mortgage payments a form of forced savings.

That’s a good savings rate.  I have suggested at least 10% net income for my generation (Gen X) is required to retire well and maybe even more for the next generation.    What was your investing approach over the years?  What did you invest in?  Why?

Over the years we have held GICs (Canada Savings Bonds) CSB’s, stocks, mutual funds, and Exchange Traded Funds (ETFs).  More bluntly Mark, seems like the approach has been to invest and lose money thanks to high fees, to inflation, to poor stock picks, to selling during market crashes, etc.  I’ve made all the mistakes and I know you’ve made some as well.

(Mark – you bet – here are some of my big mistakes so you don’t have to the make them too!)

I was also worried about the proper asset allocation, correct equity vs fixed income ration, and more, until I realized my defined benefit (DB) pension was really my fixed income.

(Mark – funny enough – I consider my pension a big bond and you should too.)

With that understanding, my recent focus is on creating cash flow – so our RRSPs now hold ETFs and Canadian stocks that pay dividends. No GICs, no bonds, no fixed income mutual funds allowed.

Years ago, I noticed that all my equity mutual funds held the same stocks so I decided to build my own fund.  Now I’m moving towards 100% dividend growth investing.  All Canadian.  I believe this approach will work for us.

Sounds similar.  I recall this passionate reader suggested starting and maintaining a similar investing journey for millennials in this post:   Try this average retirement plan to wealth.

So Gruff403, given your focus on cash flow to supplement your pension – what are your current income streams in retirement?

Our current income streams are a rock solid DB pension, one CPP income, some income from a Registered Retirement Income Fund (RRIF), dividend income, some rental income and a bit of part time work.

Our total for 2019 should be about $62,500 pre-tax once all income streams are set but not including any part time work.

I feel pension/income splitting will make a huge difference as well – to reduce taxes payable.

We never made more than $105,000 as a couple.

Our pension is the cornerstone in the portfolio.  It represents about 55+% of my former work pay.  When I add on the other sources of income I can get real close to replacing my entire working income.

Impressive stuff.  I’ve written about retirement withdrawal strategies on my site.  What’s yours?  What order are your drawing down your accounts and why?

Hah! Depends on the day of the week Mark!

All accounts will be converted to cash flow, that’s our focus and I think other retirees would benefit from this thinking as well.

We’re currently planning to set our Registered Retirement Income Funds (RRIFs) up to take a bit more than the distributions generated monthly starting 2019.  I have built up a small cash buffer in each RRIF account to cover 3 years of payments.

What I mean by that is if I want $200 monthly from one account but it only generates $185, I can take the difference from the cash buffer.  We will do that for at least one year.  I am also considering topping up to the bottom of the next tax bracket at year end and moving that money to TFSA to reinvest.

As you know, the TFSA is a gift of an account to savers like you and retirees like me!

We will also collect the dividends from the stocks in our unregistered account as cash.  They have been DRIPping for over 20 years now.  Time to turn them into cash flow baby!  As we get a handle on this retirement thing we plan to empty our RRSP/RRIF accounts by age 70 or earlier.  Keep the non-registered account and TFSA intact to pass onto kids.

You can read about my guide to naming your beneficiaries to key investing accounts here – to be tax smart like Gruff403.

Alright.  Now the pointed question.  You mentioned to me you hold debt in retirement.  What’s your reasoning for that?   Seems risky.  I wouldn’t do that!

Mark, I totally agree that being debt free is a great way to go and a wonderful goal to have.  It creates flexibility. Congratulations to everyone who has done it.  I have been blessed with a rock sold DB pension that pays me annually the equivalency of over a million dollar portfolio.  Guaranteed for both our lives and partially indexed to inflation. This guarantees financial security. I could work to 65 and eliminate the debt or leave full time work earlier and find a way to service the debt.

That choice was easy.

We currently use debt as a tool to build income producing assets, cover emergencies and have a little fun.

Experts say you shouldn’t retire with debt and that’s true IF you are retiring on 50 – 60% of your pre-retirement income like Fred Vettese suggests.

I am retiring on 78% of my pre-retirement income without working once all the income streams are set in place.   If we each work four days per month we will earn 96% of our pre-retirement income.  That’s crazy. Pension/income splitting and dropping down a tax bracket will make a huge difference.  If I can afford my debt obligations while working full time and grow my net worth, surely I can do the same earning 96% of pre-retirement income.

What I would suggest to investors is look at the structure of your debt. Our debt is the house and a small line of credit (LOC).  We own most of our home.  I think that owning a house where you have several hundred thousand dollars of equity built up is an opportunity.  Use a small portion of that equity to build up other assets that generate some cash flow.  Our monthly debt to income ratio is under 30% (mortgage + LOC payment/monthly income).  But wait, 55+% of our mortgage payment goes towards principal that builds equity and net worth.

We have always set up our mortgage payments so that at least half of the payment goes to principal.  Yes I understand that if we had no mortgage 100% of that money would belong to us.  Not our reality but still better than renting in many cases.

Our net worth, if you don’t include any pension value, is in the mid- to high-6-figures.  If we die with debt so what as long as there are enough assets to cover the debt and the kids get a reasonable inheritance, we’re good.

Leaving a large legacy is not our priority – sorry kids as you read this!

We also have assets to sell that will substantially reduce the debt and I can always work a few more days a month.

We also hold a life insurance policy that eliminates the debt if I die before 65.

Even if I had no debt, I would not hesitate to leverage 5-10% of the equity in the house and invest in the market.  Buy quality dividend payers, continue to pay mortgage style payments until debt is gone, rinse and repeat.

What final words of advice do you have for any investor aspiring for a financially fit retirement?  

I’ll be brief and to the point:

  1. Educate yourself. Learn to be a self-directed investor – thanks for the great blog Mark!
  2. You have several options when you receive your pay. Spend it, save it, invest it, or give it away to help others less fortunate than you.  Do them all.
  3. Start early, have a plan and be patient. Enjoy the ride to early retirement.  The journey is just as important as the destination.  Count your blessings along your journey.
  4. Buy a reasonable sized home in a great location. You don’t need more than 1200 square feet!
  5. Build contingencies and flexibility into your plan. Be smart with debt, not afraid of it.  Don’t overextend yourself. Buy Canadian banks.
  6. Learn how our tax system works.
  7. The best legacy our kids get is the example of the life we live, memories we make and that people are more important than things.
  8. Nobody gets off the rock alive so if you leave enough behind to cover final expenses and a reasonable inheritance. If you did that, you did very well.

Amazing stuff.  Thanks Gruff403 for this retirement essay.  Lots to takeaway here.

All readers can find many more great retirement essays here.

What do you make of Gruff403’s decisions?  Would you make the same ones?  Why or why not?  Do you have a plan to carry debt into retirement?

My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.

35 Responses to "Should you own a mortgage in retirement?  How you can retire even with debt"

  1. Hey Mark,
    I have planned for a mortgage in my retirement. The tax benefits from holding a mortgage can be great, but their value may drop significantly when I retire. Your post helps me to learn some new things about it.
    Thanks for sharing this article.

    1. Yes. Was wondering if someone would notice that. Once I stopped collecting a fulltime paycheck I no longer had to pay CPP, Employment Insurance, union dues, or pension payments. Taxes now dropped by 45+%. Pension, income splitting and dropping a tax bracket also help. Canadians can split regular pension at any age but not RRSP until 65 un.ess using spousal plans..
      2019 Income / 2017 Income 62 500/105 000 = 59.5%
      Subtract 2017 paycheck deductions (33 250) 62 500/ 71 750 = 87.1%
      Add 2019 tax on 31 250 x 2 (4150 × 2 = 8300) 62 500/ 80 050 = 78 %
      It actually gets even better once I apply other tax credits such as donations.

      1. Congrats Gruff403 on being so financially astute! It’s great that you found a way to make the numbers work for you. I was curious about the part time work – is part time work for 4 days a month easy to find in your city and would it be in the same line of work as your career? Thanks in advance for your comments and congrats again!

        1. Thanks Anusha. We are first aid instructors that sub contract our services so can work when we want. We’ll make some play money this month. I was a teacher (that’s why the solid pension). I could have become a substitute teacher but that would mess up my flexibility as you must be available several days each week. I could have gotten lots of sub work but not ready to go back into schools yet.

      2. Thanks, this is one aspect I never see discussed online (hint Mark great topic for a post) everyone assumes that the drop in gross will equal a drop in the net. I totally get why people worry about retirement!

        Another aspect (again Mark a great topic for post) is you can collect CPP at age 60 while still working and continue to contribute. My brother took his CPP at 60 and has seen it jump quite a bit.

        Garth the great is a big fan of early CPP but has never mentioned this

  2. Well done Gruff!
    I also enjoyed the journey – more than actually making it there. All along – I thought making it to Financial Freedom would be a great feeling. Only once I made it – I realized that the journey was much more exciting.

    1. Thanks Mike,
      For me it is now more about what’s next. Now that we are financial secure and have more control of our time. I am excited for the next part of the journey. Not rushing into anything and am finding my time gets filled up just enough.

  3. Welcome to the retirement club gruff403. Nice job. I semi retired at 52 and fully at 55.

    Your work and cpp pension and some savings seem to put you in good shape. I can see how a person is tempted to retire or semi retire (even with a mortgage) if they can generate good cash flow from these, and pretty much make up the F/T $ shortfall working 4 days a month.

    I couldn’t retire with debt myself as the pyschological benefit of being free of it is too important to us, but then I’ve never counted my mortgage payments as part of my savings either.

    Pretty good list, although I fail on the house part.

    All the best

    1. Great to finally make the club RBull and thanks! Absolutely no regrets.
      The DBPP makes it possible as there is no way I could have saved enough on my own.
      I’ve come to feel that the only time debt is a problem is when you can’t service it comfortably. As long as I can liquidate assets and eliminate the debt we sleep fine. I totally understand the psychological part as my parents were anti debt. Discovering that we could generate good cash flow with only a bit of work was a game changer.
      If things don’t work out I always have the option of reducing spending, working more, liquidating some assets to reduce debt.
      The key is to have options.

      1. You’re welcome.

        Got it. No regrets here either. Awesome. 100% my thinking on options. I mention that frequently on here, that we’re also fortunate to have them.

        My wife has a DB pension, not indexed. Makes a nice income base though, but our investments provide more and will offset inflation in time.

          1. Yes, it can be..”depending”. My wifes pension = 77% funded and going the wrong way. My mom worked for Sears 30+ years and now with a dimishing pension.

          2. Thanks Mark and May. There is no hardship for them as they have much more than they need or spend. However, its just disappointing at the way the corporation dealt with it, and a caution to anyone counting on a DB pension over a longer time frame.

            My wife’s is provincial govt and yet it is in bad shape.

            So I tend to be wary when I read DB pension = big bond!

            1. I would think any provincial or federal government-backed pension should be fine.

              Private pension, agreed, there is never a guarantee even though it’s supposed to be a contract!

          3. We’ll see. However given worsening conditions and a reluctance to deal with a proper fix make it a concerning issue. Particularly frustrating since nothing was done, or communicated or options offered decades ago to resolve. Spouse gladly would have contributed more to ensure future pension health.

            more retirees than workers
            large unfunded growing liability
            longer than average retiree longevity
            2 different classes of retirees and worst off employees (different benefits, and contribution levels) = cluster #*^k
            contract backing = 50% govt / 50% union/employees

        1. RBull, I have a friend I worked with for many years, lives across the country. She was a clerk and didn’t earn a lot and her hubby was long time Sears, until getting laid off a few years before retirement. I have been worried about her finances (I know, not my place, but she is such a sweetie); she wrote in her Xmas card this year that so far her hubby’s Sear’s pension has been secure. She herself has a indexed gov’t pension, but with early retirement and a low salary to begin with, it wouldn’t be a lot of income.

          1. Hey Barbara, nice to see you care about a friend.

            There’s still some court stuff going on with Sears, before the final shakeout of this. Pension benefits have been eliminated and pension amount cut 30% to date.

  4. I especially like this suggestion “7. The best legacy our kids get is the example of the life we live, memories we make and that people are more important than things.”
    Well said, really well said !!

  5. Congrats to Gruff403 for your early retirement. I always think DP makes a huge difference for retirement. Unfortunately we don’t have any. May I ask what’s the reason for this decision other than financially feasible? I am aiming to be able to retire 4 years from now. But being able is not equal to taking the action. I don’t know yet what I will do when I get there. Right now our saving rate is around 50%, I suspect I will have the “one more year” syndrome when the number finally saying “YES”.

    I am debating for a while now if I should leverage my HELOC to invest in the market. If I retire with debt, then this will be my only debt. I still need to gather more courage to do so I guess.

    1. Thanks May. I am loving this new lifestyle. There are several reasons for leaving full time work now. Job satisfaction was waning after 28 years and I really wanted a change. My dad died young. I had a cousin pass last year as well. Kids are launched. My spouse is a few years older than me and we want to live it up a bit before the knees go. I remember being so care free in University and want to recapture some of that feeling. I have always been a non risk taker and “do the right thing” kind of person and I want to live my last few decades (I hope) with no regrets.
      Re: leveraging the HELOC. If your savings rate is around 50% that’s amazing. Remember money invested now is worth more than a money invested in future. Consider what payment amount you could handle for six months, buy quality stocks that pay a secure dividend and try it out. See if you’re are comfortable so. Remember also that money borrowed to invest may be tax deductible but not in registered accounts so the actual cost to borrow would be reduced by your marginal tax rate. Just don’t overextend.

      1. Gruff 403, thanks a lot for answering my question. Yeah, life style change actually is also the reason why I look at the possibility to retire seriously. Right now my life is quite exhausting with a full time demanding work and two young children. We had kids very late and always feel don’t have enough energy to take care of them. We managed to live on about one income for quite a number of years. If not worrying about my husband’s job stability (he was out of job four and half months 2017), I could just retire to be a stay home mom this moment I guess.

        I also totally understand job satisfaction waning. I’ve been worked for my current company for 20 years now and I really should get a new job and get some changes. But with my current schedule it would be too much to look for a new job.

        Congrats again. It is so great for you to make the decision to retire and be able to enjoy the life the way you desire.

        1. Well said May re: lifestyle. As I get older, I’m really learning to value my time, health, energy-levels, etc. I’m trying to be very mindful of that. Too bad it took me this long – but live and learn.

          Sounds like some work changes are coming for you in 2019 May. I wish you well and thanks for being a big supporter of the site.


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