Retirees carrying too much debt

A financially secure retirement is becoming the exception not the norm, says Lee Anne Davies, CEO of Agenomics, a consulting firm specializing in money management and aging.

Today, more and more Canadians are finding themselves burdened with debt during retirement—a worrying trend that shows no signs of slowing.

According to the Vanier Institute, bankruptcy rates for those aged 55 to 64 have increased by more than 600 percent over the last twenty years.

 “Debt has become socially acceptable, even for those nearing retirement,” says Davies, an Applied Health Sciences graduate who helped launch the RBC Retirement Research Centre at the University of Waterloo in 2010.

 “This is a remarkable shift from perspectives even two decades ago when very few began retirement with any debt.  In fact, delaying retirement until debt was paid off was expected.  No one leveraged credit in their retirement years.  Now it is common for people to incur new mortgages and line of credits after they have stopped working.”

Seniors taking on mortgages

The trend has become so prevalent among retirees that it has garnered the moniker “gray debt” among those in the finance industry.

Real estate is one of the phenomenon’s biggest culprits.

“People nearing retirement are taking on more debt through real estate. They think they can turn it around and get more money for it or sell it if they need to. But that’s not a guarantee,” says Davies, who focuses on helping businesses and non-profit organizations develop strategies for  Canada’s aging economy.

There are also those parents who are willing to remortgage their house to help their children purchase real estate.

 “People take on mortgages into their seventies without thinking about the health needs they may have at that age. They are trying to manage personal risks in a way that works for them, and many see real estate as the best option."

But it’s not just real estate driving gray debt. Consumer debt is also disproportionately high for those entering or in retirement.

 “People want to have the lifestyle, the trips, the cars. What they don’t realize is that they are spending during a life phase when their income stream has decreased.”

More older adults declaring bankruptcy

Unable to manage their debt, a growing number of retirees are turning to insolvency or bankruptcy.

Each year approximately 130,000 to 150,000 Canadians undertake formal financial restructuring. The insolvency rate for those aged 65-plus increased by 1747 percent over the last twenty years. Seniors in particular were 17 times more likely to become insolvent in 2010 than they were in 1990.

According to the experts, the only way to curb this trend is through improved financial literacy.

“Older Canadians needs to make financial knowledge a priority in order to remain financially secure. Financial control and management is a hallmark of adult autonomy but so many of us do not do it well.  Financial information may be boring, but at the end of the day, retaining personal autonomy cannot be met if financial health is unprotected.”