Fewer Canadians will be debt-free during their retirement years, a new report suggests.
A survey of financial security among Canadians families finds fewer Canadians reported being debt-free during their retirement years, with the report noting that seniors were less likely to be debt-free during retirement than two decades ago.
Whereas almost 73 per cent of senior-led families reported being debt free in 1999, this rate has dropped to 56.7 per cent in 2019. About 12 per cent of senior-led families were also still paying a mortgage on their principal residence in 2019, compared with 6.6 per cent in 1999, as further evidence that the so-called Golden Years may not be so free of financial worries as many may believe. Almost 28 per cent of senior-led families reported also still owed a line of credit, carried a credit card balance from month to month or found themselves making installment payments on debt in 2019.
Looking at the broader picture, the median net worth of Canadian families was $329,900 in 2019 with families defined as two or more persons, as well as unattached individuals. Net worth appears as difference between family assets and debts. Notably, Canadians are finding it more difficult to increase their net worth.
According to the survey, the net worth of Canadian families rose 1.8 per cent per year from 2016 to 2019 on an annualized basis, a growth rate not large enough to be statistically significant.
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This point becomes clear when looking at rates of inflation, which outpaced the rise of net worth between 2016 and 2019 in 2018 (2.3 per cent) and 2019 (1.9 per cent). Accounting for inflation in 2016 (1.4 per cent) and 2017 (1.6), the average annual rate of inflation during this period was 1.8 per cent. In other words, inflation ate up any gains Canadians might have made.
By contrast, from 2012 to 2016, net worth grew 3.5 per cent per year. Corresponding inflation rates for 2012 (1.5 per cent), 2013 (0.9 per cent), 2014 (two per cent) and 2015 (1.1 per cent) were lower.
Housing remains the largest source of assets and the largest source of debt for Canadians. In 2019, just under 62 per cent of Canadian families reported a principal residence as an asset with a median value of $400,000, while just under 35 per cent reported holding a mortgage on their principal residence with a median outstanding value of $180,000.
Employer-sponsored pension plans (EPP) represented the second largest category of assets, as just over half of Canadian families reported having an EPP in 2019 with a median value of $164,900.
While about three out of 10 families reported being debt free in 2019, net worth varied by family type. Families who were renters, lone-parent families, younger families and unattached non-seniors reported lower net worth than others, with differences often significant.
Lone-parent families reported median net worth of $83,100 in 2019, while senior-led families reported the highest median net worth in 2019 with $840,900.
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