More Canadians are living to 100 years old — and you could be one of them. So how can you ensure you don’t outlive your savings?
Longevity risk is an important aspect of financial planning, especially for women, who live longer on average compared with men. As of 2022, life expectancy for the average Canadian at birth is 81 years — 84 years for women and 80 years for men. There were 11,705 centenarians across the country in 2023, according to Statistics Canada, with 81 per cent being women. Canada’s current oldest living person — also a woman — is 112 years old.
While the secret to a long life lies in some combination of genes, health, habits, socioeconomic status and good luck, the key to making your money last into old age is less about luck and more about planning, experts say. This includes having a financial plan that accounts for your saving and investing time horizon, thinking past retirement age, goals and personal circumstances — and being flexible when those circumstances change.
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“A lot will change over the years, so I think it needs to be an iterative process that you come back to over time,” says Jason Heath, a fee-only, advice-only certified financial planner at Objective Financial Partners Inc. in Toronto.
“If you’re a young person trying to plan for how much money you will need to live until you’re 100 years old, I think it really reinforces the importance of starting a dedicated saving program and trying to figure out how much money you need to save to be on track to retire at a reasonable age. The earlier you can start that process, the more you can start working towards that goal.”
Cash flow is king
A big consideration is what age you want to stop working, and your sources of cash flow past that. This can include company pensions, personal savings in non-registered or registered accounts, such as a tax-free savings account (TFSA), registered retirement saving plan (RRSP) or registered retirement income fund (RRIF), and other investments.
“There’s a big difference retiring at 55 versus 70 in terms of how much you need,” says Heath. How much money a person will need to retire, and how much they can spend in retirement, is an “ever-changing target” based on a number of factors — both positive and negative — that may pop up over the course of your life. For example, owning a home, receiving an inheritance or other financial windfalls, stock market performance, inflation, health issues, job loss, or a family member who needs financial assistance.
With longer life expectancies, many people may end up being retired longer than they worked. When creating a retirement plan for clients, Morgan Adams, a certified financial planner at TIER One Planning in Guelph, Ont., asks them to consider how much money they realistically need to pay for the lifestyle they want.
“Think about what you want in your pocket to pay for the things that you want to enjoy in retirement. That includes the necessities of life, but also includes playing golf, going on vacation, buying a car every seven or 10 years, whatever the case may be,” he says.
CPP, OAS and other government pension benefits as longevity protection
There is also the question of when to tap into government benefits. Canadians who contributed to the Canada Pension Plan (CPP) during their working years can start receiving CPP payments starting at age 60, and can defer until age 70. Old Age Security (OAS) is available to eligible Canadians over age 65, and can also be delayed until age 70. If you collect OAS and your income is below a certain threshold, you may be eligible for the Guaranteed Income Supplement (GIS).
Heath recommends delaying collecting CPP and OAS if you are still working, are in good health or are retired and have enough money to sustain yourself, which will increase your monthly benefit payments for every month you defer.
“CPP and Old Age Security government pensions are a fantastic way to protect against that risk because if you live to 110, your CPP and your Old Age Security keeps paying,” he says. “Your investments may or may not still be there if you’ve depleted them. Longevity insurance and protecting against that risk through deferral of CPP and Old Age Security as late as age 70 is a really great way, in my opinion, to protect people against that longevity risk.”
It’s important to remember that CPP and OAS benefits, as well as RRSP withdrawals, are treated as taxable income. Adams notes that if your yearly income is above a certain threshold, OAS and GIS payments are clawed back.
“So, we need to make sure we have different pools of capital to draw upon,” says Adams.
For this reason, Adams likes to remind clients of the power of a TFSA. Anyone over the age of 18 can open a TFSA and contribute up to the yearly maximum. And unlike an RRSP, where contributions are limited to age 71, you can keep contributing to a TFSA and growing your money indefinitely through interest and investments.
“Withdrawals from TFSAs aren’t taxed, and that’s really where you have the flexibility in your life. Topping up your TFSAs gives you that flexibility to fix your roof, buy a car, these kinds of things,” says Adams.
The principle of ‘earn, grow and enjoy’
While it is important to plan for a long life, Heath also reminds clients to consider an unfortunate possibility: You might not live long enough to enjoy your wealth. Diligent, consistent long-term saving is key to planning for longevity, but Heath also encourages clients to strike a balance.
“That’s a risk that I warn people about, not to work too long and save too much and forgo too little, because you just never know how much time you have left,” he says.
Adams echoes this sentiment, and frames working, saving and spending as “earn, grow and enjoy” based on what makes you happy, whether it’s charitable giving, going on vacation, treating yourself to a shopping trip, or continuing to save money for the future.
“‘Enjoy’ gives you a different meaning on the work that you’ve done to earn and grow your money. And then you don’t necessarily feel that buyer’s remorse because you know that you’ve allocated to that category,” says Adams.
It all starts with a financial plan
When it comes to life expectancy and financial planning, there are many considerations, including investment planning, risk management, tax planning, wills, power of attorney, different types of insurance, and planning for long-term care.
The complexity can sometimes overwhelm people, especially younger Canadians, who can end up parking their money in a high-interest savings account (HISA). A recent Toronto-Dominion Bank survey found half of generation Z contributed to a savings plan only instead of a registered plan. And HISA interest rates are lower than those found in equity funds, which means younger investors lose some of what they would have saved through compounding.
While no one can predict the future, a financial plan can help you weather whatever it holds.
“Some of the biggest things we’ve helped clients with is staying invested, staying in the market, and making sure we stick to the plan,” says Adams. “And if there is no plan, how do you do that?”
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