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Playing with Fire? Debt near Retirement in Canada

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  • Nicolas Bédard
  • Pierre-Carl Michaud

Abstract

Because retired households cannot adjust quickly to shocks, for example by working more, they represent a vulnerable group when credit conditions deteriorate. We analyze the evolution of debt among households nearing retirement in Canada over the period 1999-2016. First, we find that debt as a ratio of income has risen considerably over that period and debt as a fraction of assets has also doubled even tough assets remain roughly five times as large as debt. Second, we report that mortgage debt has risen the most but that average mortgage payments have remained relatively constant over the period due to the downward trend in borrowing costs. Finally, we find that a small but significant fraction households are playing with fire, being vulnerable to a sudden rise on borrowing costs or a drop in house values which could jeopardize their standard of living in retirement.

Suggested Citation

  • Nicolas Bédard & Pierre-Carl Michaud, 2018. "Playing with Fire? Debt near Retirement in Canada," Cahiers de recherche 1814, Chaire de recherche Industrielle Alliance sur les enjeux économiques des changements démographiques.
    • Handle: RePEc:lvl:criacr:1814
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    References listed on IDEAS

    as
    1. Luc Bissonnette & David Boisclair & François Laliberté-Auger & Steeve Marchand & Pierre-Carl Michaud & Carole Vincent, 2016. "Projecting the Impact of Population Aging on the Quebec Labour Market," Canadian Public Policy, University of Toronto Press, vol. 42(4), pages 431-441, December.
    2. Annamaria Lusardi & Olivia S. Mitchell & Noemi Oggero, 2020. "Debt and Financial Vulnerability on the Verge of Retirement," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(5), pages 1005-1034, August.
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    Cited by:

    1. Collins, J. Michael & Hembre, Erik & Urban, Carly, 2020. "Exploring the rise of mortgage borrowing among older Americans," Regional Science and Urban Economics, Elsevier, vol. 83(C).

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    More about this item

    Keywords

    Household debt; mortgages; credit; retirement.;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination

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