Pre-Retirement Canadians Embrace Mortgage Debt
People looking forward to retirement usually try to retire their debts first, especially their mortgages, so they can enjoy their leisure without financial worries. But a story in the Globe and Mail reveals that more and more Canadians are going into their golden years with a substantial financial burden.
“Pre-retirement Canadians in the their 50s are taking on an alarming amount of debt and are most at risk of bankruptcy,” says April Dunn, owner of the Red Door Mortgage Group in Vancouver, citing a new study that examined about 7,000 insolvency filings. She reveals in the Globe interview that about half of all retired people in this country are carrying debt, “with many stuck managing two or more payments a month.”
Even so, not all of these people are getting into debt as a desperate measure. Some want to free resources for other uses and believe they have the wherewithal to manage their debt. Others are seeking to take advantage of historically low interest rates, or they are leveraging their property to pass money to their kids, so they can perhaps buy their own homes.
A New Problem for the Old
While aging baby boomers aspire to a placid retirement, this dream is being threatened by a growing problem: senior debt. An August 2013 article in Financial Post says, for example, “A report provided [by] ratings agency Equifax Canada shows average debt for consumers aged 65 and over climbed 6.5 per cent over the past year, the biggest year-over-year increase in the period for any age group.”
Apparently Canadians 65 and older account for eight per cent of bankruptcies, up from six per cent five years ago. “There’s been an increase since 1987 in bankruptcy of people over 65 of 3,900 per cent, it’s just huge,” says Nadim Abdo, vice-president of consulting and analytical services at Equifax.
Some reasons for this alarming situation include:
- People are living longer, so may not have saved enough money to cover their entire retirement.
- Parents are bailing out debt-ridden adult children.
- Seniors are sinking too much money into real estate, lured by low interest rates and the prospect of high returns.
- Widows or widowers don’t change their spending habits after a spouse dies and their pension disappears.
The results of this rising problem is not only the anxiety of dealing with creditors but the increased risk of health problems, such as rising blood pressure and heart attacks, and passing estates to heirs that have to be placed into bankruptcy because of crushing debt.