So much for getting wiser as you age.
A pair of reports out this week show that Baby Boomers are woefully short of their retirement savings goals and debt among seniors is growing faster than other age groups.
Credit rating company Equifax says seniors are racking up debt to help maintain the lifestyle they enjoyed before retirement, while a BMO study says Baby Boomers are about $400,000 short of their retirement goals.
“This is particularly concerning given that the oldest of the Boomers (defined as those born between 1945 and 1964) turned 65 in 2010 and many others are just a few years away from retirement age,” the BMO report notes.
Meantime, Equifax says the average debt for consumers over 65 a climbed the most than any other age group at 6.5 per cent, calling it an “alarming trend.”
"The traditional golden years that retirees anticipated have not become a reality as debt loads rise for those over 65,” says Henrietta Ross, CEO of the Canadian Association of Credit Counselling Services. “With reduced incomes, often coupled with increased expenses, these individuals are accumulating more debt to boost income through credit so that they can continue to enjoy a pre-retirement lifestyle that they may no longer be able to afford.”
But before you go lecturing a senior citizen about their spending habits, consider the responses to the BMO survey, where 71 per cent of Boomers said they plan to work part time in retirement to earn extra income. Also, 44 per cent will sell off their valuable goods, such as antiques or possessions they don’t use. About one-third plan to sell their home to help make ends meet.
“As Canada’s Baby Boomers prepare to head into their retirement years, many are discovering they don’t have the funds they had hoped would be available and now face the reality that they have little time to play catch-up,” said BMO Financial Group’s senior manager of wealth planning, Chris Buttigieg.
“However, it’s encouraging to see that they are being realistic about their retirement needs and are considering other ways to manage the shortfall.”
The BMO study says the average Boomer feels they need about $658,000 to retire on, not including Canada Pension Plan and Old Age Security money they’ll also get coming to them. However, the average amount they have saved so far is about $228,000.
Statistics Canada data says senior couples spent an average of $54,100 in 2009. Of course, that was during the economic downturn when spending too much was considered foolish, no matter what age.
Based on historical market returns and a 4 per cent withdrawal rate, BMO estimates retirement savings should be approximately 25 times the size of annual withdrawals.
To reach the goal of spending just $54,100 in retirement income a year, a retired couple would need to have saved roughly $1.35 million, says Buttigieg.
“The study’s findings should send an urgent message to younger Canadians that they have to think beyond their immediate day-to-day financial needs and always have an eye on their future, particularly their retirement,” says Buttigieg.
That might be wishful thinking, given yet another study out this week which shows the average consumer's total debt, not including mortgages, increased by about $910 to $27,131 in the second quarter compared to the same time last year.
The TransUnion survey comes after Canadian consumer debt fell in the first quarter – for the first time in two years. Canadians were in record debt territory in the last quarter of 2012.
TransUnion forecasts total debt to continue to grow through the remainder of the year, “likely eclipsing the record high set in Q4 2012,” the report says.