Retirement Planning for a long life
The most recent information from Statistics Canada shows that life expectancy for Canadians is increasing. In British Columbia, the life expectancy at birth is 80 for men and 84 for women, whereas the life expectancy at 65 is 20.7 for men, 22 for women – meaning that Canadian men and women could live as long as 88. In fact, centenarians were the largest growing population demographic, according to 2011 census results.
Life expectancy in Canada is among some of the highest in the world, with the life expectancy for Canadian males being outpaced only by males living in Iceland, Israel, Switzerland, and Australia. Currently, 5 out of 10 Canadians at the age of 20 are expected to live until 90, and 1 out of 10 could live until 100 years of age. Beyond our strong life expectancy, analysts forecast that it will continue to increase, reaching 84 for men and 87 for women by 2030.
Life expectancy increases require savings increases
The changes in life expectancy are attributable to a number of factors, including reduced infant mortality and reduced deaths from circulatory diseases, among others. Ted Bruce from the Huffington Post noted that the average lifespan of Canadians has increased by more than 30 years since the early 1900s. This is primarily due to public health measures, an unsung hero in the improvements of life expectancy.
While developments in modern medicine helped to eradicate diseases, public health measures address factors that created the diseases in the first place, such as improved nutrition, clean drinking water, vaccination programs, tobacco policies, and better education. For example, during the period of 1981 to 2011, life expectancy increased 6.2 years, largely due to a decline in cardiovascular deaths attributed to public health initiatives against smoking.
These developments are accompanied by immense improvements in growth industries like biotech, nanotechnology and AI, all of which stand to make major positive impacts on healthcare. It is entirely possible that humans frequently begin to live well past 100 within the next 25 years. (Link to Aubrey DeGrey TED Talk)
While living longer is certainly an exciting development, a longer lifespan may mean delaying your retirement age, and for those with defined contribution pension plans, considerably more saving.
Investing for an Increased Life Expectancy
A key element to consider when contemplating your retirement planning is that an increased life expectancy does not mean you’ll have more years in good health.
Retirement investments need to be adjusted for both the longer retirement period, along with the healthcare costs that tend to accompany living longer – such as residential long-term care. Long-term care encompasses a variety of medical afflictions to those with an illness or disability, such as those suffering from Alzheimer’s or heart disease, and can no longer look after themselves.
A common misbelief in Canada is that full-time care in a long-term facility will be fully paid by government health programs (Macqueen, 2015). However, government programs only pay a small portion of costs, if any – and so the individuals, or their families, will be required to pay out of pocket.
To help you plan for your retirement, the Globe and Mail created this calculator to help you determine if you’ve saved enough for a long-term care facility. The calculator allows you to adjust based on the province, along with the number of months you would be in long-term care. In British Columbia, for example, a stay of 18 months could cost anywhere between $18,000 to $57,000, depending on the facility.
The costs of healthcare can be enormous, and it is often an overlooked cost in retirement savings.
Retirement Age and Defined Benefit vs. Defined Contribution Plans
With the average lifespan increasing, it is unreasonable to assume that 65 will remain stagnant as the standard retirement age, or that early retirement at 55 is an option. At 55, it’s very possible that you may continue to live for another 35-40 years, and unless you are lucky enough to have a defined benefit plan from your employer, it’s unlikely that your nest egg will cover so many living years. Other countries with equally strong life expectancies have begun increasing the state pension age – for example, the U.K. aims to increase their retirement age to 66 in 2018, and Australia aims to raise their pension age to 67 by 2023 (CBC 2017).
While those with a defined benefit pension plan from their employer have less to worry about in their retirement years, given that the plan will continue to pay out as long as you are living, defined contribution plans will require more investments to account for the increased life expectancy. This means that they will need to either invest more, reducing their take-home salary, or work longer. The risk is entirely held by the individual.
While this is a good start to your considerations of increased life expectancy, always be certain to speak to a financial advisor before making significant changes in your retirement planning. Although investing more will never negatively impact your retirement years, a financial advisor will be able to help determine your specific needs.
Thanks for reading!
If anything on this blog interests you further, please do not hesitate to reach out to me via email at [email protected] I’d love to talk about my financial services and advice in Vancouver, British Columbia’s lower mainland, and Canada in general.
- Brad Blair, CFP, CIM, FCSI, CHS.