Freedom 55 is no more. "Debt 55" is more like it. So are
"Debt 65" and even "Debt 75." And, in a distressing trend, 9% of people aged 60
or over filed for personal bankruptcy in the first seven months of 2010,
compared to 7% between 2006 and 2009.
A study by the Canadian
Association of Retired Persons
names "over-extension of credit" as the main
cause of bankruptcies among the over-55 cohort, followed by "medical reasons"
and then "job loss."
"Unfortunately today an increasing number of seniors are
retiring with debt, so when their income drops at retirement it often becomes
impossible to both service debt and pay normal day-to-day living expenses,"
says bankruptcy trustee Douglas Hoyes
. Some of his senior bankruptcy clients retired in good financial
shape, but depleted their retirement nest egg and even took on new debt to help
grown children deal with their own money problems.
"Some [indebted seniors] adapt by making only the minimum
monthly payments on credit cards," explains Financial
reporter Jonathan Chevreau
in an article on bankruptcy among seniors.
That leads to a downward debt spiral, a journey that often ends with a trip to
offices like Hoyes'.
Divorce expensive at
The recession, consumerism and needy children aren't the
only factors driving down the finances of Canadian seniors. Canada's divorce
rate (the number of marriages projected to end in divorce before the 30th
wedding anniversary) has fluctuated between 35% and 42% since 1986. And those
who divorced at, say, age 35 or 40 in the late 1980s are now entering their
But even making it to the senior stage doesn't guarantee
that a couple will stay married. Family lawyer Andrew Feldstein
figures that show 31.7% of married partners between 60 and 64
divorced between 1993 and 2003, as did a whopping 47.8% of those between 55 and
The cost of a typical divorce, Feldstein says, runs anywhere
between $5,000 and $100,000. Add to that the cost of maintaining two households
out of the same pool of assets, pensions and income that formerly supported
one. It's no wonder, then, that divorcees of any age face reduced prospects in
Divorce drives debt
Divorcees stood out in a 2009 StatsCan
study of retired individuals 55 and over. Author Katherine Marshall
noted that 43% of
divorcees in that cohort were in debt. Unlike those who never married or who
were widowed, retired divorcees were much less likely than couples to feel that
their income was adequate for their monthly expenses.
A careful reading of Marshall's study leads to reasoned
optimism about the majority of seniors. Though one in three retirees held some
form of debt, its distribution was skewed. Seventeen percent of retired
households owed over $100,000, while over half of those in debt owed less than
$25,000. So there's still potential for bequests and other late-life gifts,
provided you choose and cultivate your prospects carefully.
Thinking about debt
What would make Mr. or Ms. Retired Donor more likely to be indebted
or debt-free? Marshall pointed to several other factors besides divorce.
Non-retired couples were more likely to be in debt than
retired couples of the same age. They also had the highest median value* owing,
Being over 75
"The further along the life cycle," said Marshall, "the more
time someone has had to repay any outstanding debts." Just 20% of those over 75
had some form of debt, compared to 48% of retirees between 55 and 64.
"As the level of schooling goes up," she reported, "so does
the incidence of holding debt." But the thoughtful prospect researcher won't
automatically disqualify the retired university grads. Marshall commented that
insofar as higher education corresponds to financial knowledge, borrowing may
reflect a sound strategy for financing investments or smoothing consumption.
Being a homeowner
Homeowners, she discovered, are "1.4 times more likely to
hold debt than non-owners," and not just because of their mortgages. A small
number of indebted homeowners have a mortgage only, but more of them have
consumer debt or a combination of the two. On the other hand, a home is a
valuable asset that increases estate value and may make a bequest possible.
Having higher net
worth or lower income
The higher the household net worth among retirees, the lower
the probability of debt, especially if the household net worth is $400,000 or
more. But when Marshall looked at income she found just the opposite:
households with an annual income under $25,000 were less likely to hold debt
than those in higher income groups.
You'd be right to assume that the debt-free are your best
prospects for bequests and other lifetime gifts. Eighty-nine percent of
debt-free retirees told Marshall their income was sufficient for their monthly
expenses, and 82% thought their financial situation was what they expected or
better. Among those holding debts, the proportions are somewhat lower: 79% or
less found their incomes sufficient, and just 70% said their financial
situation was what they'd expected.
Common sense and caution are the guidelines when the
possibility of debt enters the bequest picture. You can't assume that an elder
is debt-free. But neither can you assume that an indebted older donor can't
create a meaningful legacy.
If anything's a donation deal-breaker, it will likely be a
past divorce. That seems to leave people feeling more vulnerable than any other
single financial circumstance.
*median value: the point at which half the cohort owes less
and half the cohort owes more.
For more information, Financial Post, http://www.financialpost.com/personal-finance/wealthy-boomer/immunity+bankruptcy/3383355/story.html; Douglas
Hoyes, http://www.bankruptcy-canada.ca/trustees-talk/bankruptcy-alternatives/20100823/bankruptcy-in-canada-for-seniors-with-tax-debt.html; Retiring
with debt, Katherine Marshall, Statistics Canada, April 27, 2011; Indicators of Well-being in Canada,
Human Resources and Skills Development Canada, http://www4.hrsdc.gc.ca/.3ndic.1t.4r@-eng.jsp?iid=76.