Canadians projected to live longer, but can they afford it?
The bottom line on a greater life expectancy is bigger nest eggs, delayed retirement
A new study that projects Canadians born in 2030 will live even longer than the previous generation has prompted concerns over saving enough to enjoy those bonus years.
U.K. researchers' study of 35 industrialized countries was published in The Lancet on Tuesday. It forecasts that a girl born in Canada in 17 years will live to 87 years and a boy to nearly 84 years. The life expectancy for females born in 2010 is nearly 84 years, and just over 79 for males.
Longer lifespans will inevitably change how we live, our saving and retirement goals, and how governments make decisions — which could cause challenges, say experts.
"If you take a look at the state of affairs in Canada with housing prices where they are, student loan balances being higher than they've ever been, it's a real struggle for young Canadians to even think about retirement planning because they're so focused on the here and now," says Preet Banerjee, a Toronto-based personal finance expert.
- Canadians born in 2030 forecast to live 4 years longer than previous generation
- Global life expectancy rises, but people remain sicker for longer
Banerjee and other experts weigh in on what else we can expect:
Farewell early retirement, hello crowded workforce
Early retirement goals — and indeed, the idea there's work freedom at age 55 — are no longer a reality for many Canadians. Ottawa-based finance expert Judith Cane, says many of her clients have part-time jobs to help bolster their retirement savings.
Cane urges saving with the idea of living to 95.
"If they retire at 55, they might live for another 40 years. If they don't save enough money, there's no way they'll be able to sustain the lifestyle," she said. "Forty years is a long time."
Delaying retirement will inevitably translate into greater competition for jobs. The trend is already apparent, according to Statistics Canada, which found that more than half of workers 55 to 64 who left long-term jobs between 1994 and 2000 had found other jobs within a decade.
Million-dollar nest egg no longer enough
Saving $1 million for a comfortable retirement used to be a lofty goal, but now, it may not be just enough.
What someone will need in retirement incorporates lots of factors, including your living costs, lifestyle (do you plan to travel, for instance), personal and work goals, health needs and whether you have any dependents — which should all be included in a financial plan that you assess regularly.
Greg Deacon, a Toronto-based financial planner, says he advises his clients to plan to spend about $50,000 per year from their own assets to live comfortably. Money received from Old Age Security and the Canada Pension Plan should be used to cover taxes, he says.
"As a quick number in today's investment environment, $1 million is a generally accepted number to provide a minimum goal of providing $50,000 per year for the rest of you retirement life, assuming you start at age 60," Deacon said. "If you postpone until age 65 and you still need just the $50,000 then obviously the amount of capital shrinks, but because our life expectancy is increasing, it has to be readjusted."
Yet, fewer than one-quarter of tax filers contributed to a Registered Retirement Savings Plan (RRSP) in 2014, according to Statistics Canada. In the third quarter of 2016, the household savings rate — the difference in a household's disposable income and its spending expenditures — was 5.8 per cent. In 1982, the rate ticked as high as 19.9 per cent.
"When I first started in this business almost 30 years ago, you used to take 75 per cent of what their expenses were when people were working and then you would take 75 per cent of that and that would be what they would be spending in retirement," says Cane.
The world has made great progress in health, but now the challenge is to invest in finding more effective ways of preventing or treating the major causes of illness and disability.- Prof. Theo Vos, the Institute of Health Metrics and Evaluation, University of Washington
"Now it's not like that at all. It's 100 per cent."
The current real estate situation is so competitive that people are not necessarily saving by downsizing.
"I have clients who sold a house here and it cost them $200,000 more to get the condo that they wanted than what they got for their house," she said.
Banerjee and other experts encourage starting saving as soon as possible.
"The most important thing you can do, especially if you're younger, is get that savings habits started. Even if it's $10 a week, $50, don't think it's too small," he said. "Just get it started. The more you make it a habit, the more effective and powerful it will be."
National debt might surge
A higher life expectancy would also put greater pressure on Canada's health-care and pension infrastructure, some observers warn.
A 2015 study published in The Lancet found that with great life expectancy comes dealing with illness and disability for longer periods of time. The study warned that preventing and treating chronic illness is of prime importance.
"The world has made great progress in health, but now the challenge is to invest in finding more effective ways of preventing or treating the major causes of illness and disability," Theo Vos, a professor at the Institute of Health Metrics and Evaluation at the University of Washington who led the analysis, told Reuters.
The ratings agency Standard & Poor's warned in a 2012 report that Canada and other G20 countries were at risk of credit downgrades if they didn't tame increases in health-care costs in relation to the aging population.
"Steadily rising health-care spending will pull heavily on public purse strings in the coming decades," the report said.
"If governments do not change their social protection systems, they will likely become unsustainable."
The report suggested that pensions, health care, unemployment insurance and long-term care would push up Canada's net debt by 260 per cent from 2030 to 2050.
Some critics have also pushed for Canadian pension reform.
The previous Conservative government under Stephen Harper changed the age of eligibility for Old Age Security to 67, but the current Liberal government under Justin Trudeau reinstated it to 65.
Other countries have also taken living longer into account in their pension changes. The U.K., for instance, will begin bumping up the state pension age to 66 in 2018, and Australia aims to raise its pension age to 67 by 2023.
More divorces, delayed childbirth
Longer lifespans have also been tied to notable social changes, says Daniel Krupp, an adjunct professor at Queen's University in Kingston, Ont., and fellow at the One Earth Foundation.
Krupp, who published a study in 2012 on life expectancy and social trends in Canada, says residents in areas with higher life expectancy behave differently — they tend to delay marriage and childbirth, and pursue more education —than individuals in regions with a shorter average lifespan.
"These are effects we think have to do with people's expectations of the world they live in," Krupp said.
"If you're born into a world that looks harsh, you should behave in ways that are different from those born into a world that looks safe."
Krupp found that divorce rates are higher and abortions more prevalent in regions with a high life expectancy.
"The longer you live, the better odds you have at ending a relationship. You may be willing to look around at other options if you know that you have more time to start a new relationship," he said.