Canadian seniors are four times richer than their parents were at the same age and have 40 per cent more spending power. Most of them are homeowners and many are taking on debt to pay for renovations or maintain a mortgage. Today the typical senior is almost nine times richer than the typical millennial.
These facts come from a report by Sal Guatieri of BMO Capital Markets, part of a series that's been looking at the finances of different age groups. While a previous study determined that the millennials are better off than their parents were at the same age, Guatieri says, "The median net worth of families headed by someone aged 65 and over rose more than four-fold (312 per cent)" between 1984 and 2012. "Thriving equity, bond and housing markets did the heavy lifting."
He says since 1984, average house prices are up by 430 per cent, or five per cent annualized since 1984. Homeownership rates in Canada rose from 61.2 per cent in 1984 to 70.8 per cent in 2012.
Canadian seniors and those who soon will be seniors (the baby boomers) are having a big impact on the current real estate market. In Toronto and Vancouver, real estate prices for detached and semi-detached homes have gone through the roof, in part because of a shortage of good listings. Seniors and baby boomers are living in their homes longer.
Instead of downsizing after their children move out, many are staying put and renovating their homes, making them more accessible so they can stay there as long as possible. Some are moving to more expensive single-family homes, now that they can afford them.
A CIBC poll says Canadians with mortgages expect, on average, to be 58-years-old before their mortgages are paid off. But the poll also found that many people are focusing more on renovations and summer vacations than on paying down the mortgage.
"With mortgage rates remaining stable and at historic lows for the last few years, some Canadians may not be as focused on paying down their mortgage as when interest rates are higher," says Barry Gollom, a CIBC vice-president. "Generally, paying off debt as quickly as possible is a smart decision, but you do need to ensure you're not focusing on your mortgage at the expense of your other financial plans, or by increasing debt elsewhere."
Indeed, an Investor's Group study of high net worth Canadians shows that having a mortgage is a deliberate investment strategy for many people. Sixty-seven per cent of those with investable assets of $500,000 or more who have a mortgage said they have the cash available to pay for the house if they chose to do so.
"The notion that a mortgage is used only when funds aren't available to pay cash for your home doesn't ring true for many wealthy Canadians," says Peter Veselinovich, a vice-president at Investors Group.
"Cashing in investments to pay off your mortgage before retirement could trigger capital gains," he says. "Retirees in this financial demographic who are not concerned about meeting their mortgage payments see a tax advantage to maintaining a low-interest mortgage on their homes."
Most financial advice focuses on paying off your mortgage as soon as possible. It reduces fixed monthly costs and the money can be used to make other investments. You can also borrow against your home's equity at better rates.
The question of whether you should have a mortgage and invest elsewhere or pay off the mortgage first depends on a number of factors including the current interest rate environment, your age, the amount of equity you have in the home and your tolerance for financial risk.
The Investors Group survey also found that 32 per cent of high net worth Canadians own additional properties. Ten per cent own three properties or more. Just over half own a recreational property, while 42 per cent have investment rental properties and 11 per cent have purchased property for their parents or children to live in.
While "debt is no longer deemed a four-letter word in this age of low borrowing costs," Guatieri says, "the amount of debt held by the typical senior is small at $18,000 in 2012, a fraction of total assets ($479,000) and less than annual income. This means the vast majority will have no trouble servicing debt when interest rates rise."
Twice as many seniors work today than three decades ago, says Guatieri. The employment rate for people aged 65 and older "has doubled to 13 per cent since the mid-1980s."
"Barring a high-paying job, most young people today will be pressed to replicate the financial successes of their grandparents and parents -- despite a somewhat better starting point -- amid expected lower returns in housing and capital markets in the decades ahead," he says.