MANY CANADIAN SENIORS ARE NOT enjoying the fruits of their hard-earned labour during retirement. Instead, they are struggling to manage an increasing debt load, according to a new survey conducted jointly by HomEquity Bank and Equifax Inc.
The national study found that in 2015, 16.5% of Canadians aged 55 and older are carrying a mortgage, an increase of 10% from 2013. For the country’s oldest citizens, those aged 70 and older, debt increased by 12% between 2013 and 2015. For Canadians under the age of 70, the increase was 4%.
The data reflect what many financial advisors are seeing first-hand. “Seniors are carrying more debt, and they’re carrying it longer,” says David Gowling, senior vice president with MNP LLP in Hamilton, Ont.
Mortgages and related housing loans are a predominant type of debt being carried by seniors. In part, this trend is linked to a booming real estate market in many parts of the country. “Housing prices have gone through the roof and people have borrowed on the house,” says Matthew Stewart, associate director of economics with the Conference Board of Canada in Ottawa.
The family home, even if mortgage-free, also may be contributing to the debt problems facing seniors in another way. Brian Himmelman, president of Himmelman and Associates Financial Advisors Inc. in Halifax, sees many clients who are grappling to make ends meet on a fixed income but are reluctant to sell their house, in many cases, because they want to leave it to their children. Yet, he notes, “Their wealth is invested in the house.”
Credit card debt also is a significant issue for many seniors. Gowling recalls a 78-year-old client who was carrying $45,000 in credit card bills. “Ninety per cent of her pension was going to debt service,” he says.
With good cash flow, Himmelman says, debt can be manageable, but it is risky. That risk is compounded for seniors. With increased longevity can come the need for specialized care and housing, which can be expensive, especially over the long term. A 2011 study conducted by the Canadian Institute for Health Information found that an estimated one million Canadians receive home care at any given time; about 80% of those patients are seniors.
Many Canadians have no financial plan to guide their spending, saving or debt management. According to a study by Bank of Montreal, only 43% of Canadians have a financial plan.
“Without [a plan], you are not on firm ground,” says Stephen Miao, senior vice president with BMO Nesbitt Burns Inc. in Toronto.
Savings also are an issue for many older Canadians. “On average, the savings rates are low,” says Stewart. “There are large groups that don’t save at all.”
Of course, not all debt assumed by seniors is burdensome. For retired clients who have wealth, debt is part of their financial planning. This is what Charles Ghadban, president of Charles Ghadban Accounting in Ottawa, calls “good debt”: “The good debt clearly is used to leverage their financial position, in which we as their accountants and financial planners recommend to borrow to invest, earning a profit on the spread.”
Debt is manageable when your client’s income is more than adequate to pay what is owed and there are enough assets to extinguish the debt if necessary, Ghadban adds. He recommends that the ratio of assets to debt should be at least 1.5:1.
Miao recommends that you contact your senior clients frequently, conduct regular portfolio reviews and ask your clients to keep in touch when major changes are planned, such as the purchase of a cottage.
“As financial professionals,” Miao says, “we are trying to coach [our clients] and focus on budgeting.”
Clients need to be clear about the lifestyle they want and the resources at their disposal. They may assume that any discussion with their advisor will be about what they have to give up.
“It doesn’t have to be,” says Gowling, who approaches conversations with his clients from the point of view of balance. “Look at the reality of the situation and possible solutions.”
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