Playing with Fire? Debt near Retirement in Canada

Nicolas Bédard and Pierre-Carl Michaud
Working Paper #18-14
Research Chair in Intergenerational Economics (formerly the Industrial Alliance Chair) – December 2018

Because retired households cannot adjust quickly to shocks, for example by working more, they represent a vulnerable group when credit conditions deteriorate. We analyze the evolution of debt among households nearing retirement in Canada over the period 1999-2016. First, we find that debt as a ratio of income has risen considerably over that period and debt as a fraction of assets has also doubled even tough assets remain roughly five times as large as debt. Second, we report that mortgage debt has risen the most but that average mortgage payments have remained relatively constant over the period due to the downward trend in borrowing costs. Finally, we find that a small but significant fraction of households are playing with fire, being vulnerable to a sudden rise on borrowing costs or to a drop in house values which could jeopardize their standard of living in retirement.