Debt and Canadian seniors

The number of Canadian seniors is growing quickly, and so is their debt.

A recently released report from Statistics Canada for Insights on Canadian Society takes a look at debt and assets among senior Canadian families.

It noted the changes in debt, assets and net worth among senior Canadian families from 1999 to 2016.

In recent years, household debt has increased. The level of debt and value of assets are especially important for the financial security of seniors.

Because income typically declines during the retirement years, seniors often need accumulated assets to finance their consumption, especially if they do not benefit from a private pension plan.

Debt can also be particularly problematic for seniors as repayment can be more difficult on a reduced income.

In 2016, the proportion of senior families with debt was 42%, up from 27% in 1999.

The report also highlighted that seniors now have a higher debt-to-income ratio with debt more than doubling since 1999 and meanwhile, real estate assets represented 52% of the overall increase in the average value of total assets over the period.

The question for many seniors with a large gain in real estate equity will be:

How do you use the equity built up in your home to help enjoy your retirement?

You have all this debt that you are making payments on and how to you find a way to manage it.

Many might consider a reverse mortgage a final resort but reverse mortgages are becoming more popular in Canada for the very reasons from the report above.

They can be used as a financial planning tool by turning an inactive asset into an active asset as part of plan to integrate real estate equity with other investments such a pensions and RRSPs.

When it comes to the resulting cash flows from a reverse mortgage, Canada Revenue is very clear – they are not taxable and will not affect any current pension income being received.

Funds from a reverse mortgage are also tax-efficient as part of a financial planning process as it might reduce the cash withdrawals from current investment assets which can control how much tax is being paid.

More Canadians are now house-rich, but income poor so a reverse mortgage is becoming a more important option for those that have not saved enough for retirement but have equity in their home because they paid off their mortgage by retirement.

In a recent survey by the non-profit Investor Education Fund, half of all households surveyed said they believe they will exhaust their savings in the first 10 years of retirement.

Some hard decisions may result from that such as being forced to sell or downsize a home. We already know that today’s active seniors want to age in place in their current homes.

If you would like more information about how you can incorporate a reverse mortgage into your retirement planning or discuss how you might eliminate some of your consumer debt to improve your monthly cash flow, give me a call at 1-888-561-2679.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.