Living longer? We all are – Plan your finances accordingly
A lot can change in 100 years. In 1920, the life expectancy at birth for the average Canadian male was 59 years – and only 61 years for women. Fast forward to today and the numbers are remarkably different – nearly 80 years for men and 84 years for women.
And those are just averages. According to the federal government, a 50-year-old man today has a 37.5% chance of living to age 90, and a 50-year-old woman has a 48.8% chance, nearly one in two. Want to know your odds of living to 100? Check out Table 16 here: http://www.osfi-bsif.gc.ca/Eng/oca-bac/as-ea/Pages/mpsspc.aspx#TBL14.
What does it all mean? Well, you could live long enough to see the Toronto Maple Leafs win the cup after all; but, more importantly, it means you need to plan your finances to last a much longer time than generations past. Here are four tips to consider as you make your plans:
- Don’t save it all in one basket: While it can be cost-efficient and convenient to deal with one financial institution, within that one institution, aim to have a mix of investment accounts. Ideally, you’ll have a combination – registered retirement savings plan (RRSP), tax-free savings account (TFSA) and a non-registered account. Because tax and withdrawal rules differ between account types, the mix gives you maximum planning flexibility to manage your income distribution in retirement.
- Invest for growth: Many people will now spend more years in retirement than they did in their careers. With many retirements now spanning 30 years or longer, the need for equity investments in a retirement portfolio can be more important than ever. Yes, equities carry substantially short-term risks, but the higher long-term returns they generate can extend the life of a portfolio and help offset the impact of inflation.
- Consider alternative products: In addition to your investment savings, it pays to explore other products that can help you achieve your financial goals for retirement. For example, permanent life insurance has a cash value that can supplement retirement income and provide a legacy for family members, or cover estate tax liabilities. And life annuities – while not providing income flexibility – offer the benefit that those living into their 90s and beyond love: guaranteed income for as long as you live. Both products are worth discussing with your financial advisor.
- Delay the start of your government benefits: Government benefits – like those from the Canada/Quebec pension plan and Old Age Security (which is only paid in whole or part to those with annual incomes below about $120,000) – are both inflation-protected and, more importantly, paid for life. And if you can afford to delay receiving these benefits until age 70, you’ll get a much bigger payout.
For example, if you start receiving your CPP retirement pension at the age of 70, your pension amount will be 42% more than it would have been if you had taken it at 65. And if you delay receiving your Old Age Security pension to age 70, your monthly pension payment will be 36% more than it would have been at age 65. While these two benefits may not represent huge payouts in the early years of your retirement, they can be an important guaranteed income stream in your later years, when other assets may have been depleted but the need for income remains.
And if you want to make age 100 your goal, BMO outlines some strategies to get you there: https://www.bmo.com/assets/pdfs/gam/BMO-Report-Living-to-100-en.pdf.
Happy living, and thank you for reading!