More Canadian Seniors Are Carrying Debt Into Retirement: Mortgages and Lines of Credit

In: International Real Estate News|Mortgage News|Real Estate News

11 Oct 2011

There was an article in the Globe and Mail today discussing a recent report by TD Bank. The report indicates that more Canadians are carrying debt into retirement. The report also states that the amount of debt for Canadians aged 45-65 is increasing. Quotes from TD Bank representatives state that this comes as a “surprise” to them. Really?

I personally know multiple individuals who are in their late 40s and early 50s who have recently renovated their homes, and taken on vast amounts of debt to do so.

Two examples involve people who purchased a home 10 years ago for approximately $200,000. Instead of being mortgage free in their 50s, they both recently proceeded to renovate their home. One renovated for $290,000 and another for $400,000. Both renos were funded through cheap credit. Should people who are 50 years old be taking on this amount of debt? I suspect that freedom 55 was not in their retirement plan. Another case involved an individual who was also mortgage free, but decided to sell their family home and “upgraded” by taking on an additional $250,000 mortgage on their new home…at age 55.

Some of the rationalizing arguments of people who take on large mortgages when they should be saving for retirement include:

- You can’t take it with you
- We deserve it
- You only live once

Now you wouldn’t expect that people would be expected to live in a dump or to not enjoy their time, and living space, while they are alive. However, the expectations of all three examples is that they deserve to live in a newly renovated home. That the home they have lived in for 10 years is, all of a sudden, no longer adequate. Not only is it not adequate, but that it required $300,000-$400,000 in renovations.

The expectations of each person in the above examples, is that they can always sell their home and recoup their expenses. They also hold the expectation that they will not lose their jobs. Both of these expectations are on rocky ground. The first assumes that the Canadian Real Estate Market will continue to grow in value and not experience any real estate decline. The second assumption is that people in their late 50s and early 60s have never been replaced, downsized, re-organised or bought out?

I have met people in their late 50s and 60s that now work at Home Depot, Starbuck, and Walmart. They went from earning $100,000 a year to earning $20,000 a year. It’s tough to meet $300,000 in debt obligations when you make $20,000 a year.

The consumer obsession with debt is certainly a generational phenomenon. This “Debt Phenomenon” began in the 70s and has started to grow exponentially in the past 10 years. There seems to be no signs of a debt slow down in Canada.

People who are currently in their 80s and 90s never seemed to want to take on more debt. They experienced The Great Depression when they were young and they went through their life working to get rid of their debt. Early boomers (people who are now 65 years old), had the fortune of growing up in a time of an expanding employment market, defined benefit pensions, and a rapidly increasing housing market. How is it that people who are now 65 still have debt or are increasing their debt?

I think that our consumer obsession with debt will need to end…eventually. Just as there was a noticeable acceptance, and consumption, of debt by the baby boomer generation and Gen X, I think that the reverse will happen for future generations. The generation that is beginning to enter the workforce now will begin to see examples of how debt will negatively affect seniors and baby boomers. They will realize that they do not have a pension and that retirement is no fun when you are forced to work at Walmart. There are two sides to debt. One side is the happy side: Drive nice cars, live in expensive homes, buy nice clothes. The other side is the bad side: Calls from collections, Repo men, bankruptcy. Canadians have only seen the happy side of debt. When our debt to disposable income level is at 150% and seniors are increasing the amount of debt that they have, then the bad side of debt will raise it’s head … eventually.

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