Financing Your Future
Dramatically longer lifespans will change the way we save for retirement. If we’re going to live a few extra years, how will we afford to pay the bills?
The biggest fear most Canadians admit to is not of spiders, public speaking or filling out their income tax. Poll after poll shows that it’s outliving their savings in retirement.
So, in an effort to take the sting out of this financial phobia, we marshal our retirement savings as best we can, using a combination of government pensions, private pensions (for the lucky few) and smart investment strategies, then crossing our fingers the markets hold and we’ll have enough to cover expenses in our 70s, 80s and 90s.
But if the prophecies of the radical life-extension theorists come true – and some of us live to celebrate our 120th birthday – how the heck are we going to save for 60-some odd years in retirement?
Before he even answers that, Michael Nuschke, a full-time retirement planner and part-time futurist, says that we have to completely rethink our current views on retirement.
“Advances in health care are accelerating along with advancements in technology,” says Nuschke from his Halifax office. “The tools to slow – even reverse – aging will be here in another 20 years. This isn’t science fiction.”
Nuschke lays out his vision in his online report The End of Retirement as We Know It (free download at www.retirementsingularity.com). In it, he asks us to cast our mind into the future when advances in science, nutrition and health care begin to take hold and extend our lifespans. It will be a time when age 80 won’t mean falling prey to the typical decline of mind and body that we normally associate with old age. Instead, he suggests we’ll be healthy, energetic and willing and able to keep learning – and keep working. You might even be in better shape, stronger mentally than you are today.”
You won’t hear this kind of talk from your typical financial planner. Perhaps that’s why Nuschke styles himself a “retirement futurist” and is already educating his younger clients to keep these developments in mind as they plan for retirement.
In fact, he says the whole notion of the normal life cycle we’ve grown accustomed to – education, work, retirement – will be turned on its ear. “You still might have a retirement, but it will be a planned retirement of two or three years,” brief hiatuses he calls mini-retirements, where we’ll take time off to recharge and think about what we’re going to do next, train for that and then return to the workforce.
While the full ramifications of this brave new world might not be borne out in our lifetimes (and, to be fair, Nuschke admits “no one knows how the future is going to play out”), there is no argument that life expectancies are slowly creeping up. Last year, the Canadian Institute of Actuaries released new mortality tables that suggested that men and women are living 2.5 to three years longer than was previously predicted.
So he’s started advising many of his clients to plan for what likely lies ahead: “You have to look into the future and ask: How am I going to adjust financially so this can work?”
That means planning for an extra two or three years of life on top of what you had previously expected. The key with this kind of planning is, of course, to build up a continuous income stream that will generate revenue to pay day-to-day expenses without depleting your capital. Nuschke offers up a few ideas on how we can accomplish that.
- Wait to collect CPP and OAS “By deferring, these government pensions will start at much higher levels [when you do begin collecting]. Maximize the amount from these, the soundest, most secure sources of income.”
- Consider a life annuity You hand over a lump sum of money to an insurance company that pays it back to you over your life. “You can also buy annuities that are indexed,” says Nuschke, though these are more expensive.
- Look for income generators Consider buying assets that produce income like a rental property or invest in dividend-paying stocks. “Real Estate Investment Trusts (REITs) have an extraordinarily good record of increasing distributions,” he says.
- Add risk to your portfolio Fixed income investments aren’t generating returns like they used to. But there should continue to be dramatic growth (i.e., investment opportunities) in tech and health-care companies that ride the life extension wave.
- Invest in yourself Cultivate and maintain your good health and remain current with your skill sets. By remaining healthy and up to date, you can stay in the workforce longer.