High debt threatening for retirement

This can be a common problem faced by many of us who want to make their retirement secure. But the fact is that instead of making their retirement secure financially, they are complicating not just their present but also their future. 

So, the question before us is how to get out of such a situation and fix the problems at hand? 

• Kids Education---

The first issue involves providing education to the children. As per the suggestions by the head of Smarter Financial Planning Ltd. in Kelowna, B.C., Derek Moran, it would be better to invest cash and receive the CESG (Canada Education Savings Grant) which would amount to either 20 percent of yearly contributions per kid or $500, whichever is less. 
However, if the couple adds $2,500 for each of their child annually and receive the full CESG contribution, then the children would get $48,584 in a period of seven year. And this would help in providing an amount of nearly $25,000 per kid for the post-secondary education costs, suggests Mr. Moran. 

• Debt Management

The next thing is managing the debt in the best possible manner. This can be done by taking into consideration the amount of money owed by the couple, the interest rates (at which money has been borrowed from different sources). This includes total money owed on house, income property and any other loans. 

So, as per the suggestions by the financial planner Mr. Moran, the couple needs to ---

1. Pay down the variable rate line of credit (since they are highest of all debt charges). 

2. Make a decision for paying only interest and no principal on the income property mortgage till the mortgage on their house gets eliminated or the house is sold. 

3. The next step is to sell the property that has been rented out. This is because as compared to a marginal increase in the rent, the interest rates will rise substantially. So, there is no use in keeping the money tied up in the property. 

4. Then, the money got from the sale of rental property should be used to pay other debts. 

• Life Insurance

In wake of a huge unfunded liability on their shoulders, a couple needs to go for life insurance to make their kids financially independent. 

While the wife should go for life insurance to the tune of $500,000(roughly), the husband must get life insurance for $500,000 plus the group coverage provided by his employer. 

• Retirement 

A couple needs to plan in advance about the income they need and the income they will actually have as they reach retirement. For example, a couple has $260,000 in RRSPs and if the husband continues supplementing his annual bonus of nearly $12,000 every year and increase his contribution to the maximum level, his RRSP would increase to $597,400 at the age of 55 years and would amount to $1,333m000 at the age of 65 years, as per estimates of Mr. Moran.

Also, it is advisable for all the people in similar situations not to go for early retirement if they want to maximize their RRSP income at the retirement age. 

To conclude, we can say that the best deal for all such couples is to cut their debt as much as possible to help reduce their risk and focus on their kids’ RESPs together with their savings for retirement.