Rising debt putting retirement on hold

OTTAWA — Years of rising consumer debt are coming home to roost, forcing Canadians to rethink traditional plans to retire by age 65.

Most Canadians now expect to work past 66, as only 30% think they will be able to fully retire by that age, according to a poll conducted for Sun Life Financial Inc.

Debt appears to play a big role in that equation, with 47% of those surveyed saying they are worried about the debt they’ll be dealing with as retirees.

And while many Baby Boomers have said they will work into their retirement years simply because they want to, the majority of those polled — 61% — said they will do it because they have to.

In some cases, people said they will have to work longer simply to be able to pay for basic living expenses.

“Canadian retirement expectations are changing,” said Kevin Dougherty, president of Sun Life Financial Canada. “These results are not surprising given the current economic volatility, increasing consumer debt loads, rising health-care costs, longer life expectancy and lack of planning.”
At the same time, the federal government is looking to reform the retirement income system, including possibly pushing back the qualifying age for Old Age Security from 65 to 67.

Despite economists’ objections that the system is sustainable, Human Resources Minister Diane Finley insisted this week that inaction threatens future pension benefits and that reforms will be announced in the coming spring federal budget.

In the meantime, Canadians’ debt continues to climb.

The most frequently quoted measure of consumer debt — debt to personal disposable income — soared to a new record high of 152.98% in the third quarter. That means Canadians carry $1.53 in debt for every dollar they bring home, a fact that has drawn repeated warnings from Finance Minister Jim Flaherty and Bank of Canada governor Mark Carney.

While the larger part of that debt exists in the form of mortgages, average consumer debt excluding mortgages has also been rising steadily for six and a half years, climbing from $18,958 in the first quarter of 2007 to $25,960 in the fourth quarter of 2012, a new record, according to a report from credit-data firm TransUnion.

That report shows consumer debt including credit cards, lines of credit, auto loans and consumer loans rose 1.4% in the fourth quarter — a seasonal pattern that accompanies the Christmas shopping period — after either declining or remaining stable in the previous three quarters.

The one silver lining in TransUnion’s report is that on an annual basis, the rise in consumer debt slowed to a pace of less than 1% in 2011, a level not seen since the company first began tracking the data in the first quarter of 2004.

“The continued deceleration in the annual growth of total debt is the bigger story,” said Thomas Higgins, TransUnion’s vice-president of analytics and decision services.

“We had witnessed a stabilization of total debt for the last three quarters, and the first and second quarters of 2012 should be quite revealing as we may see the first year-over-year decline in total debt since at least 2004.”

To cope with increasingly challenged retirement plans, Canadians surveyed by Ipsos Reid for Sun Life now say they expect retirement to be something they enter gradually, rather than simply giving up their careers all at once.

“Interest in phased retirement has been growing,” said Ian Markham of Towers Watson, a human resources consulting firm, in the statement released with the poll results.

Of those surveyed, 43% said they’ll start to phase in their retirement between the ages of 60 and 65, working either part-time or freelance before they fully give up work.

Twenty-one percent said they hoped to start retirement between the ages of 50 and 59. But there were 8% who only expected to start pulling back from work between the ages of 66 and 70.

Ipsos Reid conducted the online poll between Nov. 29 and Dec. 12, and involved 3,701 working Canadians between the ages of 30 and 65. Ipsos weighted the results to make them reflect Canadian demographics. A survey with an unweighted sample of this size and a 100% response rate would have an estimated margin of error of 1.6 percentage points, 19 times out of 20, according to the poll.