“This idea that a mortgage is forever is a bad plan; this idea that debt is forever is a really bad plan. Debt will only steal your golden years away from you.” – Dave Ramsey
With the oldest of the baby boomers now in their late 60s, it’s hardly surprising that Canada has a higher proportion of seniors than ever before. Currently, more than 5 million Canadians are over 65 and that number will continue to increase as more “boomers” reach their senior years.
Throughout their lifetime, the sheer size of the boomer generation has transformed the world around them with every step: education, the workplace and society have all changed dramatically since the first boomer was born in 1946. Now, as they move into their 60s, it’s hardly surprising that the boomers are also transforming retirement. Many of these changes are positive but one change that is not so positive is the growing number of seniors entering their retirement years with debt.
Related article: The best retirement is a debt free retirement
Debt levels have been on the rise in Canada since the early 1980s when credit became more easily available. Living in a society which accepts and encourages debt as a means to acquiring everything our hearts desire has enabled many people to live their lives in a manner that past generations could never have dreamed of. The boomers were the first generation to take full advantage of the opportunities that credit provided and, consequently, they are also the generation entering retirement with more debt than any other generation before them.
Related article: Is record debt levels really a bad thing?
According to a recent Canadian study:
- 12% of seniors entering retirement still owe money on mortgages
- 14% of retired seniors owe money on lines of credit
- 16% of retirees are making payments on car loans
- 21% of seniors entering retirement have credit card debt
Related article: Why are retirees carrying more debt?
It’s no coincidence that, while access to credit has increased over the last 30 years, the savings rate in Canada has decreased. Many seniors entering their retirement years with debts just haven’t enough in savings to cover their debt payments and their living expenses. They are also incredibly vulnerable to fluctuations in interest rates which might increase their payments. This may be the reason why bankruptcy rates among Canadians aged 65 and older are currently higher than for any other age group.
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Entering retirement with large amounts of debt creates a number of challenges for retirees. Firstly, it increases the amount of money that is needed each month in order to cover the cost of living. Higher expenses mean that either you need a larger amount of savings to draw from or you need to cut expenses in other areas in order to be able to cover debt payments. Secondly, many seniors are also providing financial support to their aging parents as well as to their adult children and this often adds to their debt levels and/or hampers their ability to pay down debts. It’s not surprising that so many retirees caught in this “sandwich generation” identify finances as a major source of stress.
Related article: 7 causes of financial stress
As with so many aspects of retirement planning, the seeds of success are sown long before your retirement date. Taking control of your financial health, focusing on building savings and reducing debts is always a good idea but it is especially important in the years leading up to retirement. Heading into your “golden years” with as little debt as possible gives you the freedom to build a lifestyle that focuses on your financial needs not the needs of your creditors.