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Senior debt rising, but it’s avoidable

Due to a variety of factors, research has found that the rate of Canadian seniors going into debt has been climbing in recent years.

Due to a variety of factors, research has found that the rate of Canadian seniors going into debt has been climbing in recent years.

“It’s such a big problem that the Financial Consumer Agency of Canada just launched a financial literacy strategy with the senior plan in it,” said Craig Fryzuk, a senior vice president with BDO Canada. “I think that’s pretty indicative.”
Fryzuk has been seeing more seniors becoming insolvent in recent years. Insolvent in this context refers to a person’s income being less than what they spend.

In 2014, 10 per cent of bankruptcies in Canada were for seniors aged 65 and up. This is an increase of 20 per cent from 2010.

Bankruptcy trustee firm Hoyes, Michalos & Associates Inc. looked at about 6,000 cases of insolvency in Ontario to find the “average insolvent debtor.” They found that people aged 50 and up accounted for 30 per cent of insolvency cases.

The Ontario Securities Commission (OSC) surveyed more than 1,500 Canadians over the age of 50 to put together a report on the financial state of older Canadians. It found that the sum of the biggest reasons for seniors taking on more debt is unexpected early retirement due to, for example, health issues and the fact that seniors are living longer.

“People are living longer and have that much more going into retirement in order to allocate that across those extra years,” Fryzuk said.

The OSC found that six out of 10 Canadians experienced major life events that challenged their financial plans. The organization recommends that flexibility needs to be part of the planning discussion. Fryzuk tells the story of one man who had a heart attack and could no longer work, and had to move to stay with family.

Another factor for senior debt is scams directed at the elderly.

“I think seniors aren’t savvy about what not to do,” Fryzuk said. “They can be a bit more exposed.”

In addition, Fryzuk sees seniors helping out adult children when they themselves don’t have the money for it.

“(They’ll say) ‘I had a son or a daughter who got divorced, we need to help them out,’ or ‘children couldn’t afford their children’s university so we helped them out,’” he said. “People are just so generous. Their families are so tight and it means so much to them; they’re going to sacrifice what they can, but it’s to their own detriment … A lot of the time, they don’t consider themselves. It’s admirable, but I have to weigh in and say, ‘look, this is where you’re going down the road.”

In this case, Fryzuk recommends that instead of offering money they don’t have, seniors consider offering their time (for childcare, etc.) and experience or connections with finding their adult children work.

“It’s so tough for me when we see seniors where they just don’t have a lot of options and that’s what makes it so tough,” he said. “We as a society really want to help these people out and it’s oftentimes just due to the rise in the cost of living.”

The number one thing Fryzuk recommends is to make a plan. Start with looking at how much income you have and predict how much money you’ll have and whether you’ll be working to supplement your income. Then, look at how much money has to go out each month – what are you paying for food, living, transportation, and paying back debt. After all that information is tallied, then look at whether any changes are needed, such as trying to lower living expenses or considering moving in with somebody.  And as tough as it is, seniors need to plan for a loss of independence.

“I’ve seen that a lot, where they don’t have the ability any longer to generate that income and they need to pay more money for healthcare,” Fryzuk said. “They need to consider the additional costs of assisted living.”

He said it’s also important to have an annual meeting to discuss these financial matters. It may be difficult and emotional, but it’s better in the long run. Seniors and their children can discuss their goals and how to reach them.

“You have to plan. Eventually you’re going to die. Let’s plan for it,” he said. “It’s a very difficult taboo subject to talk about, but what you do during these annual family meetings is you take these difficult things out, then you have an agenda.”

These annual meetings should also include discussions about where the senior in question keeps his or her important documents, such as a will. This way, if their children have to take over the finances, there’s no confusion. Getting adult children involved also makes it easy for them to see what their parents’ financial situation is, so they’re not counting on an inheritance that isn’t there. Fryzuk said sometimes adult children make assumptions about inheritances and are surprised when the money isn’t there. If they’re counting on that money, it could create another generation of financial problems.

Economists differ on how much money you should have upon retirement, and numbers range from $500,000 to $2 million.

“I tend to agree with over a million for sure, if we’re going to be living another 25, 30 years I hope,” Fryzuk said.