Study: Finances in the golden years

The financial situation of Canadian seniors appears much more secure if the equation includes wealth and not just income, according to a new study.

More than half of seniors own their homes mortgage free. Nearly half are still saving and only 1 in 10 are dipping into investment capital to make ends meet. Only a third of senior families feel the need to follow a budget compared with half of younger families.

Younger families are still in the process of building up their stock of wealth-buying homes or accumulating retirement savings or other investments. However, many seniors have already accumulated substantial wealth to draw on in times of need. (Wealth is the difference between total assets and total debts.)

The study uses data from the 1999 Survey of Financial Security to examine sources of income and wealth among seniors, as well as their debts and preparedness for unexpected expenses. It also examines two groups of seniors that potentially face financial insecurity: unattached women and those whose expenses exceed their income.

Few seniors have debt. Almost three-quarters (73%) of families headed by a senior reported having no debt in 1999. For the 610,100 senior families carrying debt, the median value was about $6,500, compared with about $32,000 for younger families.

The amount of debt most seniors carry is relatively low. About 16% of senior families with debt owed less than $500, while about 25% owed more than $25,000.

Seniors also carry the lowest debt-to-asset ratio. Families headed by a senior owed an average of $3 for every $100 in assets, compared with $31 among people under 25.

Still, senior families have lower average incomes than younger families, given that most are no longer in the labour force and have no employment income. For this reason, considering income alone is not sufficient when examining the financial well-being of seniors.

In 1999, the median income of senior families was only $26,400. According to the survey, however, some saving still continues into old age since 46% of senior families reported that their income exceeded expenses. The income of a senior family is much more likely to go further than that of a young family still saving for retirement, paying off a mortgage, or supporting young children.

The largest asset of most seniors is their home. Two-thirds of seniors were homeowners in 1999. Of these, 90% owned their home mortgage-free and the median home value was $120,000. While a home is not as quickly convertible to cash as financial assets, it can be sold. Or, the family can downsize to another and live on some of the net proceeds.

As in the case of younger families, large unforeseen expenses can be crippling for seniors. About 8% of senior families felt that they would be unable to pay for an unexpected expense of $5,000, about the same as the proportion of 9% among younger families.

The study found that unattached women and seniors whose expenses exceed their income potentially face financial insecurity. Of all senior family types, unattached women aged 65 and over had the lowest income, assets and net worth in 1999. But only 32% of them followed a budget, compared with 48% of families headed by someone younger.

A second group facing potential financial insecurity are senior families whose spending exceeded income. They represent about 1 in 10 senior families.

This group had a median income of $25,500, just slightly less than that of $26,500 for other senior families. However, their median net worth amounted to $121,500, much less than the $158,000 for other senior families.

Definitions, data sources and methods: survey number 2620.

The article "Finances in the golden years" is available in the November 2003 online edition of Perspectives on labour and income, Vol. 4, no. 11 (75-001-XIE, $6/$52).

For more information, or to enquire about the concepts, methods or data quality of this release, contact Cara Williams (613-951-6972; cara.williams@statcan.gc.ca), Labour and Household Surveys Analysis Division.