Recent study results revealing seniors continue to accrue debt into retirement causes Bob Stinson concern.The president of the local chapter of CARP said there are good reasons behind the trend, but thinks it puts retirees in a compromised position.
“Seniors have got assets so they can borrow money easily,” Stinson said, “and the banks can’t wait to give you money.”
The study, done by Ipsos Reid of 12,000 households on behalf of TD Bank, revealed that the average debt for those 65 and older increased by about $6,000 since 2011.
Average debt among this group is $47,500.
In contrast, other groups have decreased the amount of debt they take on per year, though their debt loads are much higher.
“I’m not surprised by the findings of the TD bank report,” said local financial consultant Cindy Trapp.
“We all experience the impact of inflation with increasing costs at the fuel pumps, grocery store and with utility bills. Seniors are not immune to increasing costs, yet are dependent on their fixed incomes in retirement,” she said.
“As a full-service financial planner, I encourage my clients to be debt-free prior to retirement whenever possible.”
CARP points to several factors that can lead seniors to take on debt just as their incomes plateau.
Borrowing for other family members, maintaining previous lifestyle habits and losing in the recession are all among the reasons they list for going into debt.
Stinson believes that philosophies about retirement savings have also changed over time. Many of the seniors he knows did not work in a unionized environment and therefore are dependent on what they saved on their own.
It may not always be enough.
“The pressure wasn’t there to build a retirement fund,” he said.
It’s led several he knows to take out reverse mortgages, where you borrow against your home with no required payments.While this practice frees up cash, Stinson said it actually decreases seniors’ autonomy.
“As their equity disappears, their independence is going to disappear,” he said.
She said in her work for Investors Group Financial Services Inc. she would seldom recommend a reverse mortgage.Only in the case where the person had lived into her 90s and still managed in her own home would it make sense.
Trapp recommends people “act their wage” – making choices that their incomes can support.
“The comparison trap traps people when they’re looking at what everyone else has,” she said.
Early financial planning can help people avoid going into unnecessary debt and arrange to have adequate savings into retirement years.
“For seniors, being debt-free simply gives them more flexibility to avoid interest rate risk when rates increase and to preserve their investments and home equity for all retirement needs, expected and unexpected,” she said.
“Financial independence means flexibility and options to make choices about lifestyle.”