What Happens if You Live Longer Than You Expect?

Clayton Brown

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21 Jul 2022

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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.

Probability of Survival

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:

Probability of Survival

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

Probability of Survival
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. It provides income for life (helping solve longevity risk) while investing in a balanced and globally diversified portfolio with historically low volatility (managing market risk).

Speak with your advisor to see how Longevity can fit into your portfolio, or contact us if you’d like speak with our retirement income specialist.


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

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