Not everything is rosy in retirement, proof is that seniors are more and more in debt. Since 2010, the 65 and over group has also grown the most among clients who came to us for insolvency problems. But what are the causes of these growing difficulties?
Clyde and Donna have worked hard all their lives. Now that they have left the workforce, they plan to spoil themselves a bit. They do not run on gold, but they both benefit from a pension plan from their employer, in addition to the public plans. Barely a few months after the start of his retirement, Clyde bought himself the SUV he had longed for. Then they planned a few trips, paid for using their mortgage line. To maintain the lifestyle they were used to when they were still working, they also used their credit cards. Result: their savings have melted, they have gone into debt and their retirement pensions are no longer enough to meet the payments they have to make each month.
Traps that await retirees
In fact, according to Statistics Canada data, the proportion of elderly families (65 and over) who had a debt increased from 27% in 1999 to 42% in 2016. As for the median amount of debt, then from $ 9,000 in 1999, it increased to $ 25,000 in 2016 (in 2016 constant dollars).
This inevitably has an impact on the number of insolvency files: according to the Office of the Superintendent of Bankruptcy, in Ontario, the proportion of people aged 65 and over jumped from 10.5% in 2015 to 13.1% in 2018, taking the lead of all other age categories. A sad record that does not bode well for the future of our seniors.
But whose fault is it? According to the Statistics Canada study, about two-thirds of the increase in average debt levels was caused by the increase in mortgage debt. The rest comes from consumer debt: card or line of credit, bank loan, car loan, etc.
Even more worrying: in 2016, 14% of senior families had consumer debt greater than their after-tax family income, up 4% from 1999.
But that’s not all: life expectancy is constantly increasing, since we can now hope to live about 20 more years after the age of 65. In other words, it is necessary to constitute an increasingly important cushion of savings if we want to be able to afford relatively comfortable old days. However, not everyone is able to put the necessary funds aside, especially if the budget was already tight during working life.
Easy access to credit is also an important culture change among today’s retirees, compared to the previous ones who lived with tighter budgetary discipline. In these conditions, there is a great temptation to make up for the shortfall by using credit instruments.
Tips to Avoid Debt
Remember that when you withdraw, your income will decrease. Therefore, avoid making a large purchase (automobile, recreational vehicle, etc.) at this time, or shortly before leaving the job market. Likewise, your mortgage should be paid in full before retirement. However, according to a study by Besmartin, the rate of seniors with a mortgage debt rose to 11.4% in 2016 from 6.5% in 1999, which weighs heavily on their finances.
Also, keep a realistic budget based on your income streams, not counting on credit cards. With interest rates of almost 20%, you can quickly fall into the debt spiral!
Also remember that your home is not an ATM: the mortgage line of credit should be used sparingly and only when necessary. Besides, perhaps it would be appropriate to sell a large residence requiring a lot of maintenance and with high property taxes in order to acquire a smaller and less expensive housing.
In terms of transportation, if you have two vehicles, getting rid of one would probably be a good idea. You only have one, but is it expensive every month? Choose a less expensive automobile.
Your budget will thank you! Because after all, retirement is also a period of life when you want to be less stressed and enjoy the good times.