Study: How personal bankruptcy affects retirement plans

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According to the 2007 General Social Survey, almost 8% of non-retired Canadians aged 45 to 64, or more than 480,000 people, had experienced at least one bankruptcy during their adulthood. On average, they were 40 years old at the time.

Those who had experienced bankruptcy had lower levels of education and were more likely to have a history of changing jobs more frequently than those who had no history of bankruptcy.

They were less likely to be employed in higher-income, white-collar positions such as management, professional or technical occupations and less likely to have private pensions from current or previous employment.

About two-thirds (61%) lived in a household with an annual income under $50,000, compared with 37% of other pre-retirement Canadians.

A slight majority of pre-retirees who had experienced bankruptcy wanted to retire by the age of 65. However, less than half believed that their retirement income would be sufficient to maintain their standard of living.

Pre-retirees who had experienced bankruptcy were less advanced in their preparations for retirement, even when compared to pre-retirees who had similar economic and demographic characteristics but had never experienced bankruptcy.

Among pre-retirees who had experienced bankruptcy, 52% owned their home, 38% had contributed to a registered retirement savings plan (RRSP) in the previous five years and 37% had contributed to a private pension plan through their current or previous employment. For the comparison group of never-bankrupt pre-retirees, the proportions were 77%, 52% and 36%, respectively.

Overall, 75% of pre-retirees who had experienced bankruptcy held at least one of these assets for retirement: their own home, an RRSP or a private pension. The proportion was 89% for the comparison group of never-bankrupt pre-retirees.

In addition, 70% of pre-retirees who had experienced bankruptcy were employing other financial strategies to prepare for retirement, such as building savings and investments, and paying down debts. Just under three-quarters of the comparison group of never-bankrupt pre-retirees were also following the same strategy.

Note: This article used data from the 2007 General Social Survey to examine non-retired people aged 45 to 64 who had experienced a bankruptcy in adulthood. It investigated the extent to which they are different from other pre-retirees, and how they have been preparing for their retirement.

Definitions, data sources and methods: survey number 4502.

The article "How does bankruptcy affect retirement plans?" is now available in the April 2011 online issue of Canadian Social Trends, no. 91 (11-008-X, free), from the Key resource module of our website under Publications.

Also in this issue of Canadian Social Trends is the article "Debt and family type in Canada". This article explores rising levels of household debt over the past 40 years using National Accounts data. It also uses data from the 2009 Canadian Financial Capability Survey to examine which types of families are most likely to experience high levels of debt and to have a high debt-to-income ratio relative to other family types.

For more information, or to enquire about the concepts, methods or data quality of this release, contact Client Services (613-951-5979; sasd-dssea@statcan.gc.ca), Social and Aboriginal Statistics Division.