Today’s seniors are more likely to continue using credit to their advantage, to enjoy their golden years.

Traditionally, American homeowners have focused on being mortgage-free by the time they’re ready to retire. While paying down debt continues to be an important objective for many, today’s retirees are likely to be far more comfortable using credit than their parents were.

In fact, a 2007 survey found that 41% of baby boomers do not think it’s important to pay off their mortgage before they retire. Meanwhile, a 2007 poll suggests that more than one in three Americans expect to retire with debts of up to $100,000. That includes continuing to carry a manageable mortgage, especially if it enables them to live out their retirement dreams.

New expectations
Why are baby boomers planning to use credit to supplement their retirement income? Part of the reason is that expectations surrounding retirement are changing.

Far from slowing down when they leave the full-time workforce, many baby boomers plan to work part time or pursue leisure activities. They’re looking forward to travelling, buying vacation property and pursuing favourite hobbies at home.

Some retirees may also face increased health costs associated with their own or their parents’ care. These individuals are likely to see their expenses increase, rather than decrease, post-retirement. For them, borrowing may be an appropriate solution.

Borrowing to invest

Many Americans are familiar with the benefits of borrowing to invest. Not only can funds from a low-interest loan be invested for a potentially higher return but, the interest on the loan may be tax-deductible.

This strategy is potentially effective for investors of any age and any employment status. In addition to mutual funds, stocks or bonds, popular investments for retirees might include a home that their children can rent from them or a condominium that they might move into themselves at a later date.

Sources of cash

If you are comfortable carrying debt in retirement, there are a number of ways to borrow. Two of the most popular are home equity lines of credit and reverse mortgages. Both allow you to turn some of your home’s value into liquid assets.

A home equity line of credit gives you the flexibility to borrow as much as you need (up to your specified credit limit) whenever you want with interest charged only on the outstanding balance. Because this line of credit is secured against your house, it generally has a lower interest rate than a non-secured line of credit.

A reverse mortgage can provide either a lump sum or monthly income. In most cases, you stay in your home and don’t have to pay anything back. The interest usually accrues until you sell the home or pass away.

Reverse mortgages aren’t an appropriate choice for everyone, however. The compounded interest erodes the value of the estate, leaving less for beneficiaries. A reverse mortgage is difficult to undo – if a homeowner decides to cancel, there may be hefty fees or interest penalties.

Personal loans are a simple option for people who have a specific expense and plan to pay off their debt in a fixed amount of time. With fixed and variable interest rates available, as well as various term lengths and payment frequencies, personal loans are easily customized to your needs.

Managing debt

While debt can be a useful tool for achieving your objectives at any life stage, it’s important to manage it wisely. Your Financial Advisor can help you:

* Structure debt payments to pay off higher-interest loans first
* Monitor your debt closely, to ensure that your payments are manageable
* Review your estate plan. You may want to consider using life insurance to retire the debt when you pass away and preserve your estate for your beneficiaries
* Develop a borrowing strategy that enables you to enjoy life to the fullest

Benefit from low-interest borrowing

Your home is probably one of the most valuable assets you own. It’s also a powerful borrowing tool.

For example, with many Lines of Credit, you can access up to 80% of your home’s appraised value. Advantages of such a Line of Credit include:

* Low rate. Because the line of credit is secured by the value of your home, you’ll benefit from a low, variable interest rate
* Convenience. Once you’re approved, you have access to the cash you need whenever you need it
* Flexible payment terms.