We hear almost daily about the fragile financial situation of Quebec households. Bankruptcy cases are on the rise, average household debt is rising rapidly, purchasing power is declining, and so on. On the other hand, what is less headlines is the debt problems experienced by our seniors.
Most recently, Good Finance and Honest Canada asked about retirement indebtedness. The main conclusion of their study is that indebtedness, especially mortgage debt, is rising sharply among Canadians aged 55 and over.
Retired and mortgaged
In 2015, 16.5% of people over 55 have a mortgage to repay, up 10% from 2013. The number of mortgaged seniors is not the only number on the rise; the average mortgage balance is also up. In fact, it jumped 11% between 2013 and 2015, from $ 158,000 to $ 176,000.
People over 70 are not spared either. They have an average mortgage balance of $ 140,000 and their overall debt has increased by 12% between 2013 and 2015.
This situation is most alarming because people in this age group usually do not have a lot of income and every dollar counts. The financial balance of the latter should be positive, in theory at least.
According to a September 14 Honest Canada report, the 90-day + default rate for people aged 65 and over has increased for the first time since 2010. In fact, it climbed 2.4% this quarter compared with a decrease of 5.1% in the previous quarter.
“In light of the fact that, for some time now, seniors’ debt has grown faster than other age groups, we will be watching this trend closely in the coming quarters. Says Lina, senior director of Decision Making at Honest Canada.
Bankruptcies and consumer proposals follow suit
Not surprisingly, this increase in indebtedness among seniors is reflected in an increase in the number of insolvency files (bankruptcies and consumer proposals) filed by them.
The increase is 4,238 for 2014 compared to 3,914 for 2013. This is 8.28% more over a one-year period. The situation is particularly worrying when put in context with the provincial increase which was only 4% for the same period, all age groups combined.
The top three reasons identified for seniors retiring in debt are:
- Debts accumulated over a long period to offset the costs of living, family needs and medical expenses.
- Debts incurred in order not to default on mortgage payments and interest accrued on unsecured debts.
- Taxes to pay on additional income and withdrawals from their pension fund.
The firm also explains that with almost half of the senior debt found on their credit cards, it is not surprising that the accumulated interest weighs heavily in the balance.
Increasingly, Canadians are starting to retire without having the time or the means to save enough money to ensure their financial health for years to come. It is a social problem that is transforming the face of the so-called “golden age”.