Episode 242: Should You Retire With a Mortgage in Canada? The Truth About Debt, Tax Strategy & Financial Freedom

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Should you actually retire with debt on purpose?

For years, you’ve probably pictured retirement as completely debt-free — no mortgage, no payments, no financial pressure. But what if aggressively paying off your home is actually slowing down your path to financial freedom? If you’re a high-income earner, business owner, or someone intentionally building wealth, the real question isn’t “How fast can I kill this debt?” — it’s “Is this debt strategically working for me?” Understanding the role of cash flow, inflation, taxes, and risk can completely change how you see retirement planning.

In this episode, you’ll discover:

• How inflation quietly makes long-term debt less expensive over time — and why that matters for your strategy
• When carrying debt into retirement can actually improve tax efficiency and preserve wealth
• The key difference between emotionally uncomfortable debt and strategically powerful debt (and how to know which side you’re on)

If you want to rethink retirement planning and learn when debt can be a tool — not a threat — press play now.

Resources:

• Ready to take a deep dive and learn how to generate personal tax free cash flow from your corporation? Enroll in our FREE masterclass here. 
• Book a Discovery Call with Kyle to review your corporate (or personal) wealth strategy to help you overcome your current struggle and take the next step in your Canadian Wealth Building Journey!
• Discover which phase of wealth creation you are in. Take our quick assessment and you’ll receive a custom wealth-building pathway that matches your phase and learn our CRA compliant tax optimized strategies. Take that assessment here.
• Dig into our Ultimate Investment Book List
• Follow/Connect with us on social media for daily posts and conversations about business, finance, and investment on LinkedIn, Instagram, Facebook [Kyle’s Profile, Our Business Page], TikTok and TwitterX. 
  

Calling All Canadian Incorporated Business Owners & Investors:

Consider reaching out to Kyle if you’ve been…

• …taking a salary with a goal of stuffing RRSPs;
• …investing inside your corporation without a passive income tax minimization strategy;
• …letting a large sum of liquid assets sit in low interest earning savings accounts;
• …investing corporate dollars into GICs, dividend stocks/funds, or other investments attracting cordporate passive income taxes at greater than 50%; or,
• …wondering whether your current corporate wealth management strategy is optimal for your specific situation.

Building long-term wealth in Canada requires more than basic financial planning — it demands a clear financial vision, strategic debt management, and a system designed for financial freedom. Whether you’re pursuing an early retirement strategy, designing a modest lifestyle wealth plan, or scaling as a Canadian entrepreneur, success comes from aligning cash flow, investment strategies, and tax-efficient investing across the right financial buckets. From RRSP optimization and optimizing RRSP room to salary vs dividends in Canada, corporate wealth planning, and personal vs corporate tax planning, every decision affects your retirement, capital gains strategy, and long-term legacy planning in Canada. Smart wealth management integrates real estate investing in Canada, corporation investment strategies, passive income planning, and financial diversification, all while respecting the time value of money and Canadian tax strategies. With the right retirement planning tools, corporate structure optimization, and business owner tax savings strategy in place, strategic debt becomes a tool — not a burden — helping you build financial independence in Canada through intentional systems, strong cash flow design, and disciplined investment bucket strategy.

Transcript:

Jon Orr: Yeah, question we get asked many times. I, you know, I probably think I say that a lot when we get on the podcast here, because we get asked a lot of questions. But I think, I guess it’s not necessarily a question I want to bring up here right away. But I think what a lot of us think is that as we are in the accumulation stage of our financial planning, or as I’m maybe coming into what does it look like when I’m not in the accumulation stage? And you think about the different phases that we go through for financial planning, accumulation, smoothing, withdrawal times. There’s something that I think we want to make sure we address across all three stages, which is the idea of debt. Because I think a lot of people have always imagined that when they get to the last two stages, that they are debt-free.

Kyle Pearce: Hmm.

Jon Orr: It’s like, I won’t have debt. My mortgage will be paid off or I won’t have any sort of loan debt because my home equity line of credit will be paid off and therefore my financial freedom number will be lower, which is all true. But I think what we want to talk about here is how to think about debt across those stages and specifically address this one question. So here is the question, which is like, should I intentionally retire with debt. And that’s the question. It’s like, wait a minute, do I want to avoid that? My whole plan initially was to avoid that, but should I? Should I have the debt? So we want to talk about that, some other things, how to think about debt, how to think about inflation, and how to think about risk and risk on assets, risk off assets. Let’s get into this one question. Should we intentionally retire with debt, Kyle?

Kyle Pearce: Oof. Yeah. This is such a tricky question because like anything in life, there is no blanket statements here. I’m gonna first address like who should not retire with debt. And I’m gonna say like right away, if the only thing that you have is let’s say your primary residence and you have maybe a small pension or you have maybe a small retirement bucket and you haven’t really been doing a whole lot of this learning along the way, like everyone who’s listening here, then I would say like probably not a good move, right, to have that debt. So get that debt gone.

But for those people who are doing the work and like doing the learning, so that’s probably most people who are listening to this podcast, right, folks that are really trying to design their system, design their wealth plan in a way where they’re trying to optimize, they’re trying to maximize where they can, then I’m gonna argue that if we’re doing it well, right, maybe not aggressively paying off our primary home mortgage, for example, that’s the big debt we’re talking about, right, is, you know, a lot of people are like, I don’t wanna have a mortgage or anything owing on my primary home when I retire. Well, if the difference was that along the way you made a conscious effort to take instead of extra dollars to maybe pay down the primary residence and you took those extra dollars to put into some types of investments, then I would argue that you would probably be benefiting from having that debt going into retirement as long as you understood why you were doing it.

I think for the vast majority of the Canadian population, most people end up getting into quote unquote their retirement years or maybe they have to delay the retirement years because the fact they have debt against their home or against other things is actually limiting their cash flow from allowing them to retire in general. And therefore the easiest target is if I can just get rid of that mortgage payment, I could retire sooner. So like for that individual, they’re likely in a scenario where maybe they actually have too many of their dollars in their primary residence in the first place, and they had too few dollars remaining to put into other assets. And therefore they are stuck in a pickle where they should probably retire without debt. But I’m talking to most people listening here are likely not in that same position. So it’s a very different conversation.

Jon Orr: I see. So what you’re saying is like when you’re thinking about why you want to eliminate, you know, the mortgage payment is because it’s a cash flow issue. And therefore, I need to have a certain amount of money coming in every month to pay my lifestyle. And when we think about retirement, we think about withdrawal for that portion when you’re in your accumulation state, when you’re earning money, that’s your income. And so you’re saying if you think about like, if I don’t have any other income producing assets, then it’s really hard for me to like go, but when I go to retire, I don’t want that debt because I gotta pay that, that takes money out of my pocket every month. And therefore if I don’t have it, then my cash flow’s nicer and I could retire with less because I don’t have to count for that anymore. But if I had other assets that helped me offset that payment, then it’s almost like I don’t have to think about it as much. It’s not part of my factor anymore because these other things are actually going to offset that debt. And what you’re saying is you actively, if you’re in that position, you were clever, you were smart, you’ve done the learning to go, that debt will be accounted for in these ways. And that’s my plan. And therefore it makes sense to have debt going into retirement.

Kyle Pearce: 100%. Yeah. So if I’m looking at it and you say, you know, if you’re stuck in this conundrum of like, I’m not going to be able to retire because of that mortgage payment that’s there. You’re probably also not someone who is in need of any tax minimization strategies either. Why? Because it’s likely that the cashflow coming into your world, be it from an RSP, be it from a pension, be it from any other source isn’t significant enough where you’re gonna be in a high enough tax bracket to really have to focus too much time or energy on tax minimization strategies. So that debt is gonna be less useful to them.

But for those people who are looking at maximizing, these are people who are probably more high income earners while they’re in their accumulation phase, incorporated business owners, folks who do have some tax problem during that accumulation phase, debt becomes even more attractive.

Here’s something that I think is worth us mentioning. We’ve talked about it in past episodes many moons ago, is the idea that debt itself is actually helpful to you over the long term anyway, regardless of which bucket you find yourself in. Meaning that last dollar you make on that 25 year mortgage, that last dollar was worth a whole lot less than the first dollar that you put on that mortgage 25 years earlier. And that’s a really important aspect for us to understand is that if I’m borrowing this chunk of money now, regardless of what those payments are, and I understand, you know, interest rates go up and down and here in Canada, you know, we lock in typically for about a five year term. So you are exposed to the interest rate environment in terms of risk volatility and all of that fun stuff. But over that 25 year period, you’ve actually had an appreciating asset, the home, which is great. It’s only appreciating at about what inflation is going up by, but that debt is actually essentially worth less, meaning it takes less dollars in future years for me to pay that debt off. So if I had the opportunity to pay off those dollars later, I’m going to definitely do it as long as we’re doing something useful with the other dollars that I would have contributed to pay down that debt earlier.

Jon Orr: Right. And so like what we’re talking really is like why that exists, that the debt doesn’t increase with inflation as say your income might or your assets will. This is where interest rates come in. This is why interest rates exist, is to account in a way for that stationary debt. So when you think about that debt though, this is why in real estate it makes a lot of sense. So let’s say you own a property, that property appreciates in value every year hopefully. What you’re looking at is you’re gonna pass on the interest of the debt you maybe borrowed to purchase that property. Let’s say was at 70% loan to value and you’ve got this debt now attached to the home. In a way, it makes sense for you to always refinance that home as much as possible so that you can keep pulling equity because then the debt will always be there and every year it gets less and less by inflation. And you’ve got a renter or a tenant paying that for you because you’ve structured this appropriately.

So take that same thinking for all your income producing assets or going into retirement is trying to think about the debt in that same way with the strategic plan. Otherwise, maybe that debt doesn’t make sense for you in retirement anymore.

Kyle Pearce: Right. 100%. And not only is the value of that debt decreasing over time due to inflation, but you’re also using debt as a means to potentially minimize tax along the way. So if I am a real estate investor and I own my own home and I’ve got everything paid off and then I decide to retire today, I’m in a situation where unless my cash flow is exactly what I need for lifestyle with all of those assets, which hey if you can design that and make that work amazing, but if that’s exactly the cash flow that you need then you’re going to pay exactly the right amount of tax based on your lifestyle.

But ultimately what often happens is people actually have more assets in that position. You’re usually not pulling the plug on your regular income until you know you have more cashflow than you need. And very few people out there, and I wouldn’t recommend it for anyone, to ever say you’re now financially free because you’re bringing in exactly what you need every month. To me, that’s just way too tight. That’s just way too risky.

When we have three times the amount of the cashflow coming in that we need, we are paying essentially three times as much in taxes depending on which buckets that cashflow are in. And for those people who are in a scenario like that, where if your goal is I wanna get financially free to a place where no matter what happens it’s rock solid, those are the individuals who are going to benefit the most from having some sort of strategic debt so that they can now play a little bit more of the game. It’s like playing chess instead of checkers with your assets. Because I don’t necessarily wanna be paying all of that tax on all that additional cashflow. I wanna be a little bit more optimized. And not to mention given the fact that we know the debt is worth less in the long run, we get sort of the double whammy when we have some sort of debt as long as there’s enough assets to back up supporting that debt.

Jon Orr: So what you’re saying is I’m planning to have a buffer, like this three to one ratio, but now what I need though is I’m gonna have extra income coming in that you’re saying the debt can actually offset that. But here’s the conundrum, because somebody right now is going like wait a minute, but if I have debt, I have to pay at least an interest portion of that debt every year if I don’t want to pay the debt off.

Here’s a key stat. For every $20,000 a year I need in living expenses, I need a $500,000 pot because I pull 4%. So which means if I gotta pay $20,000 of interest, I need another $500,000 sitting in my pot just in order to do that. So then somebody’s going wait a minute, if I create the big pot so I can pull more money, well then I have to have debt to write off some of that income, but in order for me to have debt, I’ve gotta have a bigger pot because I gotta pay the debt interest. This is a catch-22.

Kyle Pearce: Yeah. And what you’re doing is helping people really make concrete what we had said earlier, which is this idea that if let’s say your pot was $500,000 and you’re taking $20,000, you actually don’t have a tax issue. So probably not a good move to have any debt.

Now let’s scale this up. If you require $60,000, still not a major tax issue yet. If they have a substantial retirement or a way to fund their retirement, that $60,000, if they can do that without much pain or worry, I’m gonna argue they were earning more than $60,000 throughout their accumulation years.

Here’s where things get more complex. You may only want or need say $80,000 for your retirement, but to feel financially free you might want to have $160,000 coming in, or maybe $200,000 coming in just to feel secure. Now we have two things happening. First off, we have more tax potential issues. But secondly, we also have the extra cash flow needed in order to offset the interest on the debt, because there was that extra cash flow coming in already.

If we are carrying debt into our financially free years, I should be able to look at my assets and clearly see that the interest only payment on that debt is actually not impacting my retirement from a cashflow perspective. It might affect you emotionally. If you’re not comfortable with leverage during accumulation, you’re not going to want leverage in retirement either.

But the more we understand how it can be helpful, how the debt is worth less the longer we hold it, and how assets are compounding over time and creating taxable income which the debt interest can be written off against, this is where this strategy can become a huge benefit to your net worth and cashflow during your living years and of course to your estate down the road.

Jon Orr: For sure. The more you learn, the less risky things will become. Real estate doesn’t feel risky when you understand it. Investing in markets doesn’t feel risky when you understand asset classes and macro environments. The more you can learn about debt and strategies to manage debt, the less risky it can feel into retirement.

We released a few episodes ago about RRSP meltdown and how to have a tax-free RRSP using debt to offset that income so you don’t have to pay tax on that income. That can help you gain the actual moves required to make that debt useful for you.

Today I think we wanted to help with the idea of debt and making sure that we’re emotionally okay with it as long as the strategy is there. That’s my big takeaway.

Kyle Pearce: My big takeaway is exactly that, and I’ll add this. If you’re considering a debt strategy, dip your toe in first. Don’t cannonball in. And the more likely you are to take on debt to buy assets, the more I would encourage diversification beyond a do-it-yourself investment strategy.

If you have to take on the emotional stress of borrowing against your primary residence, it might be easier if you put those dollars in the hands of a trusted wealth management team. There is a cost to that, but the difference is you’re taking your hands off the sell button so you don’t do something irrational when markets become turbulent. It’s not if they become turbulent, it’s when.

You don’t need 20% returns. You don’t need 40% returns. You need good, solid, stable returns through a well-diversified strategy.

If you’re interested in discussing that, reach out to us over at CanadianWealthSecrets.com forward slash discovery. We’ll go through your specific scenario and determine where optimization options exist for you.

Jon Orr: Just a reminder, content you heard here today is for informational purposes only. You should not construe this information as legal, tax, investment or financial advice. Kyle Pearce is a licensed life and accident and sickness insurance agent and the president of corporate wealth management at Canadian Wealth Secrets.

Canadian Wealth Secrets is an informative podcast that digs into the intricacies of building a robust portfolio, maximizing dividend returns, the nuances of real estate investment, and the complexities of business finance, while offering expert advice on wealth management, navigating capital gains tax, and understanding the role of financial institutions in personal finance.

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