Traditionally people plan to pay off their mortgages before retirement. However, an increasing number of Canadian seniors take their mortgage into retirement and some of them even owe more than in the past. According to a 2010 poll conducted by Royal Bank of Canada, almost one-quarter of Canadians aged over 50 with assets of at least $100,000 retired with outstanding balances on their residences. Furthermore, the Bank of Montreal found in a 2012 financial survey that 51 per cent of Canadian homeowners plan to carry their mortgage into their retirement. What we're seeing is a new trend of holding debt later in life.There’s a number of worrying economic aspects that put Canadian seniors at risk, including a fall in manufacturing jobs, decreasing savings rates, low interest on savings, volatility in asset markets, a shift from defined benefit pension plans, pension fund deficit, and growing personal debt.
The numbers are alarming, as the findings of the 2013 TD Retirement Realities Poll suggested that 39 per cent of working Canadians expected to retire with some debt. The poll informed that Canadian retirees wish they had started saving for their retirement much earlier, and they warned the majority of working Canadians to stop procrastinating and start saving for retirement now. However, the situation is worse than it was several years ago, as seniors owe even more that they did in the past. The average mortgage debt for homeowners aged 65 and more went up by 8.6 per cent in 2012, which represents an increase of more than three times Canada’s average 2.5 per cent rise for mortgages from across all age groups. Tino Di Vito, head of the BMO Retirement Institute, warned,
Carrying debt into retirement is a threat to financial security. Canadians need about 70 per cent of their pre-retirement income to maintain the same lifestyle, that assumes other expenses such as mortgages are already taken care of.
There are several reasons why Canadian seniors take their debt burden into retirement. First of all, low interest rates have led lots of older Canadians to borrow and invest into real estate and watch their average home values appreciate. Another factor is a second mortgage, especially lines of credit, which allowed Canadians to consolidate other debts such as medical costs, children's tuition fees, or renovations. Moreover, Susan Eng, president for advocacy at the Canadian Association of Retired Persons (CARP), noted,
Because people now live longer and healthier lives, Canadians are more optimistic about being able to pay back their debts as they grow older compared to previous generations.
However, replacing income by lines of credit may be dangerous. Income of retirees will decrease and eventually stop as they will stop working, and older people may develop health problems, resulting in increased costs. In addition, interest rates may rise, which would mean increased payments as well. These factors may put Canadian seniors at risk of a decreasing standard of living in their retirement.