What Happens if You Live Longer Than You Expect?

Wouldn’t it be nice if there was a way to use your investments to hedge against the financial risk of living a longer life – a.k.a. longevity risk?

But wait, you’re not concerned about living a long life? Perhaps the age that defines a long life to you might be quite different for a friend. Take a minute to consider: how long do you think you will live?

Okay, a bit morbid, but stick with us. With that number in mind, let’s dive into the data for Canadians and see if they line up with your best guess.

If you’re between the ages of 65 and 80, did you realize there was a 50% chance – the flip of a coin – that you would live past 90? What about having a 10% chance of living past age 100 for women? The recent census showed the centenarian population grew 16% between 2016 and 2021.2 That’s 9,500 people, most of whom probably never thought they would get there.

If age 100 seems unlikely for you, consider the 85+ population. They grew 12% (more than double the overall population) between 2016 and 2021. More than 861,000 people in this country are now 85 or older, with projections showing that this could grow to 2.5 million over the next 25 years.3

As you get into your eighties and nineties, the last thing you want to worry about is running out of money. You may think if you live that long, the odds are that you won’t live much longer. But the statistics suggest otherwise:

If you’re more of a visual learner, here is the above data tables pulled together in chart format:

For illustrative purposes only

 

Let’s first acknowledge one thing: living a long life is excellent! At the same time, though, it can create a real financial strain, and there are few solutions for Canadians to tackle it. For those rare few who have a defined benefit pension plan, you have some degree of real longevity protection built into your retirement.

A study just released by the Center for Retirement Research at Boston College found that retirees do not accurately understand their true retirement risks.4 They surveyed approximately 20,000 U.S. households over the age of 50 and identified five risks in retirement:

Longevity Risk (living longer than expected)
Market Risk (volatile investment and housing prices)
Health Risk (medical costs and care needs)
Family Risk (family support, death, divorce)
Policy Risk (government support)

The top subjective risk (perceived risk) was Market Risk, while the top objective risk (statistical/measurable) was Longevity Risk. This means people fear the wrong thing: we’re afraid of markets not performing, while the real threat to spending throughout retirement is actually living longer than we anticipated.

The outcome reflects retirees’ exaggerated assessments of market volatility while being more pessimistic about their chance of surviving longer.

The Longevity Pension Fund is the only mutual fund accessible to all Canadians that addresses both issues: income for life (helping solve longevity risk) while investing in a balanced and globally diversified portfolio with historically low volatility (managing market risk). Its flexibility also provides investors with the freedom to change their minds and access their unpaid capital at any time.*

To learn more about Longevity, visit our website.

References
1“Projection Assumption Guidelines,” FP Canada: https://fpcanada.ca/docs/default-source/standards/2022-pag—english.pdf
2“Number of Canadians living to 100 hit a record high, new census figures show,” CBC: https://www.cbc.ca/news/politics/canadian-centenarians-census-2021-1.6436494
3“A portrait of Canada’s growing population aged 85 and older from the 2021 Census,” Statistics Canada: https://www12.statcan.gc.ca/census-recensement/2021/as-sa/98-200-X/2021004/98-200-X2021004-eng.cfm
4“How well do retirees assess the risks they face in retirement,” Center for Retirement Research at Boston College: https://crr.bc.edu/wp-content/uploads/2022/06/IB_22-10.pdf

*The Fund has a unique mutual fund structure. Most mutual funds redeem at their associated Net Asset Value (NAV). In contrast, redemptions in the decumulation class of the Fund (whether voluntary or at death) will occur at the lesser of NAV or the initial investment amount less any distributions received. You can always access the lesser of unpaid capital (initial value of your investment less any income payments made) or your net asset value. Fees may apply.

Commissions, trailing commissions, management fees and expenses all may be associated with investment fund investments. The prospectus contains important detailed information about the investment fund. Please read the prospectus before investing. There is no assurance that any fund will achieve its investment objective, and its net asset value, yield, and investment return will fluctuate from time to time with market conditions. If the securities are purchased or sold on a stock exchange, you may pay more or receive less than the current net asset value. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated.  The Fund has a unique mutual fund structure. Most mutual funds redeem at their associated Net Asset Value (NAV). In contrast, redemptions in the decumulation class of the Fund (whether voluntary or at death) will occur at the lesser of NAV or original purchase price less distributions paid.

The Longevity Pension Fund is managed by Purpose Investments Inc. The document is not investment advice, nor is it tailored to the needs or circumstances of any investor. Talk to your investment advisor to determine if the Longevity Pension Fund is right for you and always read the prospectus before investing. Nothing on this document shall be considered a solicitation to buy or an offer to sell, or a recommendation for, a security, or any other product or service, to any person in any jurisdiction where such solicitation, offer, recommendation, purchase or sale would be unlawful under the laws of that jurisdiction. No securities commission or similar regulatory authority has reviewed this document and any representation to the contrary is an offence. Information contained in this document is believed to be accurate and reliable, however, we cannot guarantee that it is complete or current at all times. The information provided is subject to change without notice.

Certain statements in this document are forward-looking. Forward-looking statements (“FLS”) are statements that are predictive in nature, depend on or refer to future events or conditions, or that include words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” intend,” “plan,” “believe,” “estimate” or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS. FLS are not guarantees of future performance and are by their nature based on numerous assumptions. Although the FLS contained in this document are based upon what Purpose Investments believe to be reasonable assumptions, Purpose Investments cannot assure that actual results will be consistent with these FLS. The reader is cautioned to consider the FLS carefully and not to place undue reliance on the FLS. Unless required by applicable law, it is not undertaken, and specifically disclaimed, that there is any intention or obligation to update or revise FLS, whether as a result of new information, future events or otherwise.