Most people picture retirement as a time to golf, travel and kick back — not as a stressful stage when money is just as big a concern as it ever was. The reality, however, is that the majority of Canadian seniors are in debt and continue to have the highest bankruptcy rates in the country.
According to a new CIBC poll, 59 per cent of retired Canadians say they’re carrying debt. And 19 per cent of those say that their debt level has increased over the past year, while 36 per cent report their debt level has stayed the same.
The figures are especially concerning since paying down debt gets that much harder during retirement when so many people transition to a fixed income.
"Canadians carrying debt into retirement may miss out on the full benefit of their retirement savings, because they’re using some of it to make their monthly debt payments,” says Christina Kramer, CIBC’s executive vice president of retail distribution and channel strategy.
Among those retired Canadians with debt, the Harris/Decima poll found:
- 37 per cent are juggling two or more debt payments a month
- 39 per cent are carrying credit-card debt
- 30 per cent have debt on their line of credit
- 16 per cent are carrying debt on their mortgage, and
- 14 per cent have loan debt
In fact, Canadians over the age of 65 have the highest insolvency and bankruptcy rates in the country, according to a report by the Vanier Institute for the Family.
The non-profit group’s 2011/12 report found that seniors were 17 times more likely to become insolvent in 2010 than they were 20 years before. During that same period, the insolvency rate for people aged 65 and up increased by 1,747 per cent.
“Pre-retirement” Canadians aged 50 to 59 are taking on an alarming amount of debt as well. They’re most at risk for bankruptcy, according to a recent study that examined some 7,000 insolvency filings.
Their unsecured debts — including credit cards, personal loans and other forms not backed by assets — exceeded $84,000, the study by bankruptcy trustees Hoyes, Michalos & Associates found.
Retired Canadians in Atlantic Canada led the pack in the CIBC poll, with 65 per cent carrying debt, while those in Alberta fared the best, with 53 per cent saying they were in debt.
Low rates leading to more debt?
Many older Canadians saw their retirement savings take a hit during the recession, and a sluggish economic recovery isn’t helping. And with interest rates near all-time lows, seniors are borrowing just like every other consumer.
“Rates may stay low for decades, or they may rise and cause more severe problems,” says registered financial planner Derek Moran of Kelowna’s Smarter Financial Planning. “I am seeing people lock into long-term fixed rates at lows never seen in Canadian history. Minimizing the risk seems to be the key.”
Despite low returns, it's crucial for seniors not to finance their spending with credit. Debt reduction should take centre stage as one ages.
For those seeking to manage their debt, a key strategy is to replace high-interest loans with lower-rate options, getting professional financial advice on how to best consolidate or restructure if necessary. “It seems obvious … but you'd be surprised how many people don't do this,” Moran says.
Same goes for paying off those high-interest debts first before conquering the lower-interest ones.
Get your debt in check
There are several additional steps older Canadians can take to get their debt under control.
Calgary Certified financial planner Kevin McLeod, president of MoneyAdvisor.ca Financial Ltd, points out that it’s important to distinguish between good and bad debt.
“Not all debt could be considered a burden,” McLeod says. “Good debt is things like mortgages and other long term investments. At today's low interest rates, they [seniors] may be taking advantage of the low rates to increase their net worth. At these low interest rates, it might make more sense for someone to keep their money in their investment accounts instead of taking big lump sums to pay off their debt.”
- Bump up debt payments, and despite today’s low-interest rates.“Setting your debt payment even slightly higher than your required payment can reduce your overall interest costs and help free up some of your monthly cash-flow,” says CIBC’s Kramer. “Cash flow is a major component of retirement planning, meaning that even small reductions to your debt load can make a big difference in your monthly cash flow.”
- Look into borrowing against your home. “Some retirees can be property rich and cash-flow poor and need to use the equity they have built up in property much the same as someone who has built up financial assets like RSPs and pensions,” McLeod says. “You cannot eat your house, but you can borrow against it. Borrowing against it is tax free.”
- Use free budgeting tools to help you track spending, pay debts, and live within your means.
- Plan ahead, regardless of your age. “More and more people are more concerned with living for today, and dying broke,” McLeod says. “It’s likely that mortgage or other major debt decisions happened more than 10 years prior to retirement. If the debt is a burden, it is likely because of poor planning. We just don't know our expiry dates, so careful planning for the worst is a great idea."