Mortgage liabilities are forcing many to reconsider plans
Rising mortgage balances and higher interest rates are making it harder for some to retire as planned, according to new data from Statistics Canada (StatCan).
The national statistics agency’s report showed that in 2023, more than one in eight Canadians – or about 13.1% of the population – were aged 55 to 64, putting them on the cusp of retirement. However, financial pressures may force many to delay this milestone.
Higher interest rates have significantly raised the cost of living for Canadians, particularly for those carrying mortgage debt.
Mortgage liabilities for Canadians aged 55 to 64 increased to $315.7 billion in the first quarter of 2024, up from $244.2 billion in 2020. For those 65 and older, mortgage debt also surged, from $97.2 billion to $141.2 billion over the same period. The increase in mortgage costs is largely due to interest rate hikes by the Bank of Canada between March 2022 and April 2024.
The rising costs are squeezing household budgets, with accommodation prices up by 25.3% between July 2020 and July 2024. During that same time, mortgage interest costs soared by 46.2%. These increases are forcing many Canadians to rethink their retirement plans.
Canadians of retirement age who have a variable-rate mortgage or have had to renew in the last two years have faced higher monthly costs to stay in their own home," StatCan noted. Some homeowners have chosen to downsize or transition to renting to manage their expenses more effectively.
Financial stress delaying retirement
A Labour Force Survey supplement from June 2023 revealed that more than one in five Canadians aged 55 to 59 are either partially or fully retired.
However, financial considerations are delaying retirement for many others. More than a third of men (35%) and over a quarter of women (28.2%) said financial factors were the main reason they had not retired.
This financial strain is not limited to those nearing retirement. StatCan found that more than one in five seniors (21%) aged 65 to 74 were still working in 2022. Nearly half of those seniors were working out of necessity, many holding full-time jobs, with renters more likely than homeowners to continue working due to fewer financial resources.
The survey also showed that 40% of Canadians aged 55 to 64 and 28% of those 65 and older reported that rising prices were significantly affecting their ability to meet day-to-day expenses. The cost of food, transportation, and health care all saw notable increases, further straining household budgets.
Pension coverage and savings
The report also highlighted challenges around retirement savings. Pension coverage for paid workers dropped slightly to 37.5% in 2022, and contributions to registered retirement savings plans (RRSPs) declined by 3.4% from 2021.
However, nearly 58% of families contributed to at least one type of registered savings account in 2020, up from 52.3% in 2009.
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Despite these savings efforts, households in the lower 60% of the income distribution have seen their net savings decline since early 2022, while wealthier households have continued to save more. The ability to save for retirement has fluctuated, with many Canadians trying to balance rising costs with preparing for the future.
Looking ahead
A study from StatCan suggests that Canada’s labour force participation rate, which has been gradually declining, will continue to fall until the 2030s, when the last baby boomers turn 65.
By 2041, it is projected that about 23.1% of the labour force will be aged 55 and older, with immigration expected to play a key role in offsetting the shrinking workforce.
As Canadians face the challenges of managing higher costs and debt in retirement, many will likely remain in the workforce longer, delaying their plans for financial independence.
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