We often hear how young people today don't know the value of a dollar. Really? According to a report from TD Economics, debt is not only slowing in younger Canadians, but also, Canadians 65+ are actually the ones who've increased borrowing.
The thing with statistics is your clients may not exactly reflect the percentages. Does that matter? No. What does matter is you shouldn't make assumptions.
If you see a statistical trend like growing senior debt, you owe it to clients to figure out just how much of that is going on in your business.
Study after study points in the same direction: with 59% of us retiring in debt, no one type of Canadian is automatically debt-free or unaffected by debt.
Don't make the mistake of thinking that because your clients have a good nest egg set aside, or because they're living comfortable lifestyles, that debt isn't an important part of their financial pictures.
Here are four reasons clients who have retired with debt can hurt your practice:
- Retiring or aging with debt increases the chances that assets will not last. Current interest costs, as well as any future increase in interest rates, can erode assets far sooner than you may have anticipated.
- Retired clients who increase withdrawals from assets to pay interest on debts subsequently increase their incomes, increasing both tax costs as well as possibly forfeiting part, or all, of their OAS.
- Retired clients who are under strain during their golden years will sooner cancel their insurance policies then pass up the freedom in retirement they feel they've worked all their lives for.
- Perhaps the most dangerous of all: If you don't make neutralizing debt and its effect on retirement a regular part of working with your mature clients, someone else who does will swoop in to the rescue. You'll be hemorrhaging clients before you know it.
If you're telling yourself that the debt stats for those Canadians who are retired or on the other side of 65 are partially reflective of borrowing to invest — or otherwise convincing yourself that it's just not so bad — stop.
There may be a few legit reasons for some of the debt experience by our more senior clients, but spending is fueling most of this statistical pattern.
It's time to talk to every client about his spending and borrowing, and then actively integrate debt and cash flow management into your approach. You need to do this all the time, without exception. Period.