Six ways longevity can affect your post-work life
Everyone knows 40 is the new 30. But the new aging math is redefining more than just middle age: with Canadians living longer, 75 is looking a lot more like the new 65. And this has implications—good and bad—when it comes to retirement planning.
Over the last two decades, the average Canadian lifespan climbed by 2.5 years. “[That] translates into an additional month in life expectancy with each passing year,” says Rebekah Young, vice-president and head of inclusion and resilience economics at Scotiabank in a Scotiabank report titled Rethinking Retirement in an Age of Longevity.
That means more years for things like travel and enjoying time with loved ones, but also new considerations for ensuring all your needs are met throughout this extended life period. Here are six key considerations about planning for retirement amid the new old age.
1. You’ll need more than you think
More years in retirement means you’ll need more funds than retirees of generations past. According to a report from Scotiabank about longevity impacting retirement savings, a male who is 55 years old today has a one-in-four chance of living to 94.
Life expectancy gains for women are even higher—a 55-year-old woman can expect to live until age 96. That means the new retirement can be an even longer life phase than the entirety of your youth, stretching as long as three or four decades.
"The oft-cited million-dollar watermark for retirement at the age of 65 could easily double under a range of plausible scenarios,” writes Young. So how much will you need? “There is no set answer,” says Andy Nasr, chief investment officer at Scotia Wealth Management. “But there are common strategies people use to help them calculate the amount they need.”
2. Ensure your golden years stay golden
Many Canadians envision years of financial freedom and enjoyment when they picture retirement. But all too often they fail to plan for the downsides of aging.
“According to a survey cited in the report, less than a third of Canadians expect to experience a disability later in life,” says Julie Cowan, managing director, total wealth planning and insurance at Scotia Wealth Management. “But almost half of those over 75 years old report having a disability.”
Poor health in later life can result in increased personal and medical care costs. And just as Canadians underestimate their chances of developing health issues, they also underestimate the costs of late-life disability, especially if their goal is to age in place. “Almost half believe in-home care would cost less than $1,100 a month,” Cowan says.
“That would buy less than an hour a day of support based on agency rates of about $40 per hour,” outlines the Scotiabank longevity report. “The Canadian Medical Association benchmarks 22 hours per week as a level of care consistent with keeping patients at home instead of in a long-term-care setting. That would roughly translate into $3,500 per month—this is likely the minimum since it reflects only general support, not healthcare services. At an extreme, continuous care in the home would run closer to $30,000 per month.”
A trusted professional wealth planner can help you figure out what you’ll actually require to meet your financial needs if your health declines—and identify the best strategies and insurance coverage to make sure you’re taken care of.
3. You’ll have more years to make your dreams come true
More years spent in retirement isn’t all bad news—with some planning and preventive care, you’ll hopefully have a number of years to enjoy retirement life. One thing is for sure—with retirement stretching out longer than ever before, the post-work years are more likely to be a series of different chapters than one uniform life period.
Just like you probably wouldn’t expect your life to look the same at age 70 as it does when you hit 90, your spending habits and financial needs will likely vary over the years too.
As such, when you consider your post-work goals, it’s a good idea to have a variable spending plan for both the good years and the unexpected scenarios. A wealth advisor with deep knowledge and experience can help you to estimate what cash flow you’ll need in each phase of your post-work life, and create a plan to ensure your income meets your changing needs.
4. Thinking like a “late bloomer” can work in your favour
You don’t have to reinvent the wheel. From familiarity with various financial products, such as annuities, to strategies for tapping into home equity, getting professional advice is a good way to learn about proven tactics for financial security later in life.
For example, thinking like a late bloomer and simply deferring old age security payments can help you tap into more funds: while Old Age Security (OAS) can be taken as early as 65 and as late as 70, deferring to 70 increases your benefits by 36 per cent. Again, a wealth advisor can help you optimize your financial strategies to leverage these ins and outs.
5. Create long-term relationships
A long life hopefully means many long-term relationships that reward and fulfill you in various ways. When it comes to planning for the new longevity, building a relationship with a trusted wealth advisor is a big one.
Longevity will look a lot different for different individuals, and a wealth advisor is a key person to have on your team to help you tailor tax strategies and make other key decisions based on your own personal goals.
6. It’s time to make a plan for having more time
While you might assume that later old age means you can put off planning a little longer, the opposite is true. The sooner you start, the more options you’ll have for long-term strategies and products that can provide a flow of income later in life, and the more you’ll benefit from the effects of compounding, where the proceeds of your investments generate new income.
Whether it’s taking care of dependents or the next generation, succession planning or charitable contributions, your advisor and team of wealth specialists can help you determine how to build the legacy you want to leave behind.
Post-work planning goes beyond identifying the steps you need to take in advance to reduce inheritance taxes and other costs. It’s also about ensuring a better quality of life and safeguarding your wealth, and ultimately your overall wellbeing.
To read more about post-work planning in the age of longevity, click here.
