Rethinking retirement with today's increasing life spans ...
With more and more Canadian centenarians, retirement has become a whole new life stage. You may enjoy your retirement longer than your working years. How can you ensure that this longer retirement is filled with purpose and the freedom that a well-thought-out retirement plan can provide?
A new horizon: planning for 100
Longer lives leading Canadians to rethink their investment plans
Have you ever asked yourself how long you will live? Call it superstition or just plain fear of death, many of us avoid the topic like the plague. When we are young, we imagine we’ll live forever; as we age, the end seems all too possible.
Interestingly, more than 50% of Canadian adults don’t have a Will, with one of the most pervasive reasons being that they don’t like thinking about death. But to consider the question rationally – with all its implications – is more important than ever. That’s because Canadians are living longer lives, driven by scientific, environmental, medical and lifestyle improvements.
A mixed blessing
While it’s a blessing for most of us, a longer life also presents challenges. Outliving retirement savings is one – and it’s the greatest fear of pre-retirees, according to a recent RBC poll1. Health problems are another: out-of-pocket medical costs after age 65 are estimated at $5,400 annually2 – and are likely to keep rising. This means that aging Canadians require their investment portfolios to support longer lifespans while generating cash-flow to cover potentially increasingly higher living costs.
Rethinking investment time horizons
For many years, a key investment planning question was “When do you plan on retiring?” That timeframe – from today to the assumed year of retirement – became the standard investment time horizon for an investment portfolio. It largely determined the degree of risk you could prudently take: the longer your time horizon, the more risk you could take to ride out the ups and down of the markets and realize potentially higher growth over time.
Towards the end of your time horizon, you would gradually ratchet down risk, eventually transferring to assets with little to no risk, such as GICs and bonds. The presumption being, once you hit retirement, you couldn’t afford to take any risk, as you would need your savings to fund your retirement.
This strategy made more sense when the average Canadian retired at 65 and was only likely to live for another 5-8 years. But a new approach is required with Canadians today retiring on average at 63 and living into their 80s and 90s (and an increasing number to 100 and beyond).
Planning to – and through – retirement
Today, your retirement portfolio should ideally focus on two things:
- tax-efficient cash flow for a well-funded retirement lifestyle
- a prudent combination of capital preservation and growth to maintain the long-term value of your portfolio through your golden years, while also offsetting the ravages of inflation.
Time is on your side
Fortunately, longer life spans mean longer investment time horizons, allowing today’s retirees to take advantage of the long-term growth of equities to meet their preservation and income needs. Whether or not you live to 100, considering the odds and planning ahead can help ensure that your golden years are just that.
We would be pleased to speak with you about your financial objectives. Please feel free to contact us today.
