Factor the new longevity into your financial plans

Nov 6, 2018
Couple reviewing document

In 2001, there were 3,795 Canadians aged 100 or over. In 2016, the number more than doubled to 8,230 centenarians. According to Statistics Canada, a Canadian male aged 65 is expected to live to 84 and a female to age 87. These are average life expectancies, so it’s probably wise to count on a longer life when making financial plans. Imagine, you might enjoy a retirement of 30 years, even longer.

Here are some of the financial planning areas affected by the new longevity.

Setting a retirement date

The issue of when you can retire usually revolves around your savings – whether you have enough to fund the retirement lifestyle you desire. That becomes more involved now that you’re looking at a period of perhaps three decades. The good news is that you’re not alone in setting the date. You can picture the lifestyle you imagine, and we can help you with the financial side. We’ll estimate the size of your nest egg at a particular retirement date and project your estimated retirement income based on an investment and income program that suits your situation.

Planning an inheritance

When it comes to the timing of planning an inheritance, living to older ages can cause a dilemma. You want to ensure you don’t outlive your savings, so it’s beneficial to leave an inheritance the traditional way, through your will. But if you live to an older age, your children may already be established, even retired. They may have appreciated the funds decades earlier when they purchased a home and started a family.

What do you do? Give while living or give through your will? One idea is to use your will but give to grandchildren. Another is to help children when they need it most, but compromise, such as gifting part, not all, of a down payment. You can ask for our assistance in assessing whether a specific gift amount will affect your retirement plans.

Covering health care expenses

If you’re fortunate, you’ll remain healthy enough during retirement that health care expenses won’t be a factor. But living a longer life also opens the possibility of developing a chronic medical illness or cognitive impairment, requiring expensive long-term care. In Ontario, for example, the cost for a private room in a government-supported long-term care facility is $2,641 per month, not far off the average of all provinces. The cost can be twice that rate for a private nursing residence. So, it’s prudent to either purchase long-term care insurance or set aside funds as a precaution.

Investing during retirement

To fund a retirement of 25 years, 30 years or longer, an investment portfolio typically includes a substantial equity component. Beyond that, however, there is no single investment formula that works for all retirees.

Some retirees might have an asset allocation similar to their holdings just before retirement, when their portfolio became conservative. Others could have a retirement program quite different from the investments of wealth accumulation years, including annuities and other guaranteed products to provide lifelong income.

Withdrawal methods can also differ greatly. One approach is the systematic withdrawal method, where a specific amount or percentage is regularly withdrawn from the overall portfolio. The equity component may be gradually reduced and fixed income increased to minimize risk as the retiree ages.

Another example is the bucket approach, involving separate investment pools. Retirement income is withdrawn from the first bucket, which holds government benefits and secure investments like money market funds. The second bucket, which typically holds fixed-income investments, replenishes the first bucket. The third bucket holds growth-oriented equities and replenishes the second bucket. This approach gives equities a chance to recover after a downturn, before they become income.

Investing for a long retirement calls for a customized solution, which you arrive at with your advisor. We’ll take into consideration your net worth, marital status, retirement lifestyle, inheritance and charitable giving plans, savings for possible long-term care, and risk tolerance.

Sources: Statistics Canada, Censuses of Population, 2001 and 2016, and The Care Guide, Source for Seniors, 2018

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