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The new retirement is going to be a long haul...

Rising life expectancies make planning a challenge, but new tools and strategies can help you reach your goals.

I like to call it a “permanent vacation” or “longevity planning.”

Retirement, as a term, often oversimplifies a complex phase of life into a singular event, and that is definitely not the case.

The traditional terminology also can cause financial advisors to overlook the nuanced journey clients embark on in their later years.

When we dig into the details of longevity and what it means for a person, it creates a stronger and more meaningful bond between you and your financial advisor.

Historically, retirement planning has relied on assumptions about the future, including life expectancies, investment returns, inflation, and retirement expenses. However, new research is challenging conventional assumptions.

People are living longer — much longer. From 1920 to 2021, average life expectancies for Canadians rose by more than 20 years — to 79.3 years for men and 84.0 for women from 58.8 years for men and 60.6 for women, according to Statistics Canada. Furthermore, there were 3,522 centenarians in Canada in 2001, and 13,485 in 2022. That number is expected to keep growing.

These figures are crucial in determining how long you can expect to rely on your retirement income. However, longevity planning necessitates a deeper understanding of what retirement means to clients.

This isn’t your grandmother’s retirement, It’s going to be longer and likely way more active, and you are going to want to live independently for longer, so it’s going to be more expensive.”

While statistics and mortality tables are important tools, they are based on averages. But as advisors, we’re generally dealing with a relatively small subsection of the population that, in pretty much every category, has been above average — careers, travel, health care. So, guess what? Their life expectancy is probably going to be above average as well.

According to insights from the MIT AgeLab, people should prepare for a retirement that will run about 8,000 days — or almost 22 years. Pretty much as long as most people spent in school and about the same again in their primary careers.

It is suggested that most clients should use 100 as their target age. And if they’re female, don’t smoke, and have a good family medical history, he said they could live even longer.

New research published by the University of Toronto Press addresses the importance of considering joint and survivor life expectancies for couples in Canada when making decisions about retirement, saving, and long-term care.

This analysis shows that a heterosexual Canadian couple with both partners aged 65 can expect, on average, to live for another 14.1 years. If the wife survives her husband, she will live for 11.6 years, on average, after her husband’s death; if the husband outlives his wife, he can expect to live for an additional 8.3 years, according to the report.

Without understanding joint and survivor life expectancies, the report stated, couples may mistakenly use individual life expectancies to project couple mortality and inform decisions — thereby underestimating the number of years for which they need to plan.

I try to include both partners in the planning process because the reality is, at some point, one of them may have to understand what the plan was and be going it alone.

My first rule of thumb is to enjoy life and do the things that make you happy. These can be taken away from you at any time.

Most of my clients will have created their first projections plan.

It has many preliminary assumptions and will be adjusted as we get closer to the permanent vacation. Each time we connect and review, there will be more fine-tuning and additional contributions and adjustments.

Economic factors such as real estate trends, inflation rates, and financial market conditions evolve, influencing his planning parameters.

We would have started with an inflation rate of 3% This figure is derived from averaging the 30-year Government of Canada bond break-even inflation rate, historical inflation rates, and the Bank of Canada’s inflation target.

Discretionary spending, such as on luxury travel, is another crucial element. As clients age, their priorities often shift from extravagant experiences to health-related expenses or in-home care.

As with any financial planning, the earlier these conversations begin, the better.

I look forward to our next review and focusing on the permanent vacation.

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