One of the largest growing sectors of our financially distressed population is one that no one expected; our aging and aged population.This could soon be one of Canada’s premier disenfranchised community.While already being subject to abuse from a number of sources from family and friends to unscrupulous businesses, they are now facing additional pressures from some of the most unlikely of sources; Government and pension administrators.
This has not gone unnoticed by the financial sector as now they are concerned with an increasing number of seniors who are finding they are facing increased costs of living combined with dwindling resources on their investments.Consider that in the past few months alone, the average investment portfolio has shrunk in the range of 30%.If a nest egg of $250,000 had been accumulated that portfolio today would be worth approximately 2/3 of that value or about $167,000.Even with market recovery, a return to its previous value within a 5 year period is highly unlikely let alone growth beyond that.This places a significant pressure on sustainable income in retirement.The golden years have turned sour indeed.
There is an increasing number of seniors who are turning to credit they would otherwise not use.It is becoming necessary just to survive and there is no shortage of vehicles available to them with one of the most enticing being the “Reverse Mortgage”.Remember the old line from the Popeye cartoons where Wimpy asks for a hamburger.“I will gladly pay you Tuesday for a hamburger today?”Well the reverse mortgage does that.It pays the homeowner today for an up to 40% stake of the property value to be repaid upon sale or death.This leaves your children stuck with the bill.This writer doesn’t believe that any senior wants that for his or her children yet they are taking on this debt.Often though they fail to recognize that the interest keeps accumulating on these loans so in the end, the property could be worth zero to the inheritors or even place them in a position of having to borrow to pay off the loan.
There is another sinister set of conditions waiting in the wings.Property devaluation.Canada has seen drops in sales and some minor price reductions in some of the major markets as reported by TD in their weekly economic update.The disaster waiting to happen is one of pensioners whose properties WILL come to the market and only a few takers.The downward pressure on housing prices is a very real threat.In the current market where new starts are slow, once the building begins anew, the pressure on resale homes will become enormous as increasing number of homes owned by Boomers become available.In this scenario, the pressure on the developers will be huge.Maintenance of values will be difficult if not impossible.
Many seniors are looking to go back to work or delay their retirement.The increasing pressures of a recessionary economy will make this even more difficult as companies cut back on their labour force.There just aren’t enough Wal-Marts who need greeters at the door.
The best approach to this situation is to ensure your debt is removed and maintain a tight reign on spending of course.The snowbird winters may just have to stop.If you are already beginning to feel the pinch then Credit counselling should be a serious consideration.
There is an upside to all of this of course.Families will come together and pull together; as they should.That is the true test and legacy you can leave your children; who you are and what you stand for.These are what will remain in their memory first.