No one wants to be forced to file for bankruptcy. Especially if one is at the dawn of retirement, or already retired. However, statistics from the Office of the Superintendent of Bankruptcy Canada demonstrate clearly a sharp increase of the bankruptcies amongst these populations.
In 2008, people in their 50s or over represented 29.8% of all insolvency cases recorded in the country. Last year, their percentage had increased to 38%. This shows an increase, over six years, of 8.2 percentage points in the number of boomers and elders who have filed for bankruptcy or submitted a consumer proposal.
Four main factors to try and explain indebtedness of boomers and elders
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The income-expenses ratio
It is a myth to believe that expenses decrease upon retirement. With more leisure hours and more time to carry through their projects, retired Canadians wish to make the most of their retirement — travelling, golf, piano lessons, etc. — while still healthy. However, health problems might eventually appear. Retired people would then have to be able to pay for the cares and treatments that their state requires, costs which may become very expensive. All that in times when, conversely, their income will unquestionably tend to decrease.
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The changes attributable to family circumstances
Changes affecting the traditional family nucleus, in conjunction with an increasing of responsibilities, can be the source of a major stress on personal finances. For example, over and above their obligation to meet their own needs, some boomers and elders must also support financially:
- their children;
- their grandchildren;
- their parents.
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The loss of self-sufficiency
Financial planners generally agree that, around 70 years of age, the financial expertise and the capacity to manage a budget decrease quickly — an even more relevant consideration when people suffering from the Alzheimer’s disease are taken into account. The vulnerability to fraud and abuse also increases, and may sometimes jeopardize the results of so many years of preparation.
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The massive retirement of boomers
According to the 2011 census, the cohort of people which was then getting ready to leave the work force (the 55-64 age group) was larger than the one joining the active population (the 15-24 age group). That is to say that the demographic changes on the Canadian scene are also a factor that explains the increase of insolvency cases amongst boomers and elders, when compared to other Canadians.
Four advices to avoid filing for bankruptcy upon retirement
No one is shielded from financial problems. But there are some precautions you can take to reduce the probability of being forced to file for bankruptcy during your retirement.
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Plan your retirement as soon as possible
Plan your retirement as soon as possible in order to determine as precisely as possible the provision you will need to fulfill your dreams without jeopardising your finances. A financial planner will be able to help you in these matters by taking into account the inflation rate and other relevant data.
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Never underestimate your life expectancy
A person who lives past 65 will reach, on the average, the age of 87 for a woman and the age of 84 for a man. In fact, it is even recommended to increase this figure to 90 years, given that life expectancy is constantly on the rise. This means that many people will live more than a quarter of a century in retirement.
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Do not rely on the government
Given the demographic changes on the Canadian scene, government programs will most likely need to be modified during the next few years. All factors lead us to think that the Canadian Pension Plan (CPP) and the Old Age Security (OAS) pension, just like the Quebec Pension Plan (QPP), will not suffice to meet all your needs.
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Fill in a mandate in case of incapacity
While you are still capable, appoint someone whom you trust completely as your mandatory in case of incapacity. This way you will avoid many potential problems, both for yourself and for your family circle.
Retirement represents a major stage in life, which spreads over an increasing number of years. If, unfortunately, you are experiencing financial difficulties or facing debt problems, do not hesitate to contact without delay an expert at Ginsberg Gingras. With the help of this professional, you will find a solution that will enable you to get back control over your finances, and therefore to make the most of your retirement.