As more clients re­tire while ow­ing money, there are ways you can help them re­duce debt.

Investment Executive - - FRONT PAGE - BY DONALEE MOULTON

se­niors’ debt loads are grow­ing. Ac­cord­ing to Equifax Canada Co.’ s Na­tional Con­sumer Credit Trends Re­port, re­leased ear­lier this year, debt — ex­clud­ing mort­gages — grew more sig­nif­i­cantly among Cana­di­ans aged 65 and older than for any other age group. The bur­geon­ing red ink re­flects both in­creas­ing fi­nan­cial pres­sures and a shift in at­ti­tude.

The need for more money is both per­sonal and fa­mil­ial. De­sire to main­tain a pre-re­tire­ment life­style, longer life ex­pectan­cies and fi­nan­cial pres­sure from fam­ily mem­bers make stay­ing within fi­nan­cial means dif­fi­cult for some senior clients.

“We’re see­ing more and more se­niors who run out of money,” says Scott Hannah, pres­i­dent and CEO of the Credit Coun­selling So­ci­ety in New West­min­ster, B.C.

In part, the lack of funds re­flects chang­ing at­ti­tudes to­ward re­tire­ment. “Re­tire­ment used to be ‘ not work­ing’,” says Greg Suther­land, prin­ci­pal econ­o­mist, health eco­nomics and pol­icy, with the Con­fer­ence Board of Canada in Ot­tawa. “Now, it’s ‘Let’s do what we couldn’t do be­fore.’ There’s [been] a change in con­sump­tion pat­terns.”

Some se­niors may find that they re­tired too soon and can­not af­ford it, says Lau­rie Camp­bell, CEO of Credit Canada Debt So­lu­tions Inc., a non-profit or­ga­ni­za­tion in Toronto. “Get­ting back into the work­force is par­tic­u­larly dif­fi­cult for se­niors, so they rely on credit to make ends meet.”

Also com­mon­place for many se­niors are the de­mands placed on them by fam­ily mem­bers. As many as four gen­er­a­tions, in­clud­ing chil­dren and grand­chil­dren, may be look­ing for a help­ing hand fi­nan­cially.

Cash out the door

“[That fi­nan­cial help] be­comes habit and it be­comes ex­pected. In some cases, it’s abuse,” says Scott Ter­rio, an es­tate ad­min­is­tra­tor with Cooper & Co. Ltd., a li­censed in­sol­vency trustee in Toronto.

Co-sign­ing a loan for a grown child is one way se­niors can add to their grow­ing debt. Many se­niors do not equate this act of kind­ness with cash out the door, but they should, says Ter­rio: “The lender will al­ways pur­sue the co-signer if the loan is de­faulted on.”

Lend­ing a hand to grown chil­dren and grand­chil­dren can com­pound se­niors’ debt prob­lems in other ways. If a grown child lives with a senior client, the client may not be able to sell the house and down­size be­cause the ex­tra space is needed. Mean­while, that fam­ily home is both an im­por­tant as­set and a crit­i­cal source of debt. Home-eq­uity lines of credit (HELOC) are al­lur­ing and easy to ob­tain.

The av­er­age HELOC to­day is $70,000, says Ter­rio: “Your house is [like] an ATM. It’s too easy to tap into this type of thing. Most peo­ple who do this don’t in­tend to pay it back.”

You can play a key role in help­ing your senior clients plan for re­tire­ment, man­age their money ef­fec­tively and ad­just their sails when the fi­nan­cial weather re­quires.

In­deed, there are sit­u­a­tions in which car­ry­ing debt may be un­avoid­able — even ad­vis­able.

“If [a client] has no choice but to re­tire and still has a mort­gage,” Camp­bell says, “that may be a jus­ti­fied rea­son [to carry debt into re­tire­ment], as­sum­ing re­tire­ment in­come will be able to cover the mort­gage.”

Longer-term fi­nan­cial strat­egy

A debt strat­egy that re­lies on rental in­come from the home to help pay for the mort­gage, for ex­am­ple, could be an ef­fec­tive and longer-term fi­nan­cial strat­egy.

Camp­bell notes that even though car­ry­ing debt can be a sound fi­nan­cial de­ci­sion, it’s still risky. “If you know you are go­ing to sell your house, [then] in the short run, car­ry­ing debt un­til this is done could seem rea­son­able. If you know you are go­ing to be able to ac­cess funds that may oth­er­wise be locked up in the short run, this too could mean car­ry­ing a debt un­til this is cleared.”

How­ever, Camp­bell cau­tions: “In our busi­ness, we see far too many peo­ple who thought they could man­age debt into re­tire­ment, and the con­se­quences in most of th­ese cases have been quite se­vere.”

In some cases, cash from a life in­surance pol­icy might be one way to pay off debt. This could be the cash value of a pol­icy pur­chased for this pur­pose, and it should not be term life in­surance. The pol­icy must have ac­cu­mu­lated enough cash and, if the pol­icy is to re­main ac­tive, the client will have to keep pay­ing the pre­mi­ums.

To help pre­vent debt prob­lems from be­com­ing over­whelm­ing, Camp­bell rec­om­mends that you meet with your clients on a reg­u­lar ba­sis — ev­ery six months, at the very least — to re­view each client’s fi­nan­cial sit­u­a­tion in de­tail. This re­view would in­clude ask­ing about much more than their re­tire­ment goals. For ex­am­ple, is the client car­ing for or pay­ing for other fam­ily mem­bers?

This dis­cus­sion must cover the fun­da­men­tals, Camp­bell says: “[Ex­plain] how in­fla­tion works and how car­ry­ing debt — any debt — can im­pact the client’s liv­ing ex­penses. Show what $1,000 [of debt] will be worth five, 10 or 15 years from now.”

Th­ese will not be easy con­ver­sa­tions, Hannah says — for you or for your clients. But you must help your clients un­der­stand that debt is not usu­ally their friend.

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