News & Resources

Should I pay off my debts or save for retirement? It’s a dilemma faced by many Canadians, and in Ontario, debt repayment is winning the battle. Forty percent of Ontarians say paying off debt is their top financial priority, with 19% prioritizing their mortgages, according to a study by Meridian Credit Union. Even more worrisome is the fact that 10% listed stop living paycheque-to-paycheque as their top financial priority.

Retirement Savings Taking a Back Seat

We all know we need to save for retirement, but knowing and putting those plans into action are two separate things. Twenty-one percent of Ontarians haven’t even started building their nest egg! So what’s their reason for putting retirement savings on hold? Fifty-two percent said they were focused on paying off debt, 51% said they couldn't afford it, and 49% said saving for retirement is not a priority for them at the moment.

"As household debt in Canada hits a new high, it's encouraging to see Ontarians recognizing how important debt repayment is to their financial future," says Bill Maurin, Meridian's acting chief executive officer and chief financial officer. "At the same time, however, it's important to not lose sight of their retirement goals. Saving for the future can be easier if you put your investments on autopilot with a pre-authorized contribution plan to contribute to an RRSP or TFSA. If you coordinate the withdrawals to align with your payday, the money likely won't even be missed."

RRSPs Still The Retirement Option Of Choice

Despite the rise in popularity of TFSAs, RRSPs still remain the top choice for Ontarians saving towards retirement. The study found RRSPs (75%), pension plans from work (58%) and TFSAs (50%) are the most popular way for Ontarians to fund their retirement.

Workers Are Waiting Longer To Retire

Today’s workers in Ontario plan to retire later than the current crop of retirees. While we expect to retirement at 62 years of age, current retirees are calling it a career at 59 years of age. With skyrocketing home prices and today’s youth staying at home longer than baby boomers, this trend looks to continue.

Some Are Relying On Inheritance

Nearly four in 10 Ontarians (41%) say they are confident they will be able to afford to retire at their desired retirement age. With some Ontarians not saving towards retirement, where is their nest egg going to come from? Eighteen percent say they expect some sort of inheritance to help fund their retirement.

"Saving for retirement while paying down your debt or mortgage means you need to be proactive and take charge of your personal finances, but the short and long-term benefits are well worth the effort," says Maurin. "The first step is to determine your financial goals and work with a trusted financial advisor to build a plan that will help you achieve them."

Savings, Debt Or Both?

There’s a lot of debate whether it's ever a good idea to only focus on one area - debt or savings only, rather than having a balanced approach to both. A lot of experts say that paying down a mortgage first is better because it saves on additional interest, and that once a home is paid off, the equity is there to help fund retirement - yet others say relying on housing is a risky way to fund retirement.

“Often times its better to start by paying off debt that holds the highest interest rates. However, it really depends on your overall financial situation. That’s why it’s important to work with a financial advisor who can help to create a plan that is specific to your needs and will help you to achieve your financial goals,” said Bill Whyte, senior vice president and chief member services officer at Meridian.

“If you have a small amount of debt at a high interest rate, it would be best to focus on paying that off quickly so you can focus on saving afterwards. However, if you have a large amount of debt and you know it will take you longer to pay it down, you may want to create a plan to help balance both saving and paying down your debt at the same time,” Whyte adds.

“The earlier you can start saving, the better, as you’ll have more time for your money to grow.”

Sean Cooper

Sean Cooper is the author of the new book, Burn Your Mortgage. He bought his first house when he was only 27 in Toronto and paid off his mortgage in just 3 years by age 30. An in-demand Personal Financial Journalist, Speaker and Money Coach, his articles and blogs have been featured in publications such as The Toronto Star, Globe and Mail, Financial Post, Tangerine: Forward Thinking blog and TheDot. You can follow him on Twitter @SeanCooperWrite.

Latest life insurance articles

10 Myths About Life Insurance Busted – Some May Surprise You
You may be young with no kids and no mortgage. Life insurance is for someone older, who has dependents right? Wrong. Let’s debunk life insurance myths and learn why everyone needs some form of coverage.
Will a Life Insurance Policy Cover Death Due to COVID-19?
Demand for life insurance may be on the rise during the pandemic as more Canadians consider buying a policy or reviewing ones they already have. If you’re thinking of applying for a policy, here are a few things to keep in mind.
How Does Vaping and e-Cigarettes Affect Life Insurance?
Many insurers may classify vaping in the same way they do smoking. If you smoke or vape, you can still qualify for a life insurance premium, but in all likelihood, you will pay a higher rate than someone who does not.