From changing lifestyles to future health care needs, increasing longevity requires a new approach to retirement planning.GETTY IMAGES
Longer life expectancies are having profound impacts on how we’re working, earning, saving and spending. For retirement planning, longevity ushers in an array of challenges.
“Our retirement is very different from what our parents experienced – and it’s going to be different for millennials than it is for Gen X,” says Daryl Diamond, chief retirement income strategist at Dynamic Funds.
As a result, many Canadians are now revisiting careers midlife and delaying retirement by circumstance or choice, especially when many are still caring for aging parents and simultaneously helping their adult children.
For advisors, all of that – including retirements that could last as long as 30 to 40 years – has implications around financial planning.
“There has to be balance between planning for the future, which we certainly can’t be negligent about, and living for today,” says Grant White, portfolio manager and investment advisor with Endeavour Wealth Management at iA Private Wealth Inc. in Winnipeg.
Given all the variables, advisors need to provide financial planning that’s increasingly comprehensive and flexible.
“The problem is every decision involves risks that are unknowable. You don’t know how long you will live, what inflation will be like, or how markets will perform,” says Michel St-Germain, a consultant and former president of the Canadian Institute of Actuaries.
Another big unknown is health. Although individuals are living longer, they’re often experiencing declining health at some point, which presents an income decumulation planning challenge, Mr. Diamond says.
Often, decumulation planning involves sizable income needs in early retirement – a more active phase involving higher discretionary spending – followed by a slower phase in which lifestyle costs decrease, but health care expenses rise.
That second phase involves planning complications such as estimating long-term care costs, which can vary depending on whether people rely on public or private services.
“The problem with budgeting [for long-term care] is that if you don’t need it, you put a lot of money aside for it,” Mr. St-Germain says.
Advisors can help thread this planning needle, balancing present with future needs. For example, Mr. White says clients sometimes put too much focus on long-term needs, seeking a cushion, such as having retirement 130 per cent funded. “But they’re actually risking not enjoying life today.”
To that end, Endeavour’s models now deliver income to clients to age 99 as the baseline. The team has also begun offering novel value-add services that reflect a planning shift, connecting capital more with lifestyle goals. That includes seminars with aging and health experts.
“We see these as similar to offering access to tax and estate specialists,” Mr. White says, adding that includes a travel service that organizes “bucket list trips.”
Many advisors are also shifting their fundamental retirement income advice. That includes recommending deferring Canada Pension Plan and Old Age Security benefits as long as possible, says Mr. St-Germain, who notes that retirees can boost those guaranteed payments by as much as 42 per cent by doing so.
Some retirement plans also focus more on using personal savings in early retirement years and incorporate insurance and guaranteed products such as annuities, as well as critical illness and whole life insurance products that can address longevity.
After all, navigating longevity is about planning for the best, but still preparing for the worst, Mr. Diamond says.
“People may be living longer, but there will likely be periods of not-so-great health making up those extra years.”