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.

Our 2017 Joe Debtor study shows that the number of seniors who carry debt into retirement is growing. soon one in four Canadians will soon be 65 or older according to Statistics Canada reports. With a growing average household debt-to-income ratio, increasing costs in everyday living, it’s not surprising that the number of retired insolvent debtors is growing.

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?

Our Joe Debtor study shows that seniors have the highest debt-to-income levels out of all insolvent debtors. Insolvent seniors (60+) are currently sitting at a 251% unsecured debt-to-income ratio. That is huge. 

But is this high debt just because seniors are affluent? 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.

It’s important for seniors to remember that their income will decrease after retirement. So payments and a lifestyle that is easy to maintain today, may not be feasible after retirement – and you definitely shouldn’t use debt to pay for it.

Bankruptcy Among Seniors On The Rise

Insolvent debtors aged 50-59 in our Joe Debtor report were  more likely to have an RRSP, it was still only half. So 50% of seniors who filed insolvency had an RRSP, but 50% did not. Many people struggle to pay off their home, help dependents, and pay off debt, but neglect their finances. This can be dangerous for someone on the brink of retirement because an unexpected illness can lead to a drop in income sooner than expected. 

Over the course of six years, we’ve seen the number of insolvent seniors rise from 9% of our study to 12%. In our most recent study 56% of seniors were retired and a significant portion of them (47%) held tax debts. Without knowing your options prior to retirement, it can be easy to deplete your savings to try and recover from your debts. The best way to ensure prosperity in your retirement is to make sure you don’t carry debt into it.