Seniors - A Small Group Carrying High Risk Debt

Posted in Debt Help
Posted by J. Douglas Hoyes, CA, CPA, LIT, CIRP, CBV

seniors-high-risk-debtBy the time you approach retirement age you should be out of debt, right?  That’s the conventional wisdom, because after a life of working you have paid off your mortgage and other debts, and accumulated savings for retirement.

Unfortunately the conventional wisdom is wrong.

seniors debt, risk of bankruptcy

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Statistics Canada in their article Retiring With Debt reports that 1 in 3 retirees, and two-thirds of pre-retirement seniors, carried some form of debt.  The numbers are even higher according to a CIBC poll which reported that 59% of all retired Canadians say they were in debt and 19% admitted their debt load was increasing.

Debt is Just More Acceptable

There is no question our cultural attitude towards debt has changed, even among older Canadians. Almost everyone now uses credit cards, whereas even 20 years ago most seniors did not. For many seniors this apparent increase in debt may just be the normal ebb and flow of how our economic system works.

In fact, a Statistics Canada survey found that 1 in 4 retirees with debt owed less than $5,000, certainly not a number to be worried about. Even pushing the numbers a little higher, almost 60% owed less than $25,000 which may just represent the final few payments on their mortgage, a few monthly purchases, and perhaps a vacation or house upgrade or two.

But Should It Be?

It’s the outliers, however, who are at risk, and these statistics are also increasing.  More than 1 in 6 retirees with debt owed $100,000 or more. Their median debt-to-income ratio was a whopping 286%, well into the danger zone.  That means they owed almost three times as much as they earn in a year.  That’s huge.

But is this high debt just because seniors are affluent?  If I own a million dollar home and have a $300,000 mortgage I have high debt, but it’s not really a problem if I have large assets. It’s true that both lower income seniors and seniors with a high net worth were less likely to carry significant debt. The problem is with those in the middle, neither low income nor high net worth, who showed the highest propensity to carry significant debt into retirement.  In other words it’s the average senior that has the biggest debt problem.

Bankruptcy Among Seniors On The Rise

This propensity unfortunately has also lead to an insolvency crisis among seniors. Our own study of the senior debtor showed that the rate of insolvency filings (both bankruptcy and consumer proposals) among seniors is on the rise, with the insolvency rate among those 50+ increasing from 23% to 30% of all insolvencies over a short 4 year period.

If you are a senior and find yourself struggling with debt, contact Hoyes, Michalos for a free, no obligation consultation. We can help you look at your debt management options and develop a plan to eliminate your debts so you can enjoy your retirement with financial security.