Canada is aging. For the first time ever, seniors outnumber children in Canada. And, population aging is accelerating. While seniors currently make up nearly one in six Canadians, by 2030, seniors are expected to make up a staggering one in four Canadians.
One reason for our aging population is that Canadians are living longer than ever. In 2011, Canada had 5,825 people aged 100 years and older, compared to 3,795 in 2001. But in 45 years, that number is expected to be close to 80,000.
Do your savings reflect your new lease on life?
Canadians are suffering from a historically low savings rate. Some 47 per cent of Canadians currently have no employer pension. Canadians aged 55 to 64 have on average just over $3,000 saved for retirement and fewer than 20 per cent of seniors have enough savings to even supplement their income for at least five years. As if that weren’t bad enough, poverty levels amongst seniors have been rising since 1995 with the number of seniors living in poverty now well over 1 in 10.
All this is happening while older Canadians are still grappling with crippling debt payments. At an age when most of us should be living debt-free and enjoying the fruits of our labour, a staggering number of Canadians aged 55+ are still carrying a mortgage and trying to cope with high payments due to their debt levels.
Finally, older Canadians who have low savings rates and are still battling debt payments are also dealing with increased health care expenses. According to a study conducted by the BMO Wealth Institute in March 2014, Canadians are expected to spend an average of $5,391 a year on out-of-pocket medical costs after the age of 65. Even with provincial health care coverage – Canadians foresee medical and health costs to be one of the largest expenses in old age.
Put these puzzle pieces together with the fact that most Canadians prefer to age in place and you start to see the financial challenge many seniors face.
Despite these challenges, as Canada’s housing market continues to rise, seniors’ own homes are creating an underutilized source of capital, which can help seniors who may be in financial need, thrive.
In fact, Canadians do consider their home to be a critical part of their retirement plan. A recent study from HomEquity Bank found that 69% of Canadian homeowners aged 40 years+ reported the value of their home equity as important to their retirement plans.
The Solution for older Canadians
We are living longer without adequate savings, our debt levels are high, and the cost of living is only increasing, but we have this asset (our home) that for many Canadians – particularly those living in Vancouver and Toronto, has appreciated significantly, particularly in the past couple of years. So what are older Canadians to do? The solution seems simple. Take your home, sell it, downsize or rent and take the proceeds from your home to live the rest of your retirement.
But the reality is not that simple. There are costs to downsizing. Recent estimates have placed these costs at around $40,000 for urban centers. Also, there’s the not-so-small matter of emotional attachments that people have to their home, to their communities, and their circle of nearby friends and support systems. It’s easy to underestimate the impact these elements have to the physical and emotional wellbeing of older Canadians.
Another option is a line of credit or mortgage from a financial institution; something that is clearly a good option for tapping into the value of the home. The challenge with this solution is that banks don’t always lend to older Canadians particularly if their income is low. Also, with this solution, payments – even if they are only in the form of interest payments – are required. This is not always a viable solution for older Canadians on a very fixed income.
I’m proud to work for an organization that provides another option for older Canadians. One that allows Canadians to continue aging at home by giving them the ability to tap into the hard-earned equity of their home while helping them reduce their monthly payments.
I think it’s an option that more Canadians need to explore to find out if it’s right for them.
By Yvonne Ziomecki, Senior Vice President of Marketing and Sales at HomEquity Bank