Using data from the Canadian Financial Capability Survey, this study found that, in 2009, 1 in 3 retired individuals age 55 and over, whether single or in a couple, held mortgage or consumer debt. Since retirement usually coincides with a drop in income and an increased reliance on savings, debt management is a frequently cited component of retirement planning.
The median amount owing for retirees with debt was $19,000. At the high end of the debt scale, 17% owed $100,000 or more. The likelihood of holding debt decreased with age but increased with household income and financial knowledge. Individuals with some postsecondary education were more likely to hold debt than those with less schooling, while households with a high net worth were less likely to have debt. Being divorced was a strong correlate of holding debt among retirees.
The majority of retirees report that their finances are what they had expected them to be prior to retirement, that their income is sufficient to cover expenses, and that they are able to stay on top of bills and keep up with their financial commitments. After controls for personal and financial factors were applied, those with any level of debt were found to be more likely to
The median amount owing for retirees with debt was $19,000. At the high end of the debt scale, 17% owed $100,000 or more. The likelihood of holding debt decreased with age but increased with household income and financial knowledge. Individuals with some postsecondary education were more likely to hold debt than those with less schooling, while households with a high net worth were less likely to have debt. Being divorced was a strong correlate of holding debt among retirees.
The majority of retirees report that their finances are what they had expected them to be prior to retirement, that their income is sufficient to cover expenses, and that they are able to stay on top of bills and keep up with their financial commitments. After controls for personal and financial factors were applied, those with any level of debt were found to be more likely to
while 9 in 10
retirees without debt reported they had no trouble keeping up with bills and
other financial commitments, 7 in 10 with debt reported this to be the case.
Roughly 1 in
10 retirees was divorced. This group had lower positive response rates for all
three financial security questions, even after controls were applied for other
factors, including debt.
For example,
65% of the divorced reported that their financial situation was as good as or
better than they expected before retirement, compared with rates of 77% or
greater for those who were in a couple, were widowed or never married. The
substantially lower-than-average income and net worth of
the divorced coincide with their poorer perception of their financial
condition.
Immigrants,
as well as those having relatively low income or net worth, also report lower
perceptions of financial security.
The incidence
and level of debt among the pre-retired population age 55 and over were higher
than among retirees. Two-thirds of
pre-retirees carry mortgage or consumer debt with a median value of $40,000.
Debt management is a recurring theme in retirement
planning literature. Debt may be problematic for older workers if not paid off before
retirement since repayment can be more difficult on a reduced income. On the
other hand, carrying debt into retirement may not necessarily be an issue if
repayment is manageable and the household is financially sound.
Financial planning is particularly important for
women for several reasons. Compared with men, women have a longer life
expectancy and they usually retire having spent fewer years in the labour market with less earned and saved (Glass and Kilpatrick
1998, and Marshall 2000). Divorce or widowhood during this period can also
affect economic well-being.
With
funding for retirement shifting onto the individual, most Canadians believe
they must take an active role in planning for the event. Indeed, among those
age 25 to 64, 81% reported they were preparing financially for their
retirement. However, only 46% of those preparing for retirement knew how much savings
they would need to maintain their standard of living (Schellenberg and
Ostrovsky 2010).
One
in 3 retirees holds some form of debt. Debt can include mortgages; student, payday,
or other loans; outstanding balances on credit cards or lines of credit; or any
other unpaid debt or liability.
Among
those age 55 and over, one-third of the retired and two-thirds of the
not-yet-retired report having some form of debt. The proportion holding debt in
retirement is about one-third for both fully retired couples (where both
partners are retired) and for people living on their own. The proportion of couples
with debt is higher when one spouse is retired (61%) or when neither spouse is
retired (75%). Research has found that dual-earner couples tend to have higher average
debt per person, relative to income—possibly due to their sense of security
from having two incomes (TD
Economics 2011).
Among
retirees, average debt was $60,000, while the median (the value where half owe
more and half owe less) was $19,000. This large difference between the median
and the mean is characteristic of a skewed distribution: one wherein a small
group carries a high debt load while most owe smaller amounts. Of retirees with
debt, 1 in 4 owes less than $5,000. Debt in this range may simply be related to
using credit as a convenience or as promotional financing. For example, some
big-ticket items can be purchased on credit with no payments or interest for up
to one year. One-third of households with debt owe between $5,000 and $24,999,
and another one-quarter owe between $25,000 and $99,999. The remaining 17% of households
carry a debt of $100,000 or more. The problem is that more seniors are collecting debt and the government in an attempt to save money is reducing the support it gives to seniors in Canada when compared to other OECD countries.
As (seniors') poverty rates were falling in many OECD countries between 2007 and 2010, in Canada they rose about two percentage points.
As well, the report notes that public (government) transfers to seniors in Canada account for less than 39 per cent of the gross income of Canadian seniors, compared with the OECD average of 59 per cent, meaning more Canadians depend on workplace pensions to bridge the gap.
Meanwhile, public spending on pensions in Canada represents 4.5 per cent of the country's economic output, compared with and OECD average of 7.8 per cent.
Canadian seniors depend on income from private pensions and other capital for about 42 per cent of their total.
"As private pensions are mainly concentrated among workers with higher earnings, the growing importance of private provision in the next decades may lead to higher income inequality among the elderly," the report warns.
"Those facing job insecurity and interrupted careers are also more exposed to the risk of poverty because of the lower amounts they can devote to retirement savings."
As (seniors') poverty rates were falling in many OECD countries between 2007 and 2010, in Canada they rose about two percentage points.
As well, the report notes that public (government) transfers to seniors in Canada account for less than 39 per cent of the gross income of Canadian seniors, compared with the OECD average of 59 per cent, meaning more Canadians depend on workplace pensions to bridge the gap.
Meanwhile, public spending on pensions in Canada represents 4.5 per cent of the country's economic output, compared with and OECD average of 7.8 per cent.
Canadian seniors depend on income from private pensions and other capital for about 42 per cent of their total.
"As private pensions are mainly concentrated among workers with higher earnings, the growing importance of private provision in the next decades may lead to higher income inequality among the elderly," the report warns.
"Those facing job insecurity and interrupted careers are also more exposed to the risk of poverty because of the lower amounts they can devote to retirement savings."
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