You can hear the frustration in the voice of financial adviser Jean Freed as she recounts the horror stories she`s heard as people approach their retirement years with large debts hanging over them.

"I had one client who at the age of 63 or 4 ... did $125,000 renovations on the house," said Freed, who is also a part-time finance faculty member at Montreal's Concordia University.

"Took out a new mortgage to cover that, and a year and a half later was laid off by his employer. Boom. What are you going to do now? Now they're losing their house because they went into debt. It was just, 'Why did you do that?'" 

Freed keeps Kleenex in her office for the inevitable tears that come when people need to be told their finances are a disaster, and has even heard one woman contemplate suicide. "It's devastating to people."

And it appears the finances of seniors in Canada are getting worse. 

In the late 1990s, only about a quarter of people over 65 had any debt. During the last Statistics Canada report in 2012, the number had risen to over 40 per cent. 

Too much house, too much car

So what's going wrong?

Freed pointed at a number of problems — one of the biggest being that people are overestimating how much they'll be able to earn as they age.

"People would often like to work later now," she said. "That doesn't mean they can work later now. This is a huge issue."

Freed said many people who are laid off in their 50s will never work in the same salary range again, while many people laid off in their 60s will never work again, period.

She said still carrying debt at age 55 and above carries a real danger, especially if the repayments are based on maintaining a worker's highest-earning years.

Freed says she sees the same spending problems pop up repeatedly.

  • People spend too much on housing. If your housing costs are higher than 40 per cent of your income, "it's going to feel very tight," she said. Thirty per cent is ideal, but she conceded that can be a difficult number to reach.
  • People buy expensive cars. She said she sees this particularly in people in their 40s who buy luxury cars or large SUVS. "And by doing that they've screwed themselves for the rest of their lives ... Can you pay it? Yes. But it will take every penny you have. You won't be able to go on vacation and you won't be able to save anything for retirement."
  • People eat out too often. She said if you could save $100 a month from 25 to 65, an average investment in the Toronto Stock Exchange would leave you with more than $500,000. "The average Canadian is not retiring with half a million in their personal savings."
  • People are cavalier about debt. If you're able to put 5 per cent of your pay toward a new debt, then a $1,000 debt can't be paid off until you've earned $20,000. Think about how long it will take to pay it off. "I see people today who think that taking out a a half million dollar mortgage is nothing because interest rates are low." 
  • People assume that if the lenders keep lending them money they must be OK. "'Why didn't the bank stop lending me money?'" Why would they? It's profitable. They don't care if you can eat."

Though the problems are big, the ways to avoid them are as simple as they've always been: keep aware of how much you're earning, how much you're spending and how much debt you have.

Home sale a possibility

If you do end up in retirement with a large amount of debt, none of the solutions are pretty.

Credit Canada Debt Solutions CEO Laurie Campbell says selling the house might be a key part of any recovery, be it a move to a smaller home or a rental.

laurie campbell

Credit Canada Debt Solutions CEO Laurie Campbell says it's important for people in debt late in life to know they're not alone. (CBC)

"People will find that their lives are a lot less financially stressful, and perhaps a lot less stressful in a number of other ways as well," she said.

Freed said some people may be able to roll their consumer debt into their mortgage, giving them a lower interest rate and a longer term. 

And both women noted that bankruptcy, while possible, is psychologically scarring and financially difficult. 

One thing you definitely shouldn't do, Campbell said, is turn to payday lenders, who will accept Canada Pension Plan payments and Old Age Security as income. "You can see how easy it is to fall into that game."

Campbell said it's also important for people in debt late in life to know that there is support available.

"I've seen 80-year-old men in our offices crying, we've seen couples fight, we've seen people on the verge of losing their apartment and on it goes," she said, noting that many people won't talk about their money troubles because of embarrassment.

"It's important to get the message out there that they're not alone, that they do need to be able to talk to others, whether it's their close friend, a family member, a not-for-profit credit counselling service or a financial planner."