Planning to live longer

An old saying remarks “what a difference a day makes”. But how about ten years or even twenty? What kind of difference would that make to your retirement planning? That’s something you really need to consider.

An old saying remarks “what a difference a day makes”. But how about ten years or even twenty? What kind of difference would that make to your retirement planning? That’s something you really need to consider.

It has been common to plan for a retirement that ends around the average Canadian life expectancy of 80 years. But Statistics Canada tells us that people are living longer. The fastest growing portion of the population is those 80 and over, and the trend is expected to continue. By 2011 the number of people over 80 is expected to exceed 1.3 million.

The longer-life expectancy of Canadians is great news – but it also means that you should prudently plan for a retirement that could extend to your hundredth birthday … and perhaps beyond. That means more funding for a longer time. Take this example of a woman who retires at age 65, puts her retirement savings into investments held within a Registered Retirement Saving Plan (RRSP) that earns six per cent*, and draws $3,000 through a Registered Retirement Income Fund each month (without indexing). Ignoring taxes, she would need to have $375,425 to last until age 80. However, if she needed income to age 100, she would need $543,160 or $167,735 more at age 65.

Here’s another factor to consider: 65 is no longer considered as the ‘normal’ retirement age. Early or phased-in retirement and ‘progressive’ retirement are concepts rapidly gaining in popularity. The retirement concept you choose will affect your retirement income needs, pension plan entitlements, RRSP wind-down dates and many other aspects of your financial plan.

Your RRSP eligible investments is a great tax-savings income-builder but there are regulations limiting the total amount you can contribute and that makes it unlikely your RRSP alone can deliver the level of income you’ll need for a long, fulfilling retirement. So you’ll have to augment your income through a portfolio of non-registered investments that do attract taxes – and they must be carefully selected to minimize your yearly tax bite while maximizing long-term returns.

Your health needs to be considered, as well. You intend to stay healthy during your retirement but age does bring with it elevated health risks. Increased longevity makes it even more important to protect against the financial burden of illness and disability through critical illness, long-term care and other forms of supplemental health care insurance.

The question you need answered is ‘What if?’ ‘What if I live longer than expected – or die sooner than expected?’ ‘What if I become ill or incapacitated – or my spouse does?’

Professional advisors are very good at answering ‘What if?’ questions like that. They can run projections based on different assumptions and provide important information on the ‘longevity’ of your retirement plan. Make a difference this day – talk to your professional advisor about living long and living well.

*The rate of return is used only to illustrate the effects of the compound growth rate and is not intended to reflect future returns on investment.

This column, written and published by Investors Group Financial Services Inc. (in Québec – a Financial Services Firm), presents general information only and is not a solicitation to buy or sell any investments. Contact a financial advisor for specific advice about your circumstances. For more information on this topic please contact Marilyn Giesbrecht, Senior Financial Consultant.