Research summary: Housing wealth, housing debt, and retirement finances

Title of the report: Housing wealth, housing debt, and retirement finances: Findings from a mixed-methods study

Authors of the report: Kathleen Piovesan and Ivana Previsic

Why this study

In Canada, retirement income comes from 3 income sources:

• pillar 1: Old Age Security (OAS) and the Guaranteed Income Supplement (GIS)
• pillar 2: Canada or Quebec Pension Plan (CPP or QPP)
• pillar 3: Workplace registered pension plans (RPP) and savings

Pillar 3 resources are declining (HOOPP 2023; OSFI 2022). By contrast, housing wealth has increased a lot and most seniors are homeowners. Some are suggesting using housing wealth to make up for this decline. Some problems with this proposal include that:

• more seniors now carry housing debt into retirement (Statistics Canada, 2023)
  • this could reduce their housing wealth
• most choose not to sell their homes (CMHC, 2023) or get a reverse mortgage
  • this could mean the value of the home will not be made available for day-to-day spending

What we did

Employment and Social Development Canada (ESDC) researched the role of housing wealth and debt in the finances of Canadian homeowners aged 45 and older. The 96 participants completed a survey, a financial life history table, and an interview. Of the participants:

• 70 had a mortgage, a home equity line of credit (HELOC), or both
• 24 had a reverse mortgage
• 2 had recently paid off their debt

They were mostly 60 years of age and older. They were mostly women. Half were in a couple and half were single.

What we found

Participants were grouped according to their financial resources and other financial contexts as follows:

• weak financial safety net if they had low RPP and savings and less stable financial contexts
  • many single women were in this group
• partial financial safety net if they had moderate RPP and savings and neither stable nor unstable financial contexts
  • this group was evenly split between couples and singles
• robust financial safety net if they had strong RPP and savings and a more stable financial context
  • this group was mostly couples

Regardless of financial safety net, most participants used housing debt for household spending and debt consolidation.

However, the reasons behind household spending and debt accumulation differed:

• participants with a weak financial safety net used housing debt for necessities and emergencies
• participants with a partial financial safety net used housing debt for necessities and to invest
• participants with a robust financial safety net used housing debt for extra spending and to invest

Those with weaker financial safety nets had less housing wealth. They bought less expensive housing, used debt more frequently for necessities, and had fewer resources available to pay down debt. Debt carried long term often meant savings were low.

Reverse mortgages were used almost entirely by those with a weak financial safety net. They usually turned to a reverse mortgage when they had reached at least age 55 with mortgage and/or HELOC debt and then experienced a financial difficulty. The reverse mortgage helped them consolidate their debts. It relieved the pressure of monthly payments. They could stay in their homes. However, it cost them some of their housing wealth because this debt grew over time.

Almost none of the participants wanted to sell their homes. This was because the home was a source of savings, an emergency fund, an investment, and the most secure housing, especially compared to rental.

What it means

Housing wealth likely cannot resolve the problem of low retirement pensions and savings. The group of participants that most needed a boost in income had the least housing wealth to provide that boost.

Participants with weaker financial safety nets would have been more financially secure in retirement if they had:

• better employment contracts
• access to pensions
• smaller care burdens
• been compensated for their unpaid care labour

For many participants, high housing value led to higher debt loads and costs. For those with weaker financial safety nets, high housing costs:

• strained household budgets
• prolonged housing debt
• reduced the money available for savings

If this situation is widespread, it could risk retirement wellbeing for Canadian homeowners. It may raise the costs of aging at home. It could lead people to rely more on Pillar 1 and 2 (OAS, GIS, and CPP or QPP). These programs were not designed to be sole income sources in retirement. This reliance could increase program costs.

Many participants thought of their housing wealth as a way to fund the last stages of life when care needs are highest. However, if seniors carry high debt into retirement, the amount of leftover housing wealth may not be enough to cover those costs. This may increase government health care costs.

Contact us

Strategic and Service Policy Branch, Social Policy Directorate, Social Research Division

Email: esdc.nc.sspb.research-recherche.dgpss.cn.edsc@hrsdc-rhdcc.gc.ca