Can living longer cause you a pain – in the pocketbook?
We all hope to enjoy our golden retirement years with the blessing of good health.
But could this blessing – a long life – actually be a problem in disguise?
New research from the World Economic Forum, covered recently by the Montreal Gazette, suggests the living longer creates the risk of outliving your retirement money.
“Today, one of the most taxing challenges that is often left out of the conversation is the impact of the change in average lifespan,” the Gazette reports. “According to Statistics Canada, today, the average Canadian will live until age 82, with the number of centenarians — those reaching the age of 100 — continuing to grow,” the newspaper notes.
And those of us who are born more recently will see ever greater longevity in life, the article continues, noting that research from the Lancet suggests a girl born in 2030 will live to 87, a boy to 84. That’s up sharply even compared with life expectancy data from 2010, the Gazette reports.
OK, so we are all living longer. So what’s the downside to that?
“The World Economic Forum suggests that today, Canadians will outlive their retirement savings by more than 10 years,” the article warns. The article recommends that people work with financial advisers to develop a plan to help insure against this risk.
What would such a plan contain?
The article notes that in the UK, many retirement programs available through work offer “automatic adjustments,” such as an automatic increase in savings contributions when there’s a raise or change to a better-paying role. Other tactics include looking at investments that offer lower fees, since high fees can eat away at the value of your savings.
Some organizations offer “lifestyle and investment modelling tools” to help individuals choose a savings strategy that aligns with how they see their latter years unfolding.
But the article concludes that while such measures are a good start, more work needs to be done in this growing area.
“It’s clear that there is no simple solution to retirement savings,” the article states. “However, one thing we know for certain is that driving change requires increased demand. To manage finances successfully, individuals should understand the decumulation options available to them, how their money is being distributed, and what happens to their savings when they retire.”
This is very sensible advice, since most of us focus on saving as much as we can for retirement, but then have no plan in place to turn the savings into an income stream. Imagine if you got paid once a year – how would you handle your bills, your rent, and so on? You’d have to make that money last until the next year. That, in a nutshell, is what “decumulation” refers to – taking a chunk of money out of a retirement savings vehicle and then living on it.
There’s another option available to ensure you don’t run out of money. You can use some or all of your savings to purchase an annuity. The annuity will provide you with a monthly payment for the rest of your life. This makes planning easier, and you can’t run out of your savings. This option is available through the Saskatchewan Pension Plan, and the annuities they offer come in various different forms. Check it out today.
|Written by Martin Biefer
|Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing, classic rock, and darts. You can follow him on Twitter – his handle is @AveryKerr22|