Planning for the Long, Long-Term

Most people looking to implement a financial plan are making decisions with the long-term in mind. While what “long-term” means tend to vary depending on factors like age, individual and family goals, it’s safe to say most planners and their clients would agree that long-term is usually measured in years, not months. Whether it’s the young professional first considering a still-distant retirement age, or a retiree trying to leave a financial legacy, the idea is the same: plan today for an uncertain future.

What often gets lost in peoples’ perspectives is just how long the long-term can potentially be.

Life Expectancy in the 21st Century

It’s probably a reasonable claim that in recent decades each generation in the Canada was able to live longer than the preceding one.

What’s both amazing and challenging at the same time, at least from a financial planning perspective, is that over half of North Americans may be underestimating their own life expectancy. This coincides with the fact that life expectancies are rising at a remarkable rate.

Recent research forecasts that an average male born in Canada in 2012 has a life expectancy of 80 years, and females 84 years; which is up dramatically from Canadians born in 1990, who could expect an average life span of 74 for males, and 81 for females.1

How Does This Longevity Information Impact Financial Planning?

Put simply, this means that a couple in their 40’s or early 50’s who are making a financial plan need to define their long-term as being at least 40 years. If this same couple also wants to leave an estate for their children, and current or future grandchildren, this means the financial plan may need to take into account a time horizon of 50 years or more!

Thankfully making specific predictions about what the future will look like in 40+ years is not the purpose of a financial plan.

For most of us the real question a financial plan tries to answer is “based on the financial decisions we make today is it reasonable to expect that we will meet our goals for the future?”

What Steps Can You Take Today?

Depending on your individual circumstances and goals it may make sense to treat the possibility of living to an age beyond what you had planned for, as a risk that needs to be insured against. This “longevity risk” can be managed with a variety of strategies. Selecting the right age to start taking advantage of RRSP’s, insurance and annuity products, and carefully managing debt are all legitimate ways to approach the risk of longevity.

But what about specifics, like exactly how much longevity insurance is needed? What is the right age to tap RRSP’s?

A good planner can help answer these and other long-term related questions, as there’s no one-size-fits-all answer. This is all the more true when planning for decades; a lot can happen between the day you first make a plan and all the life events (planned and unplanned) that take place each day after. For this reason it makes sense to work with a professional who can help you take the right steps toward your long, long-term goals.