Here’s my column from the print edition of MoneySense magazine that’s being run online today at MoneySense.ca. Regular readers here at the Aging & Longevity section of the Financial Independence Hub will recognize several of the major themes.
In particular, they will note the phrase “Plan for Longevity, Not Retirement,” which I credit to Mark Venning of ChangeRangers.com, whose blog occasionally can be seen in this section.
By Ermos Erotocritou, CFP
Special to the Financial Independence Hub
Are you planning for a 40-year retirement?
The question may sound absurd but if you are a healthy Canadian in your 40s having a 40-year retirement is not just possible but very likely.
According to the World Health Organization, a male’s life expectancy in Canada is 80 and 84 if you are female. Let’s take the half-way point between 84 and 80 and say longevity will be age 82.
The median retirement age in 2011 was 63.2 for men and 61.4 for women. The half-way point will be age 62. It seems logical to calculate your retirement years as your life expectancy minus the age in the year in which you retire. If you retire at age 62 and expect to live to age 82 then you should save up enough money to generate income for 20 years right? Wrong!
Planning for your retirement paycheque is a lot more complicated. Life expectancy is a moving target. In Canada, we have increased life expectancy by 5 years over the past 25 years. Increased life expectancy has been consistent for decades and there’s no indication it will stop.
If we continue at this pace, we will add 10 additional years of longevity within the next 50 years. If you are in your 40s today, it’s quite reasonable to expect your life expectancy will increase from 82 to 92. But now it gets even more complicated. Life expectancy for a surviving spouse is longer than an individual’s. As long as one or both spouses survive, savings are required to support their retirement.
Estimating your own life expectancy
By Jonathan Chevreau
Life expectancy around the world has risen by a whopping six years since 1990, according to a global survey released Friday.
As the CBC reports here, these longer lifetimes are occurring in both rich countries and poor ones, although for different reasons.
In the affluent west, it’s driven by falling death rates from the two big scourges of cancer and heart disease. In poorer countries, increased life expectancy is the result of progress in fighting tuberculosis, malaria and diarrhea. The tragic exception, however, is southern sub-Saharan Africa, where life expectancy has actually fallen five years because of rising deaths from HIV/AIDS.
The 2013 Global Burden of Disease Study was published in the Lancet medical journal.
For those born in 2012, life expectancy in Canada is now 80 for males and 84 for women, according to this report in May of 2014.
The Hub’s Take
We’ve mentioned Mark Venning and ChangeRangers.com several times in this site as well as sister site FindependenceDay.com. His insights on Aging and Longevity are a big reason why we have included a regular section of the Hub on this topic. One of his aphorisms is particularly insightful and directly related to financial planning and financial independence: “Plan for longevity, not retirement.”
As the previous blog in this section (by Doug Dahmer) explained, the fatal flaw in most retirement plans is failing to take into account extended longevity. Mark also regularly writes on this theme, as in a recent piece on Financing Longevity, which also provides a nod to the Financial Independence Hub.
Below, specially for the Hub, Mark has composed a year-end reflection on these themes, based on his recent travels. We hope to run more like this in the new year!
By Mark Venning,
Special to the Financial Independence Hub
Hardly a day goes by that there isn’t some symposium, book or report (not to mention a blog post or three like this one) about an aging world, longevity and retirement. You can even Google search longevity calculators that can project how long you can expect to live. It’s an aging obsession.
As Ted C. Fishman says in his 2010 book, Shock of Gray – “…although the aging world is the sum of choices made by large populations, how we navigate the future of this world – how we love and care for ourselves and those we cherish – will also be an intensely personal matter.”
Here at the Hub we make a big distinction between Wealth Accumulation and its mirror image, Decumulation. Decumulation is all about drawing an income from your investments and pensions once you’ve stopped working full-time. The mindset is quite different from working and saving to invest.
We plan to run a number of contributors by guest experts on Decumulation. This is the first of what we hope will be many contributions by certified financial planner Doug Dahmer (pictured), founder and CEO of Emeritus Retirement Income Specialists.
By Doug Dahmer
Special to the Financial Independence Hub
There is a critical issue that continually arises that people don’t tend to think about when it comes to their retirement planning. I’m not discussing their retirement income requirements, retirement age, accumulated assets, government benefits or even their expected rates of return, though those are all important. What’s often ignored is their life expectancy.
Your life expectancy is probably a more important decision than deciding how close you are to retirement. Yet the latter is what the focus is put upon. Deciding this critical factor then allows you to consider other important things like where are you going to live and for how long will you live there? When should you downsize and when should you consider a retirement home?
Also consider your spouse’s life expectancy
Don’t forget to consider the life expectancy of your spouse – the disparity between your two longevities can have even more significant implications to your planning. How should you split incomes and which assets you should draw from first?
Longevity has increased thanks to medical advances and the fact that many boomers have adopted better lifestyles that often allow them to celebrate their 100th birthdays. However, many variables play a role in how long you may live. These include reducing stress, genetics, eating healthy, exercising and even being married. While we would all agree that living a long life is a good thing, it is important that each individual is prepared for the financial consequences of their longevity.
When Canada set the retirement age, almost a half century ago, at age 65, life expectancy was approximately 72 years old. In a report from Statistics Canada, the average life expectancy for a 65 year old man in 2009 was 83.5 and for a woman it was 86.6. Remember, this is the average, which means over half the population will live longer than this.
As you can’t see into the future, it’s unclear exactly how long you’ll live in retirement; however there are superior ways of estimating this rather than simply making a guess based on how you feel about yourself on any given day.
The Longevity Game
A fun, easy and free way to accomplish this is to visit The Longevity Game website, courtesy of Northwestern Mutual Life Insurance. By completing the questionnaire, you will receive a life expectancy calculation tailored to you, generated by factors like your levels of stress, lifestyle habits, current health and family history.
In a recent report by the Society of Actuaries entitled ‘Key Findings and Issues: Longevity,’ it has been revealed that more than half the population undervalues their life expectancy. As a result their retirement planning time horizons are much too short.
Preparing for the ‘No Go’ Years
If you overestimate your life expectancy, you’ll leave your heirs with a little bit extra. However, if you underestimate your life expectancy, you could end up running out of money and having inadequate resources to secure your dignity and independence during your ‘No Go Years’.
According to the report from the Society of Actuaries, “As in 2009, retirees say they typically look five years (median) into the future, while pre-retirees typically look 10 years (median) ahead when making important financial decisions.”
For most, a big part of retirement planning is making sure your money lasts as long as you do, so to avoid a fatal flaw in your retirement planning it would be a good idea to start with a better understanding of how long each of your journeys may last.
Doug Dahmer is CEO and founder of Emeritus Retirement Income Specialists, based in Burlington, Ont.
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