Many people reading this article right now, seniors or at the age of retirement, are still in debt.
And they don't want to be.
A recent poll conducted by Manulife Bank, in which 2,132 Canadian homeowners were asked about their debt management, revealed that nearly half of them (49 per cent) are confident they'll have some debt in retirement, such as a mortgage.
Even the 51 per cent who anticipated being debt-free confessed they were disappointed with how they've managed their debt and day-to-day finances anyways, a realization that often comes too late, said Doug Biehn, a certified financial planner and owner of Humboldt's Viking Wealth Management.
"The key, the absolute most important part, of paying off debt and having enough money to live comfortably in retirement, is starting early," Biehn said.
How early?
"As soon as you start working," he said, a mindset that unfortunately many people don't adopt until it's too late.
"They put it off, saying 'I'll start saving tomorrow,'" Biehn said. "And they put it off, and they put it off. And before they know it, they're 65 years old and they've saved hardly anything."
A big problem with seniors, Biehn said, is the belief that their pension will compensate for this, getting them through retirement.
Not so, said Biehn, saying pensions aren't nearly enough.
He also deflated the common belief that retirees pay lower taxes.
"I'll get a lot of clients who are on the cusp of retirement and say they're looking forward to paying lower taxes," Biehn said. "It's the opposite though."
Biehn explained that in many cases, seniors who have retired are drawing income from all their sources, ranging from government pensions to registered retirement income funds (RRIFs).
The problem is that these sources are taxable at a higher rate because, said Biehn, "They're not taking advantage of any new deductions to lower their tax bill, like purchasing new RRSPs."
Usually that's because they have no earned income that qualifies (because they're retired) or they're over the qualifying age of 71.
And thus, their tax rate increases, much to their surprise.
Biehn said he deals time and time again with retirees who quite simply, just didn't plan ahead.
It's all too common, he noted.
"It's a generational thing. A lot of them will say 'Well my dad was able to retire and live off this amount, so why can't I?' Biehn said. "But it's a completely different world now," he added, mentioning the market's volatility in the past 10 years and stating that a recent survey found that 46 per cent of baby boomers aren't confident in their financial security upon retirement.
That's up 20 per cent from seven years ago.
But despite this statistic, Biehn said seniors are still being fiscally irresponsible with their money when the retirement bend comes around.
"A lot of seniors are borrowing money to purchase real estate, like a vacation property, or upgrading their vehicles," he said. "I had one client who was told to spend his savings on buying a brand-new car because it'd be his last one. But he was 65 years old. People live much longer now, so odds are, no, it's not going to be his last car."
Biehn continued. "That's let's say $30,000 that he could have saved toward his retirement, for the rest of his life. But I see it all the time: people hit the retirement age and they think suddenly they have all this money to spend and reward themselves and when they realize they can't, they still do it."
Peer pressure, Biehn said, is something that doesn't just affect the gangly teenager in middle school. It's a life-long affliction and is a major reason why people struggle with debt upon retiring and even well into retirement.
"A lot of the time, people are just too afraid to say no, I can't do that. For instance, there might be a big family trip down to Arizona for a few months. Everyone is able to go but when you review your budget and what you actually have available to you, you realize you really can't afford to make it happen. But you're too embarrassed to admit it to yourself, or your family, and so you pack up and go on the trip," he explained.
"But it adds up. Peer pressure is a big problem for many people."
Biehn said the root of the problem with people struggling with debt around retirement is lack of savings and lack of planning from the beginning.
He recalled a client he once had who came in for a financial review, saying he was going to be retiring the next year. He was 55 years old.
When Biehn reviewed his assets and financial portfolio, he discovered some unfortunate news: the man didn't have nearly enough money to retire.
"He was dumbfounded and also angry. Couldn't believe it," Biehn said, also noting that many will point to a family member or close friend as a reference point.
"A lot of the time, clients will say 'Well my brother was able to retire at this age, so why is it different for me?' But there are so many variables of why someone can retire at one age and not someone else. In this case, the client just didn't plan ahead. He didn't have enough saved up to live comfortably in retirement for the rest of his life."
In most cases, Biehn said, when a senior finds themselves in debt upon retirement, it's usually too late to reverse that predicament.
"This is definitely something that has to be addressed and thought of from a young age, when you start working."
However, there are ways to ease the problem.
One of those solutions is working longer, something many on the brink of retirement may oppose.
But Biehn said it's as simple as working for just a few more years or even holding down a part-time job in a field of something they love to do, so it doesn't feel like a chore. It also keeps the mind, and interestingly enough, the body, healthy: numerous medical studies have proven that those who keep their mind busy, whether by reading a book, doing a crossword puzzle or gardening, live longer. With that income, it can be used to pay down debt.
Another easy solution is to spend less. Set up a budget, said Biehn.
"Yes, it may mean you have to give up some luxuries but a lot of people find keeping a budget prevents them from spending on things they don't need and will later regret," he said.
Other solutions are debt consolidation, and what Biehn called "turning off the tap."
He pointed out that children nowadays have much more disposable income than adults did growing up.
"That money comes from somewhere," he said.
Parents, he said, are quite simply just too generous with their money and in the end, it'll cost them. He advises having the family sit down and discuss financial expectations of the parents, what they're willing to pay for and what they're not.
Another big solution is investments and as Biehn pointed out, many are not aware of the different investment products that can give them a secure retirement income.
A big one? Obtaining a GIC (guaranteed investment certificate) from a life insurance company.
For most of us, when we think of investing money, a picture of a bank or credit union pops into our minds.
But Biehn points out that it's not nearly as beneficial as going through a life insurance company.
The problem, he said, is if a GIC is purchased through an institution like a bank, you'll be paying tax on the income generated by this investment on an annual basis. The added problem is that it could reduce the amount of government benefits you receive.
For retirees, that's something to be avoided.
However, by moving the investment(s) to a GIC through a life insurance company (say Standard Life, Manulife Bank etc.), the interest earned will qualify as pension income. You'll pay much less tax, as much as $4,000 per couple of completely tax-free income per year, with the exact same principle guarantees.
Sounds like the logical route to take.
So why don't many people do this?
"The reason is that our traditional banking firms don't offer such products or even that type of advice," Biehn said, noting that banks want you to go through them, whereas financial planning firms, like Viking Wealth Management, Investors Group Financial Services and Credential Financial Strategies, all located in Humboldt, are impartial. "We just do what's best for the client. We see what they want and we advise them based on that," Biehn said.
Moreover, people hear "life insurance" and they shut down, associating the term with a life insurance policy.
"That's not what we're talking about. We're talking about an investment - a GIC - the exact same thing as you'd do through a bank or credit union, but through a life insurance company instead because the benefits are better," he said, especially for retirees worried about a stable income for the remainder of their life.
So with that being said, while the 49 per cent polled in the Manulife survey may be past the point of erasing their debt, there are certainly easier ways to manage it into retirement.
As for the younger generation, the spend, spend, spend generation, Biehn emphasized one important, beyond crucial point.
"In school, we learned the best way to save up for retirement, to make sure you have enough money come retirement, is to take ten per cent of each pay cheque you get for the rest of your life and put it away in a tax-free savings account. Save it. That's so important," he said.
That might just help young 25 year olds from falling into the predicament that many seniors have found themselves in lately: Bankruptcy.
"It's higher than it's ever been for seniors," Biehn said.
