How advisors can help debt-laden baby boomers

Is shift in attitude behind eye-catching statistics on retirement debt?

How advisors can help debt-laden baby boomers

Baby boomers used to living their lives in the red have carried this attitude into retirement. Whereas previous generations would not have dreamed of borrowing for a new car in their old age, more seniors in 2018 are lumbering themselves with debt payments for new wheels.

Kevin Press, assistant vice-president, Market Insights at Sun Life, said this trend, shown in the Sun Life Financial Barometer national survey (see link at end of article) runs contrary to conventional wisdom about retirement.

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Aside from mortgage payments, the poll revealed that 66% of retirees have unpaid credit cards, 26% are making car payments and 7% owe money on holiday expenses or a vacation property.

Press believes advisors have a crucial role to play to not only put financial roadmaps in place for people to avoid unmanageable debt payments but also help retirees sort out their finances.

He said: “Down the street from where I live there is a retired couple and they have a 1970 behemoth of a car parked outside, and I guarantee it is paid off!

“That’s really how people used to think in retirement. They wouldn’t dream of spending money on a car. They certainly wouldn’t dream of going into debt for the sake of home renovations or vacations – you lived within your means as a retiree and I think we’re seeing baby boomers change that.”

He added: “One of the things that a lot of advisors will do that maybe too few Canadians recognise is that they can help you get out of debt. You need to be ‘planful’ with your debt just as you need to be ‘planful’ with your assets.

“Getting out of debt, for a lot of Canadians, is a long-term process. So you need to develop a plan, you need to develop a budget and you need to prioritise which debt you are paying down first.

“This is something an advisor can help you understand. For example, if you have that miscellaneous credit card debt, you know if you are paying 20-something per cent on X-hundred dollars, that’s the debt you want to pay down first. Whereas if you have debt at a lower interest rate on a line of credit that’s your second priority, so it’s these kinds of conversations you can have with your advisor and come to this course of action.”

Press said it is important not to pass judgement and that different people are comfortable with different levels of debt, but he believes it is alarming how many Canadians are dipping into their retirement savings. However, he sees attitudes changing among millennials thanks, in part, to the effect of the 2008 financial crash.

He said: “I’ve done research in the past that’s pointed to a more conservative view, certainly among millennials, when it comes to finances. In some respects that harms them because they are not taking the right sorts of risks they should be with their investment portfolio.

“But I think the financial crisis that began in 2007-08 happened at an important time in the millennial generation’s lives and it was informative. I often think of my grandparents, who came of age during the depression; that experience informed their views about money their whole lives. In my opinion, I think millennials will be similarly affected by what’s happened in the last 10 years.”