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Older Canadians Burdened by Debt

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August 14, 2019

It used to be that by the time you reached a certain age you would have paid off your mortgage, managed consumer debt, and reduced all other monthly bills in order to retire comfortably. Unfortunately for many older Canadians today, debt isn’t something you can necessarily shed as you reach retirement.

There are many reasons why more Canadians are carrying large sums of debt into their senior years. In many ways, it’s related to the younger generation having a harder time entering adulthood, which has an effect on everyone’s quality of life.

Helping adult children

It’s plain to see that many young adults are finding it difficult to gain their independence due to housing costs, student debt and low wages. Parents, being parents, are stepping in to shelter and assist their adult children like never before. The understanding that children will move out and be fully independent at 18 years old is a thing of the past. Because adult children are living with parents longer, parents are dipping into retirement savings to help them out. Parents also help pay for school, weddings and even down payments on homes for their adult children, which mean they’re possibly using credit more often to pay for things or co-signing on loans.

Home prices

It’s costing retirees a lot more than it used to just to downsize. Many seniors are having to get mortgages later in life, which means carrying a large amount of debt on a fixed income. Because of this, retirement plans are being tossed out the window and people are working longer. Some retirees are finding themselves working part-time jobs to supplement their pension in order to pay down debt and keep their home.

Cost of living and income imbalanced

This isn’t a generational issue, but it’s affecting older Canadians, so it’s worth noting. The cost of living, which includes housing costs, continues to rise while incomes (including pension incomes) remain flat. This means retirees are using credit cards, lines of credit, overdraft protection and more to pay for everyday things, such as groceries.

Home equity loans

While many people retire comfortably by selling their home and downsizing to a more affordable community, many use their home equity to pay for other things pre-retirement, adding to their debt load. Borrowing against your house can be risky so close to retirement. Adding this amount of debt at this stage will rob you of your retirement savings, making it much harder to live comfortably once you start working. And if you’re forced into an early retirement, you’ll be in even worse shape financially.

Life expectancy

Our senior population is living longer than in previous generations. This means, theoretically, retirement savings need to be stretched further. The older population is having to go into debt to maintain their quality of life. No one should be shamed for living longer than previously expected, but combined with all the other factors above, it’s definitely contributing to the burden.

What are the solutions?

There’s no simple solution to reducing the debt load for older Canadians. In the short term, some people are moving in with adult children, sharing the housing costs in a multi-generational living situation. Widowed and single seniors are finding social and financial benefits to co-living with others in similar situations. There are also some geared-to-income housing options, if you can get on a list.

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