As our population ages, especially within the confines of Covid, we are seeing a ever increasing number of seniors dramatically seeking help with debt. Another growing problem is seeing parents and grandparents funding their younger family members acquisition of real estate. Given the soaring price of real estate, this is becoming concerning as they are potentially forsaking their own retirement planning and life style. Instead of enjoying their retirement, many people are worried about how they are going to make ends meet.
Over the past number of years, I have observed a dramatic increase in the number of seniors seeking help with their debts. Whether this is due to more seniors being aware of not-for-profit credit counselling services or more seniors having debt is yet to be determined. Regardless, it is startling to realize that instead of enjoying their retirement, many people are worried about how they are going to make ends meet.
There may be many reasons why more retirees are struggling with debt, but the causes often start years earlier. Here are some of the common ones we see.
Supporting adult children
No amount of financial planning can prepare a person for having their adult children suddenly move back in or needing financial support. As much as we may want to be there to help our children, we might have to accept that we are not in a financial position to do so while still saving for retirement. A compromise might have to be that the kids chip in for some of the expenses. It’s still cheaper for them than paying rent somewhere else, yet it allows the parent to continue planning for their retirement.
Unexpected illness or unemployment
If you faced a time when you were unable to work due to illness, you might have been surprised to discover that your long-term disability insurance plan replaced only a percentage of your income. But you also lost out on the contributions you would have been making to your retirement pensions or savings accounts as well. This can result in lower retirement income.
Avoid getting trapped into using credit to cover your budget shortfall by adjusting your retirement goals as soon as possible. Look for ways to manage effectively so that you’re not forced to accept the smaller, early pension amounts you’re offered.
Divorce
Suddenly having to live on a single income after a divorce can put a real damper on saving for retirement. The legal costs of undoing a marriage can also leave a person with extra debt to retire before they can do the same. Furthermore, a divorcee can expect their pensions may be reduced as the former spouse usually has a right to a percentage of the pension contributions made during the marriage.
If it’s hard to plan for what you’re not sure about, scale back your spending in all areas of your budget to give yourself maximum flexibility with your decisions.
Death of a spouse
Managing household expenses needs to be a shared effort. Sadly, I’ve encountered many instances of a widowed spouse getting themselves in over their heads with unmanageable debt while they attempt to navigate their new financial situation.
This is when those of us with aging parents could step in and ensure that mom or dad is financially OK. If you’d rather not get involved, suggest your parent seek the advice of a financial expert. Most financial institutions have financial advisers who can help them understand their investments. If they need budgeting or debt help, encourage them to reach out to a not-for-profit credit counselling agency who can offer free, impartial advice.
Maintaining a working lifestyle
One of the hardest parts of retirement is planning how we will adjust our budget to fit within our new lower income. This is especially difficult if we must still make mortgage payments once our income decreases. If the only thing that changes when we stop working is the amount of income we receive, there is going to be a problem. Our expenses must decrease as well.
Well before making the decision about when to retire, it’s important to look at your monthly expenses and expected income to ensure that life will cost less than what you are earning. If you are not going to be able to afford your existing lifestyle, then you have decisions to make.
One option may be to downsize. Selling a bigger family home can help reduce housing-related costs and free up some equity to supplement your pension income. If you’re not ready to part with your home, consider taking in a renter or student. This can help offset your monthly costs and still allow you to enjoy your house.
Another option could be to work a bit longer. If there are higher-interest debts outstanding, it would be better to tackle them before your income decreases. Ideally, we want to retire debt free, which is possible if we start planning early enough.
As you make your plans, don’t underestimate the value of saving. An emergency fund is that much more important when living on a fixed income or if your chances of topping up your monthly income are gone. The last thing you want to do when those unexpected life events happen is depend on credit to cover the shortfall.
The bottomline
When I look at our client demographic, I realize that we have a fairly large number of clients who are seniors. With changing times, real estate appreciations, inflation, and and soon to be increasing interest rates, our conversations always include our client’s families and how they may be assisting them. One of the things that parents like to see is their children established in their first homes. Quite a difficult feat today.
It is important to ensure that seniors are not jeopardizing their retirement assets in assisting family members. Unlike them, their resources are finite being or being close to retirement. Where we can we have those conversations with our client’s families to ensure both sides understand the restraints to the monies available to pass down the line. If seniors or ageing parents are not having those conversations, Northern River Financial advisors can facilitate them with facts and finesse. Our focus is to ensure everyone’s Financial Life Planning is Keeping Life Current.
