Canadians will use home equity to boost retirement income

As Canadians struggle to reduce their debt while also preparing for retirement, many homeowners expect to access their home equity to supplement their retirement income.

A Manulife Bank of Canada survey finds shows that nearly one in five homeowners sees their home as part of their retirement income equation, with 10% planning to stay in their homes and borrow against home equity and an additional 8% planning to downsize and use the excess equity to provide retirement income.

“Often homeowners think of their home equity as a fallback plan for retirement income,” says Manulife Bank of Canada CEO Rick Lunny. “The fact that one in five is proactively planning to use this strategy suggests they may be struggling to balance retirement saving with debt repayment.”

Read: Retirement elusive for many Canadians

While being debt-free at retirement was a top financial goal for 81% of respondents, slightly more than half are confident they will reach that goal. Confidence is lowest among those ages 50 to 59, followed closely by those ages 40 to 49, illustrating the struggle to become debt-free as retirement approaches.

When asked what they would do if they reached their planned retirement age and still had debt, just under half say they’ll continue working full time or part time until the debt is gone.

Of the 46% who say they’ll retire as scheduled even if they still have debt outstanding, 26% will scale back their lifestyle until their debt is gone, 10% will sell assets to repay debt, and 10% say the debt won’t impact their lifestyle.

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Interestingly, one-quarter of respondents say they don’t consider their mortgage or vehicle loans to be part of their debt, showing that not everyone has the same definition of what it means to be “debt-free.”

Being debt-free is ranked second only to having good health when respondents were asked what makes a “successful retirement.” Other factors crucial to a successful retirement are having sufficient income to maintain their desired lifestyle, being able to travel and keeping busy with a hobby or volunteer opportunity.

Read: Debt stops Canadians from saving for retirement

Nearly half of homeowners surveyed say their debt was making it difficult for them to prepare for retirement, while more than three-quarters say that having sufficient retirement income to maintain their lifestyle is important to a successful retirement. However, as with the debt-freedom by retirement, this is also an elusive goal for some—only 39% of respondents are confident they will have sufficient income to maintain their desired lifestyle in retirement.

Homeowners who don’t adequately plan for retirement may earn substantially less once they have left the workforce, says Lunny. In addition, retirees who use home equity to supplement their retirement risk leaving no legacy for their children or grandchildren. If home values fall, they could end up further in debt and have negative equity in the house.

Read: Indebted seniors fear they will never be debt-free