Although this is not an easy question to ask, the knowledge of lifespan is critical in planning for retirement and investing.
How long you will live influences the conversation around risk and ultimately determines how long we can keep you invested in stocks vs bonds. Stocks position you for more growth, so if you are young and need your money to grow, or you are older with limited resources and need your money to grow, then we will have a higher weighting of stocks in your portfolio. If your health and lifespan become compromised, then we will move you into bonds.
When we start conversations around lifespan, we notice that people either greatly underestimate or overestimate how long they will live. In most cases, it pays to plan for the worst and hope for the best. When considering age, this can look like frontloading fun experiences earlier on in retirement and working through that bucket list. You hope to live a long life but in case your health takes a turn and end of life comes knocking, at least you have had some fun. The ‘worst’ would be dying early with hopes and dreams unfulfilled. When it comes to managing your wealth, the ‘worst’ is living much longer than expected and running out of money. With your financial plan we need to apply a rosy shaded pair of glasses when we think about the potential to live a long life.
Our life expectancy at birth is much different than our life expectancy at 65. As you read that, you will be thinking well obviously, it is shorter at 65 than at birth! In some respects yes, in others no!
According to Statistics Canada, a baby born between 2014 and 2016 has a life expectancy of 79 years (both genders).
Someone who is age 65 between 2014 and 2016 has a life expectancy of 84 years….5 years greater than babies. As people reach age milestones, it shows a resiliency against common death factors and their life expectancy can make unexpected improvements. We continually need to recalibrate our expectations the longer you live.
Average life expectancy knowledge can be particularly helpful when we discuss the deferral options of CPP and OAS. Using reasonable statistics can point us toward the decisions that benefit us the most.
https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1310006301