Attitudes changing on post-retirement debt

Canada’s aging baby-boomers continue to change the face of society, with a new attitude toward post- retirement debt beginning to surface, according to RBC Financial Group’s 15th Annual RRSP survey.

In a poll conducted by Ipsos-Reid, 48% of respondents said they did not believe it was necessary to pay off all of their debts before retirement. Among working Canadians, 85% said it was important to escape their debts first, but one-third of retirees are carrying debt. The average debt load among retirees is $35,000, but 14% of them have debts in excess of $100,000.

The most common forms of debt are mortgage and credit card debt, with 42% of retirees carrying such debt. Six per cent of retires hold a line of credit, while five per cent still hold business loans or car loans.

“We seem to be observing an emerging mind-set where many Canadians do not see the need to retire their debt before they themselves retire from work,” said Dave Richardson, vice-president, RBC Asset Management. “If this is in fact a new reality, Canadians will need to strategize and plan for their retirement differently to ensure they can achieve their desired lifestyle during retirement.”

Among debt-carrying retirees, 44% said they never planned on paying off their debt before they retired in the first place, and 51% incurred their debt after they had retired. Among those who did incur post-retirement debt, 67% said they had not expected to take on debt.

“While entering retirement debt-free continues to be the most prudent approach, these findings suggest that some Canadians, especially baby boomers, generally have different lifestyle expectations for retirement and are making different choices than previous generations,” said Richardson.

The survey found that women exhibited more of Richardson’s prudence, with 57% believing it is “essential” to retire debt-free, compared to 46% of men. Younger respondents are also more likely to consider it essential to clear their debts before retirement. Among 18 to 34 year olds, 36% said it was not essential. Among those aged 35 to 54, acceptance of debt rose to 49%, and hit 65% among those over the age of 55.

While a dramatically increased life expectancy is putting a pinch on retirement savings, Canadians are also retiring earlier than ever — on average, at the age of 58, during prime earning years.

While they are retiring from full-time employment, they are not necessarily leaving the workforce altogether. Twenty per cent of retirees supplement their income by working either part-time, occasionally, or by taking on contract jobs from time to time. Perhaps not surprisingly, those who retired with debts are more likely to work occasionally (35%) than are those who do not have debts (13%).

“In order to achieve their goals, Canadians should be thinking about planning investment horizons over a longer time period and from an earlier age,” Richardson says. “For those who are planning to retire with debt, it is especially important they do their homework to make sure they’ll be able to generate enough income and cash flow to both maintain their lifestyle and to successfully manage any debt.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com

(12/05/05)

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.