Debt till Death

Debt Canadians may be living longer, but they’re also taking longer to pay off their debts.

CIBC released survey results recently that suggest 72% of Canadians hold some form of debt.

In a separate poll from HomEquity Bank, nearly half of the respondents said they expect to carry debt into retirement.

Moreover, 19% of those age 45-60 expect to still be paying off their mortgage into retirement.

With Canadians living longer (roughly 81 years, according to the Conference Board, versus 71 years in 1961) and the length of retirements growing longer (the average retirement last ~20 years after you reach age 65), many retirees are facing a financial squeeze.

Life-Expectancy-Canada
(Click to enlarge)

The numbers speak for themselves.

  • 44% of those age 65 and older are still striving to pay off their debts
  • 48% of those age 45-60 said they don’t feel like they’re on the right financial track for retirement.

It’s therefore no surprise that a full 36% of those who intend to stay in their homes after retirement said they would consider leveraging their home equity to get through their older years.

That’s positive news for HomEquity Bank. It remains the only major provider of reverse mortgages in Canada after Seniors Money stopped lending in 2008. HomEquity originated $206 million in 2010 and there’s no sign its growth will halt anytime soon.


Chart source: Public Health Agency of Canada


Steve Huebl, CMT

  1. Just like my favorite books titled Till Debt do us part.If we really want to take off our debts we must change our lifestyle.Just spend money according to your income not beyond on it so that you will not have credits.

  2. Without knowing specifics, this article is useless.
    since even 10 dollars is considered debt, putting someone in the same category as someone who owes 100,000 seems silly to me.
    Also alot of people carry debt because its cheap, take a MBNA 15 month, 0% credit card for example. Its a free loan, we have one for 15,000$. at the end of the 15 months, it gets paid off in full.

  3. I wonder does this survey look at all Canadians or just working Canadians (after all only 66% are working).
    I would love to see one of these surveys done which gathers the same data, but sorts people into the following employment categories:
    1) Pulic employees (approx. 20% of pop)
    2) Private small & medium business (approx. 56% of pop)
    3) Private large business (assume the remainder…approx. 24%?)
    It would be interesting to see what the data looked like if those in #1 were excluded or looked at separately given their retirements are guaranteed with pensions, benefits etc.
    Interested to hear others’ opinions on this.

  4. Jason that is kind of rude and short sighted.
    Obviously people are carrying a lot more debt than $10 nowdays and most people aren’t paying 0% interest. Debt-to-income is 148% for gosh sakes!
    I think there is also no denying that people are not saving for retirement like they should and are spending way above their means. It doesn’t surprise me that 1 in 5 people will have a mortgage in retirement. I think that’s sad and I actually think that number is understated. I wouldn’t be surprised if it is closer to 25-30%.
    Imagine having a whole life of earnings behind you and still having a mortgage at 65.

  5. I agree with Jason. Reviewing liabilities without considering the other side of the Balance sheet, namely assets is useless. Net worth is the number worthy of analysis!

  6. Just an update, the 15 months is not on their web site, but if you call them you can still get it.
    They do charge a 1 time 1% on the money that you take off their cheque advance amount. But still a good deal. Borrow 20k off the card and put it on your HELOC for 15 months :)

  7. Hi Jason / Banker,
    Thanks for the comments. You raise some very worthwhile topics.
    This particular story centres on the potential problem of people living longer, having less savings to live on, and carrying more debt into retirement. If one does a little Googling, plenty of stats will turn up to support those trends. Because these three issues are commonly cited challenges facing seniors, we’ve taken the liberty of not re-analyzing each in depth.
    If you’re interested in national figures on net worth, you might find this to be helpful link from StatsCan:
    http://www.statcan.gc.ca/daily-quotidien/110620/dq110620a-eng.htm
    When talking about “assets,” the asset that probably matters most in this discussion is people’s home. That’s because pension assets, business equity and non-pension financial assets are either not growing anywhere close to debt levels, and/or are notably less important to people with growing/higher debt ratios.
    The underlying message of this article was that dependence on home equity for retirement could foreseeably increase. Growing debt is one of the primary reasons for this. That’s a concern of ours because asset prices may not keep pace with debt. In other words, it is debatable that home prices and investments can be relied on to bail out Canadians, given current trends.
    Home prices cannot grow indefinitely at recent rates. In fact, a correction is not only possible but some would argue overdue. When corrections come, it can take years for prices to make new highs.
    Even if one dismisses the threat of a major downturn, home price gains typically match inflation over the long-term, and debt has grown at a much faster clip (6.4% year-over-year as of April). Simply put, it’s a gamble to rely too heavily on real estate to offset rising credit.
    Investment assets (stocks, bonds, etc.) could be even less of a saviour. Long-term rates of return are being influenced by low yields and lower long-term economic growth (at least in North America where Canadians invest the most). That’s forcing people to save more to fund a longer and longer retirement.
    Lastly, there is also the threat of rising interest rates, which are as damaging to net worth as almost anything.
    Despite all this, millions of Canadians continue to borrow more than they save and earn. According to TD, “sustainable personal disposable (income) growth is likely in a range of 4.0-4.5%. Credit continues to grow at a pace that is two percentage points above that.”
    Assets aside, the “usefulness” here is in acknowledging that debt is debt. When asset prices fall, debt often does not fall accordingly. That impacts people’s net worth at retirement, and is why we feel that people will increasingly turn to reverse mortgage for liquidity.
    Since 2007, debt has grown at double the rate of personal disposable income. That has moderated somewhat but debt is still growing faster than assets for millions of Canadians. To offset this debt (i.e. have rising net worth), home prices, non-home assets and/or income must grow faster. I’d love to see that happen but it can’t hurt to be skeptical. And it certainly can’t hurt to acknowledge trends pertaining to debt, life expectancy, and slower savings growth.
    Cheers,
    Rob

  8. Come on! I am reading the comments people critizing other people because we dont save money…..how can I save money if my salary is low? do you think if I will have Extra money I would not be saving it?? come on put your feets on the ground and see reality of most people who are new in this country and has to live for 15$ an hour…go and tell them that they have to save….and make a decent living at the same time. Ok I will save then and won’t buy a house I will still living in a basement so I can afford to save it.
    I have a 35 years mortgage and I had to go for 35 because I couldn’t afford less….this is reality…

  9. Hi Reality,
    Thanks for the note. It’s more a statistical observation than a judgment on people who don’t save enough. There are lots of reasons why people don’t/can’t save. Some are unavoidable (as you so validly point out with your cost of living commentary) and some are not.
    Wish you the best,
    Rob

  10. Hi Dave,
    Thanks for your comment. Unfortunately neither survey specifies if the participants are working Canadians or not. However, the HomEquity survey – which polled Canadians aged 45 to 60 – often splits the responses into those who have retired and those who “have not yet” retired.
    Hope this helps at least somewhat.
    Cheers,
    Steve

  11. Negative judgments regarding how much people owe are most often misguided. Many people who are now approaching retirement have watched their savings/investments destroyed by repeated stock market and other collapses in the economy.
    Others, especially self-employed business people, who are often victims of business reversals or sudden business shocks.
    The only people who have never had to worry about debt are people who at some point in their life were either (a) lucky in love, or (b) born with a silver spoon in their mouths.
    The rest of us struggle to maintain a good life, while balancing our responsibilities to our families and ourselves.

  12. Many people now approaching retirement are commonly referred to as “Boomers” a generation widely associated with privilege, as many grew up in a time of affluence.
    No generation, before or since, in general terms had it so good so your points are lost on me!

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