A New Horizon:
Planning for 100
Have you ever asked yourself how long you will live? Call it superstition or just plain fear of death, many of us avoid the topic like the plague. When we are young, we imagine we’ll live forever; as we age, the end seems all too possible.
Interestingly, more than 50% of Canadian adults don’t have a will, with one of the most pervasive reasons being that they don’t like thinking about death. But to consider the question rationally – with all its implications – is more important than ever. That’s because Canadians are living longer lives, driven by scientific, environmental, medical and lifestyle improvements. Longer lives are leading Canadians to rethink their investment plans:
A Mixed Blessing - While it’s a blessing for most of us, a longer life also presents challenges. Outliving retirement savings is one – and it’s the greatest fear of pre-retirees, according to a recent RBC poll. Health problems are another: out-of-pocket medical costs after age 65 are estimated at $5,400 annually – and are likely to keep rising. This means that aging Canadians require their investment portfolios to support longer lifespans while generating cash-flow to cover potentially increasingly higher living costs.
Rethinking Investment Time Horizon - For many years, a key investment planning question was “When do you plan on retiring?” That timeframe – from today to the assumed year of retirement – became the standard investment time horizon for an investment portfolio. It largely determined the degree of risk you could prudently take: the longer your time horizon, the more risk you could take to ride out the ups and down of the markets and realize potentially higher growth over time.
Towards the end of your time horizon, you would gradually ratchet down risk, eventually transferring to assets with little to no risk, such as GICs and bonds. The presumption being, once you hit retirement, you couldn’t afford to take any risk, as you would need your savings to fund your retirement.
This strategy made more sense when the average Canadian retired at 65 and was only likely to live for another 5-8 years. But a new approach is required with Canadians today retiring on average at and living into their 80s and 90s (and an increasing number to 100 and beyond).
Planning To – And Through – Retirement - Today, your retirement portfolio should ideally focus on two things:
1. tax-efficient cash flow for a well-funded retirement lifestyle
2. a prudent combination of capital preservation and growth to maintain the long-term value of your portfolio through your golden years, while also offsetting the ravages of inflation.
Time Is On Your Side - Fortunately, longer life spans mean longer investment time horizons, allowing today’s retirees to take advantage of the long-term growth of equities to meet their preservation and income needs. Whether or not you live to 100, considering the odds and planning ahead can help ensure that your golden years are just that. To learn more, please contact us today.
Susan Gottlieb is VP, Wealth Advisor & Associate Portfolio Manager with RBC Dominion Securities Inc. (firstname.lastname@example.org)
1 RBC 2017 Financial Independence in Retirement poll. 2 Anna Sharratt, Hidden health care costs can be a shock for retirees, The Globe and Mail, Nov. 18, 2015. Statistics Canada. 2015. This information is not intended as nor does it constitute tax or legal advice. Readers should consult their own lawyer, accountant or other professional advisor when planning to implement a strategy. This information is not investment advice and should be used only in conjunction with a discussion with your RBC Dominion Securities Inc. Investment Advisor. This will ensure that your own circumstances have been considered properly and that action is taken on the latest available information. The information contained herein has been obtained from sources believed to be reliable at the time obtained but neither RBC Dominion Securities Inc. nor its employees, agents, or information suppliers can guarantee its accuracy or completeness. This report is not and under no circumstances is to be construed as an offer to sell or the solicitation of an offer to buy any securities. This report is furnished on the basis and understanding that neither RBC Dominion Securities Inc. nor its employees, agents, or information suppliers is to be under any responsibility or liability whatsoever in respect thereof. The inventories of RBC Dominion Securities Inc. may from time to time include securities mentioned herein. RBC Dominion Securities Inc.* and Royal Bank of Canada are separate corporate entities which are affiliated. *Member-Canadian Investor Protection Fund. RBC Dominion Securities Inc. is a member company of RBC Wealth Management, a business segment of Royal Bank of Canada. 18_90083_068 (10/2018)