Seniors, retirement and debt

“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 that accepts and encourages debt as a means of acquiring everything our heart’s 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.

Related article: 5 reasons to pay off your debt

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.



    I am solidly entrenched with items 2 & 4.
    Item 4 is quite easy to explain. I am old enough to remember when credit cards first came out. The merchant would ask “Will that be cash or credit?” to which I would reply – How much will you give me off for cash? They never wanted to give me the same amount they were paying to the CC company so they never got any cash from me. This is also another reason I do not use a debit card as it is money straight out of my account, just like cash. Why pay now when you can pay in htirty days, or more, and either get cash back or if you have shelled out for a points card and spend a lot you accumulate points for a trip or something. Those are my reasons to “always” us e a CC so I will always have a balance. I jsut make sure the monthly balance is paid in full every month so there is no interest charges applied.

    As to the HELOC I am running I am quite happy with it thank you. It costs me 3% on the balance and this is all tax deductible as I use it for investment, equities, purposes only. The dividends it pays me are more than sufficient to cover the interest costs as well as pay donw some of the principle every month. So I do pay some tax on th edividends in excess of the interest charges but at a reduced rate for dividends. So this will cost me approx $3k in interest charges this year and I will receive approx $14K in dividends. So I will be taxed on approx $11K of dividends, again at a lower tax rate.
    When the prime rate rises I will re-consider the HELOC. Until such time it is doing quite well. Nothing like using other people’s (bank’s) money to make money.


    P.S. That HELOC I mentioned enabled me to purchase an SUV this year – cash. And I am stil pulling, and paying, the amounts mentioned. Jsut can’t see anyhting wrong with my HELOC at present.
    It is not for everyone as it is all invested in dividend paying equities. So they can go up but also can go down, usually a lot faster. As I mentioned to a bank advisor when he asked me if I was nervous about borrowing money to invest – Only when they are going down.
    But as long as the dividends pay the interest charges and pay down some of the principle I can live with the slides at times.
    BCE increased my dividends 6% this year.
    IPL just increased my dividend 14% for next year

  3. Sarah

    Ricardo, you gave two great examples of how to use credit in order to enhance your situation and I commend you for turning the tables on your financial institutions and using credit to your advantage! Unfortunately, there’s a world of difference between your use of credit and the challenges faced by seniors who are carrying large amounts of consumer debt and making minimum payments on balances that they will likely never be able to pay off.


    Thanks for the reply Sarah.
    Different stokes for different folks.
    Everyone, including me, need to stay current with their lives.
    This includes
    Living accomodation – Own or rent, House, Condo, appartment
    Hobbies – Why have a hobbie if you do not improve your understanding of it?
    Health – What is more important than health? You can’t spend it if you are unable to live your life.
    Financial Health – Yes, it is healthy to be in a good financial position. Too much stress if you are wondering where you will get the money to buy medicine or the next Big Mac
    And I am sure many other in’s and out’s of life.

    So it is up to each of us to take care of ourselves as well as those for whom we have some responsability – family.

    And this is one place where we can exchange ideas and experiences and hopefully not only pick up information (education) but also hopefully impart some other optics through our own experiences.
    One brush and one colour does paint a wall but the canvas of life has more hues and colours to it than what is in one can of paint

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