Debt freedom comes in retirement: study

Since the fall of 2008, one of the leading trends in both the investment industry and the broader economy has been deleveraging. Consumers are delaying purchases and clients may be investing less as they strive to reduce their total debt loads.

It appears that debt elimination is a long-term strategy, with the final goal often more than a decade away, according to the latest RBC Canadian Consumer Outlook survey. The results find many Canadians may be over-optimistic in their ability to get debt-free.

Canadians between 18 and 34 years of age expected they would be debt-free, on average, by age 43. Among those aged 35 to 54, the average target age for paying off all debts was 59.

“You say over-optimistic, I say delusional,” says says Stephanie Holmes-Winton, a Halifax-based financial advisor who focuses on debt management. “We’re so myopic in our focus. We don’t want to look at debt. If we turn and face it, we can do something about it.

As it turns out, Canadians aged 55 and older expected to be debt-free – or had already reached that goal – by age 66.

“I think that’s a sad cross-hair; that’s really scary,” she says. “So many people’s financial plans are contingent on them being out of debt earlier, so that only then can they put their ‘real’ money into investments.”

She points out that pension plan coverage is shrinking, leaving more Canadian’s responsible for their retirement income.

The survey found that 58% of Canadians were concerned about their debt load.

“Any advisor who isn’t dealing with debt directly with clients may be giving clients a false sense of security, which can be terribly dangerous to both the client, and the advisor’s practice,” she says.

The percentage of respondents worried about their debt loads varied significantly from province to province.

British Columbians and residents in Atlantic Canada were the most concerned about their debt levels, at 65%. On both coasts, Canadians said they expect to have their debts cleared off the books by age 58.

In Alberta, 63% said they were worried, which could be a product of the rapid oil-fueled inflation seen in the mid- to late-2000s in that province’s housing market. On average, Albertans expect to be debt free by age 57.

Ontario residents reflected the national averages, with 59% worried about their debts and 58 seen as the likely age to be debt free.

Just 51% of Quebecers are concerned about their debts, and on average they expect to be finished with these liabilities by age 54.

Residents of Manitoba and Saskatchewan were the least worried about their debts, at 50%, and expected to be debt-free by age 53.

Compounding the debt concerns is the fact that 26% of Canadians report that a member of their household is worried about losing their job, up from 21% in December. Prairie residents and Atlantic Canadians were the least worried, at 19% and 18%, respectively.

The highest levels of job anxiety were in the west, with 32% of British Columbians and 31% of Albertans worried they could be laid off. RBC says British Columbians should expect a boost in their economic fortunes when the Winter Olympics roll into Vancouver and Whistler.

“While B.C. residents are concerned about personal debt levels and job security, the 2010 Winter Olympic and Paralympic Games are expected to boost B.C.’s economy into recovery mode,” said Craig Wright, senior vice-president and chief economist, RBC. “We expect to see B.C.’s economy grow by a solid 3.3% in 2010 before moving higher to 3.4% in 2011.”

With more Canadians worried about job losses and debt levels, it comes as little surprise that RBC’s national consumer confidence level dipped in January, dropping two points to a reading of 106.

(02/01/10)