Statistics Canada recently released data showing that debt in over-65 households has now risen to 42%, which is leading to increased financial worries for aging parents. A report carried out by the Financial Planning Standards Council found that 45% of retirees have at least one financial concern, while 25% are worried that they’ll run out of money before they die.
It’s clear that many Canadian retirees are struggling with debt, but what’s causing it? Here, we explore the reasons for their growing debt and take a look at what you can do to help your aging parents stay in their home and improve their financial wellbeing. We’ll also provide a checklist for your aging parents’ finances.
Why are our aging parents living with so much more debt?
There are several reasons why our aging parents are experiencing financial difficulties. The main reasons include:
- They have to live on a much lower income than when they were working
- The increase in life expectancy means that our parents’ retirement savings are now having to last much longer than anticipated
- Many retirees take on more debt in order to help their adult children or grandchildren with their own finances, such as to help them buy a home
- Ready access to high-interest credit, such as credit cards and payday loans, has made slipping into debt much easier
- As our parents age, their health care costs typically rise: they may struggle to keep up with the growing costs of home carers, prescription drugs and other medical expenses not covered by provincial health plans
- For those people determined to age at home, retrofits to make their home more accessible can lead to debt
- Carrying out essential maintenance on a home can cause debt when living on a low retirement income
When these debts start to take their toll, there are signs you can look out for, so you can do something about them before they become a crisis.
The tell-tale signs of financial difficulties
If you notice any of the following when you visit your parents, the chances are that they’re struggling with their finances:
- Parts of their home are in serious need of repair
- You see overdue bills for their mortgage, utilities, personal taxes or city taxes
- They avoid talking about money
- Their credit card bills have high balances
- You see several unopened bills
How to start the financial conversation
It can be quite difficult to bring up the topic of protecting your elderly parents’ finances. For decades, they were the ones who supported you financially. If they now need your help, it can be hard to raise the subject.
To start the conversation, it’s important to pick the right moment. Talk to them when you are the only person around and you have no distractions. Tell them that you are worried about them and, even though it’s a difficult subject to discuss, you need to talk to them about their finances.
Explain why you are concerned for them, be specific and explain exactly what is worrying you about their finances. Break the conversation down into several, bite-size chunks that are easy to absorb. Let them know there is a lot of financial help for aging parents. It’s important to let your parents feel in control and let them know you just want to help them in any way you can.
How to handle elderly parents’ finances
It isn’t easy managing aging parents’ finances, so we put together this aging parents’ finances checklist to help:
- If you can afford it, help your parents pay off their mortgage or other outstanding bills, pay for renovations or supplement their retirement income.
- Ensure that they are receiving all the help for aging parents from the government. Make sure they have applied for their Canada Pension Plan (CPP), as well as Old Age Security (OAS) and the Guaranteed Income Supplement (GIS), if applicable. You can look through this Old Age Security program toolkit to make sure they’re not missing out on any financial payments.
- Meet with your parents’ professional advisors to find out more about their situation. This could include their lawyer, accountant, financial advisor and insurance broker. This can be really useful when protecting your elderly parents’ finances. The more you know, the more you can help them.
- Ensure that they file a tax return each year and help them to do it. Even if they earn little to no money, filing a return ensures that they receive the tax credits and benefits they’re eligible for.
- Help them to make a budget. Sit down with them and list all of their income and expenses. Look at ways that they could trim their expenses down so as to make their income go further. Set up automatic payments so they don’t forget to pay bills.
- If you need extra financial help for your aging parents, try calling 211 or go to 211.ca. You can talk to people who can give you advice on ways for your parents to receive home support or financial assistance that are specific to your province. This service is available throughout most of Canada.
- Not-for-profit credit counselling services like Credit Canada offer free advice that can help improve your parents’ finances and bring down their debt.
- Look at financial options that can consolidate their debt and help your parents regain control of their finances. They could pay off all of their outstanding debts by taking out one loan, usually secured on their home, which has a lower interest rate and much lower monthly payments.
- One great way to help aging parents with financial difficulties is to take out the CHIP Reverse Mortgage®. It allows homeowners aged 55+ to access up to 55% of the equity in their home in the form of tax-free cash. With no required monthly payments, this is a great option to reduce outflows and help give your parents the freedom and independence to live a comfortable retirement.
How CHIP has helped thousands of retired Canadians
Tapping into home equity is a great way of managing your aging parents’ finances. Statistics Canada found that, while retirees’ debt overall is increasing, over the last 17 years, their total net worth has increased by almost $240,000, mostly due to the increase in their home’s value. Tapping into their home’s equity makes a lot of sense to help aging parents pay off their mortgage and other debts, and take back control of their finances.
The issues with taking out a regular mortgage or line of credit are that:
- Your parents may not qualify, due to low income
- They will have to make regular payments and, if they miss them, could lose their home
With the CHIP Reverse Mortgage, your parents wouldn’t have to make any regular payments. They only pay back what they owe when they sell the house or move out. This is a huge advantage for cash-strapped retirees. It could help your parents pay off their mortgage, get rid of their debts and get their finances back in line, all without having to make regular debt payments. Plus, they will never lose their home because of a default.
Your parents can receive their equity in a lump sum, regular monthly payments or a combination of the two. The choice is theirs!
How to handle elderly parents’ finances with the CHIP Reverse Mortgage
These case studies show how the CHIP Reverse Mortgage can help in protecting elderly parents’ finances:
Health care costs
Linda, a 71-year-old widow, suffered a stroke and was suddenly disabled. She needed an electric wheelchair ($2,000 +) and a registered nurse ($24-$76 an hour). Linda was unable to afford these extra expenses, so her daughter helped her get a reverse mortgage so that she could live comfortably in her own home.
Bills piling up
Tom (76) and Lori (69) couldn’t afford to put their heat on or pay their phone bill. When their children found out that they could no longer afford to pay basic utilities, they looked into a reverse mortgage. Their parents received an extra $2,500 per month in tax-free cash to pay their bills and to supplement their retirement income.
A home in need of repairs/retrofits
Ernest (88) and Liz (76) were both retired at home. Ernest could no longer walk up the stairs and they couldn’t afford to make any upgrades to their home. They both insisted on living at home, so Ernest had made the living room couch his bed. When their son Jim noticed, he immediately searched for a financial option. CHIP gave Ernest and Liz an additional $1,250 each month and they were able to retrofit their home by installing a chair lift on their stairs. Ernest is now happily sleeping in his bed once again.
Canada Revenue Agency debt
George (67) had been retired for 5 years. At first, his spending habits remained the same as when he was working, but when tax season came around, he was too busy to remember to file. After many years of putting his taxes on the backburner, he discovered that he owed more than $50,000 to the CRA. He was suddenly faced with the prospect of having to sell his home in order to clear his taxes. His son noticed he was very depressed all of the time and helped him by suggesting a reverse mortgage to pay off his CRA debt. George is now much happier and finally enjoying his retirement.
Property tax arrears
Shirley (74) and James (85) lived in their family home for many years. After James retired, they did not manage their money well and their savings quickly ran low. It was hard to even afford basic household utilities. Their children noticed that there was a pile of unpaid property tax bills. Seeing how stressed their parents were, the children spoke to a friend who suggested a reverse mortgage. Shirley and James received a lump sum from CHIP and were able to pay off their overdue property taxes.
How to get started with the CHIP Reverse Mortgage
If your aging parents need help with their finances, cashing in some of their home’s equity with the CHIP Reverse Mortgage could be the ideal way for them to have financial security.
Call us at 1-866-522-2447 or use our reverse mortgage calculator to find out how much your parents could borrow to help them get rid of their financial worries.