For many of us, the promise of retirement means rest, relaxation and some time to smell the roses. But for an increasing number of older Canadians, retirement means serious debt trouble.
According to a recent study by Hoyes Michalos & Associates in Ontario, 16 per cent of debtors who filed a bankruptcy or consumer proposal were “grandpa debtors” – over the age of 55, an increase from 12.5 per cent in 2008.
It’s a trend that Blake Elyea sees happening in British Columbia as well. Mr. Elyea is senior vice-president of Sands & Associates, Proposal Administrators and Trustees in Bankruptcy, with 10 offices in the province.
“We’re seeing a growing number of older people that are carrying debt right into retirement, and a lot of the time it’s credit card debt,” Mr. Elyea said.
Mr. Elyea said that frequently it’s a triggering event that pushes “grandpa debtor” into a debt crisis situation. “It’s usually a function of them getting sick or losing their job or getting divorced, and they can’t replace that income,” he said. “All the financial planners will say you should have three or four months [of income]saved as a safety net, but typically what we’re finding is that they’re using credit as their safety net.”
“People don’t have the savings.”
It reflects a generational shift, said Mr. Elyea – an era of people who are comfortable with credit.
“We have a bunch of people that raised their kids in the have-now generation where everything is being bought on credit. There’s the latte effect, the fast-food effect. Everyone seems to think they’re entitled to two vacations every year,” he said.
Mr. Elyea said it’s not uncommon for clients to come in with five or more credit cards. “I can get stacks that are three and four inches thick sometimes,” he said. “My parents only had Chargex or MasterCard. Now every corporation seems to have a credit card, so credit’s a lot more available.”
Besides an addiction to buying on credit, Mr. Elyea said there are other factors at work: Many of the seniors facing bankruptcy that he’s encountered live alone, and so can’t depend on a spouse or their children for support. And even those who do live with their children might not be getting any help paying the bills. Parents supporting adult children or saddled with their school loans might not be able to get out from under those burdens. “Those debt loads are building up, and carrying over for a number of years in some cases,” he said.
Real estate can also be a factor in some of these dire debt situations, Mr. Elyea said. Some older debtors head into retirement with $50,000 still left on their mortgages, and then start using their credit cards to pay them because their income has dropped and the CPP and OAS aren’t enough to cover the payments.
There’s also the trap of considering your home to be your retirement nest egg, said Mr. Elyea, which can backfire because of the unpredictability of the housing market.
“In our Tri-Cities practice [covering Coquitlam, Port Coquitlam and Port Moody] that’s where a lot of people bought houses at the height of the market when anybody could get financing, and now they’re all [valued]below what they paid for them,” he said.
If you do find yourself in a situation where your debt has gotten out of control, see a professional, said Mr. Eylea, whether it’s a bankruptcy trustee or a money coach who can let you know about your options.
“One thing that’s really growing is the consumer proposal,” he said. “It’s basically a long-term settlement with your creditors. You offer to pay an affordable monthly payment, typically for four to five years, generally about 30 per cent of what’s owed.”
However, consumer proposals might not be appropriate for seniors, said Mr. Elyea, who won’t necessarily want to take a long time to repay their debt.
“In some cases you may have to go bankrupt, because that’s the quicker route to get back on track, so that you have some money available for retirement,” he said.