Arguably, few things could be as nerve-wracking as being retired or inching towards it and finding yourself in dire financial straits. But that's what's increasingly happening in Canada and younger generations would do well to take note so as to avoid finding themselves in the same position over time.
Canadians over the age of 65 now have the highest insolvency and bankruptcy rates for their age group and seniors are 17 times more likely to become insolvent in 2010 than they were 20 years ago, according to the Vanier Institute's 13th annual "Current State of Canadian Family Finances: 2011—2012 Report."
"(The senior insolvency rate) has never been higher, remarks Roger Sauvé, author of the report and president of People Patterns Consulting near Cornwall, Ont. "(seniors' debt) is at a record level … what it's the highest for is the rate of growth."
Credit card debt leading to insolvent seniors
Often times, insolvency is due to an unexpected job loss and/or a divorce, but some of it is likely self-inflicted, Sauvé says.
"There was a survey done in mid-2006 and it looked at the rising insolvency rate among seniors and the No. 1 reason was the availability of credit," he continues. "Seniors, like everyone else in the population, took advantage of lines of credit and then they couldn't pay it (back). So they'd go bankrupt to get rid of their debt."
The decline in interest rates has also heavily impacted the older age groups' retirement investments. Traditionally, investors approaching retirement age will move their investments from riskier assets -- like stocks -- into interest-bearing investments -- like bonds or bond funds -- in an effort to reduce risk and lock in principle capital.
"It's recommended that you have less risky investments but those that are less risky pay very little, like GICs," Sauvé adds. "Generally, and depending on economic conditions, this situation will trend upwards … this tells us of what might be coming from the younger age groups when they get to be that age. The younger age groups are likely to have heavier debt than this senior group."
It's enough to make one long for the so-called decade of greed.
"It was a lot easier for people to make money when interest rates were higher. Look back to the 1980s when interest rates were double-digit; they were 18 per cent at one time," she recalls. "People were doubling their money in treasury bills every four years,"says Bev Moir, a Toronto-based senior wealth advisor for ScotiaMcLeod
Experts say Canadians are also underestimating long-term care costs, which have far-reaching implications yet to be fully realized both for retirement planning and for federally funded social programs.
"This is a huge worry that I have, because of longevity and the cost of healthcare as one ages," says Moir. "I spent a number of years in the healthcare field before moving into financial services close to 20 years ago. Even back then, it was obvious to us the healthcare system doesn't cover all of the costs (associated with senior care).
"If someone has a disease, there are costs they're going to have to pick up. The healthcare system couldn't afford it 20 years ago and they certainly can't afford it now. It's going to get worse with the Boomers going into retirement."
Moir says previous generations didn't have to plan for retirement to the degree we do today because decades ago they could fall back on the patriarchal pension that once provided for cost of living increases. Fast forward to 2012 and less than 40 per cent of the population has a pension plan.
"We're in an environment now where employers might offer a less attractive pension or a group benefit like a group RSP so people have to self-manage their retirement savings and that requires a lot of knowledge," she says. "I don't think people fully appreciate how much money is sitting behind a pension benefit … it's a lack of knowledge and a failure to plan."
Credit counsellors see increase in senior clients
Patricia White, executive director of Credit Counselling Canada in Toronto, says she wasn't surprised by the findings in the Vanier report since her not-for-profit agency is seeing similar trends.
"One of the statistics we keep is the average age of the clients that we see and in 2011-2012 that figure was 44 as an average age. But 10 years ago, it was 36," she says. "Anecdotally, we're seeing older people with debt at a time when if they're not debt-free they should be close to it."
White attributes the escalating problem to a combination of factors. Certainly the state of the economy is one, employment instability in the middle age group is another, and in many cases, the family homestead was considered to be the retirement plan.
"If that home has decreased in value or if there's debt secured with that home, than that changes things," she notes. "There's also the return of adult children to their parents, many are carrying debt, and they look to their parents for assistance. The parents borrow to help their adult children and put themselves at risk doing so sometimes."
Experts recommend senors avoid for-profit credit counselling agencies that charge significant fees for services that reportedly do nil for the indebted individual.
"In terms of seeking professional help, you have to ask questions about the services you want and how much it'll cost you. I find people are reluctant to talk about their money," White says. "Because of that, they don't ask the questions that they need to ask."
For individuals seeking professional assistance, White recommends starting by inquiring at your financial institution if there's help available. Thereafter, consider non-profit credit counselling and perhaps talking to a bankruptcy trustee.
"If you need professional help, don't shy away from it," she says.