An old saying remarks, “What a difference a day makes.”
But how about 10 years or even 20? 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 are those 80 and older, 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 100th 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 Savings 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.
Your RRSP-eligible investments are 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 advisers 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.
Talk to your professional adviser about living long and living well.
J. Kevin Dobbelsteyn is a certified financial planner with Investors Group Financial Services Inc. His column appears every Wednesday.