retirementA financially secure retirement for Canadians 55+ is no longer an expected reality for many. Today more and more Canadians are finding themselves tied down with debt during retirement.

According to the Vanier Institute, bankruptcy rates for those aged 55 to 64 have increased by more than 600 percent over the last twenty years. Delaying retirement until debt has been paid off is no longer the trend. Now retirees are assuming new and more credit in their retirement with new mortgages and credit purchases.

According to a CIBC poll back in the summer of 2013, 59 per cent of retired Canadians are carrying debt. Among this group, 19 per cent say the amount of debt they are carrying has increased in the past 12 months.

Although retired Canadians hold less debt than those still working, they are also more likely to not allocate more of their funds to their debt repayment. This suggests that retired Canadians may carry debt for longer than they anticipated in retirement, incurring higher interest costs and affecting cash flow.

A study conducted by a Canadian Trustee firm in 2013 showed that the average debt level of insolvent 50- to 59-year-olds was more than $84,000. It also showed that consumers 60 and over stated they carried nearly $70,000 in unsecured debt. Our current low interest rates may be the saving grace for these groups and an increase could put them in a terrible financial situation with limited cash flow. Coupled with a lower income or limited pension the dilemma of managing debt would seem hopeless for some.

So why are retirees taking on more credit in retirement?

1. People nearing and living in retirement are taking on more debt through real estate. They believe they can earn a profit by turning a property around and selling it when they need to. We all know there are no guarantees when investing in real estate. One of the most common reasons people are doing it is to help out their children financially. Parents remortgage their homes so that their children can use the money to buy a home of their own. Ever focused on assisting their children, elderly parents are risking their financial stability and health by taking on more risk.

2. Retirees want to continue living the lifestyle they had with their previous income stream. This includes cars, trips and home renovations. Their spending habits do not change after their income has decreased to a fixed retirement income. Those who are still caring for aging parents and have older children still living at home may incur even more debt to cover necessary costs.

What are the tell tale signs of living with too much debt?

1. You are only paying the minimum amounts required on your accounts or maybe even less than the minimums;
2. You’re juggling bills. For example, you apply for another credit card and use cash advances from it to pay an existing card;
3. You have more than 15 credit cards;
4. You are at or dangerously near the limit on each of your credit cards;
5. You consistently charge more each month than you make in payments;
6. You are afraid of opening your credit card statements;
7. You have received phone calls or letters from collection agencies and creditors;
8. You use your credit cards to “get by” in daily living on a fixed income;
9. You are hiding the true cost of your purchases from your partner;
10. You worry constantly about how you will find the funds to pay your bills.

Many Canadians 55 years or older simply do not realize the severity of their debt load, giving them a false sense of comfort. A growing number of those who are unable to manage their debt are turning to debt insolvency or debt relief professionals for help.

There are many companies in Canada that offer credit counseling, but not all are reputable.

Shopping for Professional Debt Help
What to Avoid…

Avoid companies that promise to reduce debt by 70% or more. Furthermore, there is no debt management firm in Canada that offers government debt reduction programs.

Avoid debt settlement companies that use debt-pooling to attempt to reduce debt. Under a typical Debt-Pooling plan, the consumer is assessed fees and put on a payment arrangement based on a promise of future settlement amounts. The consumer begins making monthly payments until all up-front administration fees are pre-paid to the Debt-Pooling company. Once these fees are paid, maintenance fees continue and the consumer is then required to start ‘saving up’ money in a joint account with the debt-pooler until the entire savings program is completed. The dangers to Debt-Pooling:
o The debt-pooler does not begin negotiations with creditors until consumer has built up the required amount of funds to make a settlement.
o Should the consumer experience a change in financial situation and cannot maintain the fee payment levels demanded by the debt-pooler, the program will cease and all funds paid are forfeited to the debt-pooler. The consumer is required to pay their debts in full or begin a new debt relief program from scratch;
o If the promised settlement amount is not accepted by the creditor, the consumer may be required to pay more than is affordable and may be threatened with legal actions by the creditor;
o Should the consumer be sued by the creditor, the consumer is not protected by the debt-pooler.

What to Consider…

Aside from debt settlement, there are two other options for debt resolution: non-profit credit counseling and for profit credit counseling.
You may think the non-profit is free, but it really is not. It is important to know that “Not for Profit” does not mean “Not for Income”; and it certainly does not mean “Free”. There are costs associated with every business. Many non-profit credit counseling organizations factor their costs for doing business into debt repayment arrangements from consumers. Creditors kick back a portion of these debt repayment arrangements to the credit counseling firm in the form of a donation, which averages 15%. So the higher the repayment arrangement is, the higher the donation. Such non-profit credit counseling organizations are essentially paid by creditors, so it really is in the firm’s best interests to agree to higher repayment arrangements. They stand to profit more by negotiating in the interest of the creditors. Private credit counseling companies charge a fee for the same negotiation and representation as non-profit credit counseling organizations, however offer creditors debt repayment arrangements that is affordable to the indebted consumer. Such private companies do not receive compensation from any creditor; therefore, do not have the same incentive in their repayment arrangements that are affordable.

The key takeaway when shopping for debt help is to research and find out everything there is to know about an organizations program before singing on the dotted line.

Managing personal finance, finding ways to save a buck and resolve debt can be difficult tasks for retirees who live on a fixed income. For this group we offer these valuable tips:

1. Make a list of all debts. Include your mortgage or rent and loans for credit cards or vehicle, and any lines of credit. The latest bill statement will show the amount and interest rate being paid. By doing this you will know exactly how much you owe.
2. Redefine your budget. Review your monthly expenses to see where reductions of expenditures can be made. Look for a simpler lifestyle. Use cash when possible instead of credit cards to help track and control spending. For help in building a proper budget, here is a great planning tool: http://www.occa.ca/budgeting/how-to-build-a-budget.
3. Stop lending to Dependents. Understandably you want to help your family members if they experience a financial hardship. However, once you reach the age 55 or older, you may not have the healthy income you once had or the time you had to repay debt. Now is the time to start focusing on your own debt repayment and retirement savings, rather than the needs of your dependents.
4. Improve your financial literacy. Visit financial literacy websites/blogs that teach you savvy management lessons and give you reasonable tips on how to save on everyday items including banking fees.

Living retired and financially stable is a possibility if the right actions are taken before and during retirement.

For more information on living with debt in retirement, please visit our personal finance blog at www.occa.ca/blog..

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