Why are retirees carrying more debt?

Canadians and debt seem to go together like Peanut butter and jam or milk and cookies. At one time, debt was something that was more common when you were young because you bought your first house and were raising children. The goal over your life was to pay off the debt off by the time you retire. It seems times have changed. According to a recent survey by CIBC, 59% of retirees are carrying debt in retirement. It used to be that the common belief was you had to be debt-free in order to retire. According to this same study, Canadians still place being debt-free for retirement as a priority over being close to family, having hobbies, and being around family. Unfortunately, more pre-retirees are stressed about retirement because of increasing debt levels and the possibility of having to carry that debt into retirement.

So why are retirees carrying on so much debt?


Debt is more accessible than ever. There was a time when the financial industry discouraged dent and encouraged debt reduction as a prudent financial strategy for retirement. Today, financial institutions realize that offering debt is good for their bottom line. So much so that they are making debt more and more accessible through lines of credit, credit cards, and other loans. Do you think profitability has anything to do with this advice?

Related article: Debt has become big business

Values on spending

Not only is it fun to spend money, but it’s also easier than ever to spend. Increased consumer spending has become a common solution for economists, politicians, and policymakers. We are now a society that is all about consumption, material wealth and keeping up with the Joneses.

It’s so easy to spend money and even worse, the money we don’t have. We are constantly tempted to spend money whether it’s online, watching TV, opening up the newspaper, driving home from work or being harassed by spouses and kids. Every holiday has been turned into an excuse to have a sale and spend money.

Related article: A disciplined spending plan

Low-interest rates

There is no question interest rates have played a big role in the amount of debt we carry. Low-interest rates have fueled consumption patterns. It has clearly made it easier to buy homes, cars and other consumer items. We can take on more debt without affecting our cash flow. At a 10% interest rate, you would pay $1000 of interest on a $10,000 debt. At 6%, you can borrow $16,667 and still pay the same amount of interest.

Related article: How much debt is too much?

Housing trends

Rising housing prices have increased Canadian Debt. 75% of the debt in Canada is attributed to mortgages. As Real estate prices rise, Canadians are forced to take on more debt to buy the same relative home from 5 to 15 years ago. Canadian lenders have also made it easier for borrows to borrow more money for a longer period of time. Amortization periods on mortgages went as long as 40 years until the government stepped into institute laws to shorten amortizations. All of this leads to why there is more debt.

Related article: Predictions for Real estate prices

Times are tough

Bear markets, stock market corrections, and economic recessions have not only made it tougher to save money but it’s also forced some people to rely on debt to get them through periods of unemployment, lower-income, and tough financial situations.

There are so many contributing issues to high debt levels. Can you think of any other reasons?


  1. Connie Solidad

    A few other contributing factors (in my opinion) – Lifestyles have changed. Years ago, families were used to living with less luxuries like wide screen tv’s, spacious and well-appointed luxuries, fancy vacations, etc. Luxury has become the norm, and we are encouraged to get into debt early in our lives to finance the luxury.

    Incomes have also changed. Before World War II, a single income per family was the norm, and a family could pay their bills on what father brought home. Since then, the situation has changed, and it started becoming increasingly difficult for one income to support a family. One way of overcoming that is getting into more debt.

    Thanks for the article, this is quite a serious problem for a lot of Canadians!

    • Jim Yih

      Great comments CS. I agree that it has become easier to spend money we don’t have to fuel bigger houses, heavier vehicles, fancier technology. you would think that higher incomes would make it easier to live within your means so you did not have to go into more debt but I think more income means more spending.

  2. Uphill Battle

    I think there was once a time when banks were considered to be an essential service with an ethical obligation to protect the interests of their clients. But (it seems to me) sometime in the 70s or so, that changed; they became vendors of financial products to whomever will buy, with the primary ethical obligation to protect their shareholders, not clients. A lawyer can only represent the interests of one party at a time, and yet we don’t seem to see the conflict of interest here. I don’t mean to knock the banks, but consumers need to be a little more alert and shop around before signing papers they’ve never read and don’t understand.

    And that is only a small part of the equation. We used to go shopping and splurge on a 13″ tv for the family trailor – now we pick up a new 55″ tv with digital box, stand, wall-bracket and sound system which requires two different sets of tech people to install, and a $100+ monthly feed fee, and then fly to a destination holiday spot. We routinely buy shampoo, razors and processed food that are technologically more advanced, but come at a cost many times higher than the mere inflation-rate adjustment. These simple things eat up a much larger percentage of take-home pay than previously. Food and coffee is increasingly purchased pre-prepared or take-out. To compensate for all this, we lease cars and purchase homes with collateral mortgages which may or may not actually get paid down. I also harbour a suspicion that the actual amount we spend on phones, internet and tv is under-estimated, meaning that folks routinely have monthly house & car payments that they actually can’t meet. But we don’t ever pay the piper, we just accept another credit card or line of credit and continue on our path.

    I often think of the “Grapes of Wrath” by John Steinbeck – the poor worker families were trapped in work camps where it cost as much to buy food as they could possibly earn during the day by labouring in the fields. Our society always finds a balance point where the amount that it costs to live is just a little more than what we can manage. So it takes hard work, priorities-setting, and living with delayed gratification to bring it all together. Not everyone succeeds.

    • Jim Yih

      thanks for the comment UB. If you’ve ever read the Wealthy Barber Returns, David Chilton calls this the Diderot Effect where spending leads to more spending.

  3. My Own Advisor

    Dare I say it, but overspending is the issue. Expenses outweight incomes, on the whole.

    I know for me, I want to be debt free in 10 years, in my late-40s. I want to depend on the bank of me 🙂

    • Jim Yih

      I could not agree more MOA!
      Spend less that you earn = freedom
      Spend more than you earn = debt
      Thanks for stopping by and all your continued support of Retire Happy Blog

  4. Eric Putnam

    Congratulations on another great post Jim. It’s all about financial education and taking accountability for your own actions. David Chilton’s two books are great start for anyone. Unfortuantely a lot of Canadians in their 50’s and 60’s and yes even older still carry a large mortgage or secured line of credit that has been refinanced several times using their home as a “piggy bank”. The recent changes by the Candian government to limit refinancing to 80% of the value of the home only moves debt to unsecured cards adn lines of credit. Unfortunately too many think their banker is their friend and rely on them as a trusted advisor but of courese their job is to sell products and maximize profit for the bank. Candaians need to take more accountability for their own finances and seek help from unbiased professionals to when needed to help them manage their cash flow and eliminate their debt. Unfortuantely also many retirees do not know how to say no to their adult children and grand children and put themselves into debt to their own detriment.

  5. Easy Home Improvement

    Very nice post Jim and a lot for us to think about. Personally, I think you have to take into consideration the generation gap for the current debt for retirees. The Baby Boomers of Post World War 2 contributed to so much borrowing and left themselves and their offspring with all the economical debt.

    All the needless spending that was encouraged in the 80’s has come back to haunt those involved, who are looking to retire early.

    This has consequences for the future as well, as I can’t imagine an average person aged 20 – 30 now will be able to save at all for their retirement pension. They are going to struggle to pay the bills and raise a family, let alone save for their pension and their children.

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