Borrowing For Retirees Can Be Filled With Challenges But Its On The Rise

MNP's TAKE: In today's economic climate, many retirees entering their 'golden years'  aren't able to enjoy all of the freedom one would imagine retirement has to offer. After decades of hard work, thousands of Canadians are facing a retirement with minimal savings, increased debt and the weight of keeping up with an ever-increasing cost of living. Many older adults are also struggling to navigate through unplanned setbacks related to helping out family or an adult child in need as unemployment rolls through a faltering energy sector. 

In efforts of keeping up with financial obligations, many retirees have found themselves turning to credit for stable financial footing. While credit can be helpful in a pinch, credit reliance can quickly become a dangerous cycle that's difficult to get out of when there's no longer a steady income coming into the household. 

One important way to protect yourself from falling into financial difficulties in your later years is to conduct an in-depth review of all personal or household finances - including everything coming in and going out. Having a firm understanding of your income and expenses will give you perspective in terms of what you need to keep up with expenses while also allowing you to prioritize your savings and approach any further debt or financial obligations with a greater long-term perspective. 

If debt has already started to take hold and you feel trapped, you have options. Depending on your unique position, there may be several options available to help get you on track to achieving a fresh financial start so you can get back to planning for your future comfortably.

WRITTEN FOR THE CANADIAN PRESS

OTTAWA — At 66, Wayne Hystad is signing on for a new mortgage in a move to consolidate his debt and allow him to keep his Edmonton condominium.

"It means I keep my place and I'll just have a higher mortgage, which I can handle," he says. "I can live now."

But he has a message for other retirees thinking about borrowing money: If you can't pay for it, don't buy it.

Hystad, who sank into depression after he separated from his wife in 2009 and she died in 2011, said his mortgage was paid, but he got into trouble with a line of credit and credit cards, racking up thousands in debt.

"Through my depression I did the stupid spending," he said. "It was my fault. There's no excuses."

However Hystad isn't alone among seniors who are borrowing more.

According to a report by Equifax, debt excluding mortgages held by those over 65 averaged $15,244 in the fourth quarter of last year.

That was below the Canadian average of $22,113 — but those over 65 posted the highest percentage growth compared with the fourth quarter of 2015 at 6.1 per cent.

Scott Hannah, president of the Credit Counselling Society, says the number of people aged 55 or older seeking help at his organization has grown to 21 per cent of the society's client base compared with five per cent 20 years ago.

"That's significant and worrisome because unlike people who are working like you and me, many of these people are on fixed incomes," he says.

Hannah says if a senior is thinking about borrowing they need to ask themselves why are they borrowing — is it for a need or is it for a want?

"We see things like people taking on debt because they need a new roof and I can appreciate that because if the roof is shot you've got to fix the roof."

But, he adds, it's important to consider alternative solution s, depending on your situation.

"Does it make sense to stay, for example, in a home that you can't afford?" he says.

Larry Moser, a divisional manager at BMO InvestorLine, says it's important for retirees thinking about borrowing money to understand how they are going to pay it back or if they are going to let their estate repay the money after they die.

He says for retirees looking to borrow, the most obvious way if they own their home is to access that equity.

"A lot of retirees are house rich and cash poor and perhaps that's the most easily accessible option," says Moser, adding that if a retiree is looking to borrow money, they should have an exact amount in mind.

"The danger of putting a line of credit against your house is if your intention is to only borrow $200,000, but you put a $500,000 line of credit against your house, you have to have the discipline to tell yourself my intention was to only borrow $200,000."

Moser notes that in most cases of retirees looking to borrow money, it isn't because they want to, but rather it's something they need to do.

As for Hystad, he says he's back on track and looking forward to saving a little so he can travel.

"And pay cash for something I want."

Craig Wong, The Canadian Press

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