Debt accrued by Canadian seniors is rising faster than any other demographic group, according to a recent report by Equifax Canada. The report states that although their debt levels are lower than any other demographic group, they have risen the fastest in 2014 with a growth rate of 6.8%.
Average Canadian debt levels
The average Canadian in any age group has a debt level of $20,891 excluding mortgages. Canadians over the age of 65 have an average debt level of $13,380, also excluding mortgages. Although debt levels may be growing among Canadian seniors, they are still the most fiscally responsible of any age group with a significantly lower debt level.
Keeping on top of rising debt
The main culprit for debt for Canadian seniors is a mismatch between income levels and lifestyle, according to Blake Elyea, Senior Vice President at Grant Thornton and a member of the firm’s consumer insolvency team in Vancouver. He says that “The common thing that I see is either poor planning or no planning for retirement and maintaining your pre-retirement lifestyle. Then when your income changes, the shortfall is being backstopped with credit cards and a line of credit.”
While the answer to this seems obvious for those who are preparing for retirement – put more money away or change your lifestyle – it can be harder for newly retired Canadians to do either. A significant lifestyle change, such as downsizing, comes with immediate costs, and of course it’s impossible to put more money away. For those who need some guidance, the Financial Consumer Agency of Canada has an excellent resource for seniors on its website with tips to help manage money in retirement. Your financial planner can also help you get on track.
How Reverse Mortgages can Help
A reverse mortgage lets you borrow up to 50% of the equity in your home in a tax-free loan that you don’t need to pay off until the home is sold. This allows you to take advantage of the equity in your home to finance your lifestyle in retirement and keep higher-interest debt items such as lines of credit, vehicle loans and credit cards off the menu. They can also help you give money to your adult children without touching retirement savings, which can be a high-impact item on a retiree’s bottom line.
Rates for reverse mortgages are exceptionally low compared to credit cards, lines of credit and vehicle loans. Taking out a reverse mortgage can keep interest costs from these forms of debt down, which not only helps you enjoy a better lifestyle, but eases any stress and concerns about your finances while you are retired. Who doesn’t want to live stress-free?
Contact Horizon Equity today for more information on the CHIP Home Income plan which can help you keep your debt levels down in retirement.