Debt Drags Down Retirement Savings

Canadians holding debt are actively contributing to their retirement savings - but the more debt products they hold, the less they are able to put away for the future each month, according to a CIBC poll conducted by Harris/Decima.

Key poll findings: 

  • Among Canadians holding debt, 53 per cent say they have made a contribution towards their retirement in the last 12 months, in line with the broader national average of 49 per cent of Canadians who say they've made some form of retirement contribution in the same time period.
  • However, among those actively contributing to their retirement, the amount Canadians say they are putting away each month declines with each additional debt product they carry a balance on:

    • 1 debt product: median contribution of $500 per month contributed to retirement savings
    • 2 debt products: median retirement contribution of $240 per month
    • 3 or 4 debt products: median retirement contribution of $200 per month

"These poll results clearly illustrate the connection between good debt management and your ability to save for your long-term financial goals," says Christina Kramer, Executive Vice President, Retail Distribution and Channel Strategy, CIBC. "Planning for a successful retirement involves more than just having a regular savings plan. It also requires a strategy to pay down debt, reduce interest costs, and redirect those funds towards long-term savings."

Past CIBC research has shown that the likelihood of holding debt peaks at age 45, and then declines. As Canadians pay down their debt they have an opportunity to direct more of those funds towards retirement. Ms. Kramer notes there is an opportunity for Canadians to look at their finances holistically to accelerate this curve.

"A positive finding from this poll is that Canadians appear to be very aware of the importance of putting away money for the long term; however, balancing that against the immediate need to repay debt can be a challenge," adds Ms. Kramer. "The message is not that holding any debt will negatively affect your future, it's that debt repayment needs to be managed appropriately to open up opportunities to accelerate retirement savings for the future."

Advice on managing debt:

If you're focused on paying down debt, Ms. Kramer offers debt management tips to take charge of your finances and reduce debt as part of your long term financial plan.

  • Make lump sum payments to higher-interest debt first to reduce interest costs
  • If you have debt, work with an advisor to structure it to minimize your overall interest costs by utilizing debt products that offer a lower interest rate and having a strategy to pay these balances down in a specific time frame
  • While interest rates remain near historic lows, don't ignore the long-term benefits of making small adjustments to your payment today. Setting your debt payment even slightly higher than your required payment can reduce your overall interest costs and help you become debt free faster
  • Use free budgeting tools to help you stay on budget - CIBC CreditSmart available to CIBC credit card holders allows you to set customized budgets and receive spend alerts if you exceed your planned budget for the month, helping you stay on top of your everyday budgeting and saving

"There is a clear benefit to sitting down with an advisor and working through your plans on both the savings and debt management side of your finances to help you achieve what matters to you in the long term," adds Ms. Kramer.

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