Debt Relief Experts
By the time you approach retirement age, conventional wisdom says you should be out of debt, having paid off your credit cards, mortgage, and other debts, and hopefully, having accumulated some savings for retirement.
Unfortunately, the rising cost of living presents a significant challenge for seniors in Canada, straining retirement budgets. As inflation outpaces the growth of retirement incomes, seniors on a fixed income are finding it increasingly challenging to afford essentials like housing, energy costs, healthcare and groceries.
Many seniors turn to credit cards and payday loans to make ends meet, leading to an accelerating debt crisis among this demographic.
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Seniors struggling under severe debt load
Our 2023 Joe Debtor study found that 12% of all consumer insolvencies in Canada were filed by senior citizens aged 60 and older, up from 11% in 2022.
On average, insolvent seniors carry a total unsecured debt load of $57,776. While this is a decrease from $60,920 in 2022, the nature of the debt remains concerning:
- 91% filed with high credit card debt, up from 87% in 2023
- For insolvent seniors with credit card debt, average balances increased by 3.8% to $23,296
- 28% of seniors filing for insolvency owed money to a payday lender, with an average payday loan debt of $9,606, which is 3.5 times their monthly income.
- Another 7% carried extremely high interest (39% and higher) installment loans.
Senior debtors are using high-cost debt to cover living expenses, creating a debt spiral where interest costs consume a larger portion of their fixed incomes, leading to more debt.
The insolvent senior debtor is not the affluent senior who just failed to cut back; they are struggling with rising food and energy costs, medical costs, and other living expenses while living on fixed and often reduced incomes.
The rising cost of living is affecting a broader socio-economic range of seniors, as evidenced in our study results:
- We saw an increase in two-income households among senior debtors (20% of seniors insolvencies in 2023, up from 18% in 2022).
- Similarly, we saw an increase in married senior debtors (35% versus 32% in 2022) and male senior debtors (52% vs 50% in 2022).
- Only 3% were homeowners, unchanged from the prior year.
It is clear that the rising cost of living is affecting more seniors, and these seniors are turning to debt to make ends meet.
Seniors and credit card debt
Senior debtors struggle with credit card debt, which often accumulates over a lifetime. They have the highest credit card debt of all age groups. Credit card debt is their most prominent debt, accounting for 37% of their unsecured debt.
Unfortunately, even minimum credit card payments become unaffordable as debt balances increase and incomes drop in retirement.
The need to keep up with debt repayment and rising living costs has resulted in seniors turning to payday loans and high-cost rapid loans in record numbers.
Seniors turning to payday loans
Payday lenders aggressively target seniors, advertising loans against CPP, ODSP, retirement benefits, and pensions – you name it, and they list it. Payday lenders now offer a wider range of loan products, including lines of credit and high-interest installment loans, contributing to the senior debt crisis.
Currently, 35% of insolvent seniors aged 60 and older carry a rapid loan; 28% borrow from a traditional payday lender, and 7% take on sub-prime high-interest installment loans.
Borrowing against a stable pension, seniors with this type of debt owe an average of $13,072 in combined rapid loans that carry an interest rate anywhere from 39% to 59% for high-interest installment loans to an effective rate of 391% in the case of payday loans.
The risk of carrying debt into retirement
Following close behind seniors in terms of debt load are pre-retirement debtors (those aged 50–59), having an average unsecured debt of $62,427, the highest of all age groups.
Carrying debt into retirement poses significant financial risks and increases the likelihood an individual may need to file for insolvency after retirement.
- Debt repayment can consume a substantial portion of a retiree’s fixed income, leaving them vulnerable to rising expenses.
- Retirees may resort to additional credit card debt and payday loans to cover basic needs, exacerbating their debt burden.
- Retirees are vulnerable to unexpected expenses, such as healthcare emergencies, which can strain already stretched household budgets.
- Seniors face an added risk of a sudden drop in income due to illness; 8% of insolvent seniors were on disability when they filed for insolvency.
- Carrying debt into retirement makes saving for future needs, such as long-term care and end-of-life expenses, much more difficult.
Heavily indebted seniors have little emergency or retirement savings to fall back on. Only 38% of senior debtors have any retirement nest egg, and those with RRSPs or RIFs have an average of just $32,503 in savings. Less than 1% of senior debtors have other investment reserves.
As more baby boomers enter retirement with debt and little to no savings, the seniors’ insolvency rate will likely continue to rise.
Supporting adult children financially
While the most significant driver of seniors’ indebtedness is rising living costs, we also see an increase in seniors supporting their adult children financially. A recent Fidelity Investment Canada study found that nearly six in ten retirees report helping their adult children with living expenses or big-ticket purchases like a new home, wedding and education costs. The problem arises when financially supporting adult kids, which leads to further indebtedness, especially when co-signing loans.
Co-signing loans for adult family members carries substantial financial risk. If the primary borrower fails to make payments, the lender will pursue the co-signer for the balance owed, potentially leading to the co-signer filing for insolvency.
While often a well-intentioned gesture, co-signing loans for adult family members carries substantial financial risk for the co-signing senior. Family members may not qualify for a loan due to a low credit score, but also perhaps because they do not have the income to support the loan in the first place. If their children stop making payments, the lender will look to the co-signer for payment.
Dealing with debt as a senior
The stress and anxiety associated with debt can adversely affect seniors’ mental and physical health, impacting their overall well-being and quality of life. Seniors must prioritize debt reduction and financial planning to safeguard their retirement security.
Here are some steps to consider:
- Avoid living on credit card debt during retirement. Pre-plan your living costs and adjust them to your future income.
- Be aware of predatory lending practices like payday loans and potential financial scams, including debt relief scams targeting vulnerable seniors.
- Avoid loaning money you cannot afford to lose or co-signing loans for friends or family.
- Prioritize debt reduction before retirement, when your income is likely to drop.
- Do not cash in your RRSP to pay down debt without consulting a Licensed Insolvency Trustee. RRSP and RIF savings accounts are protected assets in a bankruptcy and cannot be seized for the benefit of your creditors.
- If struggling with debt, consider debt relief options for seniors, including a consumer proposal to repay a portion of what you owe or personal bankruptcy to eliminate unsecured debt.
Seniors can work towards a more secure and comfortable retirement by taking proactive steps to manage debt and have a debt-free retirement
