Life Expectancy, Longevity and Retirement Planning

Life expectancy has steadily increased over the ages. It is defined as the number of years a person is expected to live at any given age. It is influenced by factors such as gender, child mortality rate and disease epidemics.

A typical chart averaged for males and females in North America looks like this:-

life chart

Statistics show that the older you are the longer you are likely to live. For example in Canada in 2015, life expectancy at birth is 81.1 years and at 65 it is 85.2 years.

It is not the same thing as longevity which simply means living to an advanced age. Obviously there's a link between the two because as life expectancy climbs, it stands to reason that some individuals will attain lifespans longer than previously recorded.

From the 1950’s to the 1970’s life expectancy at birth in North America remained close to 70 years. Living to age 90 was considered to be at the upper bounds of longevity. This age was adopted by many financial advisers as a workable limit for calculating projections. 

In 2015 More than 50,000 people across North America had already lived past age 100. The number of centenarians in Canada is rising and Statistics Canada predicts there will be more than 17,000 of them by 2031. As of 2011, there were 17.4 centenarians for every 100,000 Canadians. Financial advisers are beginning to adopt age 100 as the limit for their projections.

The interesting thing is that the age of retirement is still recognized as 65 by most people. 65 was the age of entitlement chosen by then German Chancellor Bismarck for the first official old age pension plan in Europe in 1889; a time when life expectancy at birth was closer to 50. Few people would have lived beyond 65 making the plan fairly easy to maintain.

Obviously there's a huge difference in the mathematics from Bismarck’s time. Life expectancy has changed from 50 which was 15 years less than the retirement age of 65, and is now 80 which is 15 years more! Considering this remarkable change in the numbers, it's no surprise that the concern today for many retirees is running out of money.

Some advisers calculate a certain percentage of their client’s portfolio to draw out every year, say 4%. Others suggest a dollar amount to suit a lifestyle which is adjusted annually for inflation. Another approach sets a minimum and a maximum limit withdrawal percentage say 2.5% and 5%; the number for the current year being modified by the spending patterns of the previous year.

Everyone’s situation is entirely unique; an acceptable level of comfort and tolerance being the goal for each individual. One's lifespan is affected by personal factors and it still remains largely unpredictable. What is certain is that everyone has a greater chance of living longer today than in the past.

Go-Go, Slow-Go and No-Go

Most people as they age tend to spend less money each year.  Some advisers have suggested three distinct stages:- Go-Go (65 to 80), Slow-Go(80 to 90) and No-Go (90 and over).

Go-Go is the period when people travel a lot, spend on entertainment a fair amount and have active pursuits such as golfing or hiking. However, their vehicle use is likely to reduce somewhat and they will probably buy fewer clothes because they are less likely to be still working full time.

Slow-Go is the age when people travel less and are more content to stay in one place. They may begin to cut down on their active pursuits and as a result have a reduced annual expenditure.

No-Go is the time when people slow down a lot and choose their interests and activities carefully to suit generally lowered energy levels. Their spending will be even more reduced.

If you have to go into expensive care remember that statistically, less than 10% of people ever do so and the average length of stay is two and a half years. Let’s say it costs $75,000 per year. Over two and a half years that would be $187,500. If you own a home the equity in it is likely to cover the cost.

If you're fortunate enough to have two million dollars in savings or you have a generous indexed pension or both you don’t have to worry about out-living your means. Unless you have a very lavish lifestyle, your annual income is likely to be adequate no matter how long you live.

Dying broke may be a neat idea but it’s awfully difficult to get the timing just right! Armed with these thoughts it’s a good idea to discuss strategies with your financial adviser to find what is right for you.