Gillian Stovel Rivers wants to replace the term “retirement planning” with “longevity planning.” Retirement, as a term, often oversimplifies a complex phase of life into a singular event, said Stovel Rivers, senior wealth advisor with Surround Wealth Advisors, a unit of Assante Financial Management Ltd., in Burlington, Ont.
The traditional terminology also can cause financial advisors to overlook the nuanced journey clients embark on in their later years.
“When we dig into the details of longevity and what it means for a person,” she said, “it creates a stronger and more meaningful bond between advisors and clients.”
Historically, retirement planning has relied on assumptions about the future, including life expectancies, investment returns, inflation and retirement expenses. However, Stovel Rivers noted, new research is challenging conventional assumptions.
People are living longer — much longer. From 1920 to 2021, average life expectancies for Canadians rose by more than 20 years — to 79.3 years for men and 84.0 for women from 58.8 years for men and 60.6 for women, according to Statistics Canada. Furthermore, there were 3,522 centenarians in Canada in 2001, and 13,485 in 2022. That number is expected to keep growing.
These figures are crucial in determining how long your clients can expect to rely on their retirement income, Stovel Rivers said. However, longevity planning necessitates a deeper understanding of what retirement means to clients.
“This isn’t your grandmother’s retirement,” said Darren Coleman, senior portfolio manager with Coleman Wealth, a unit of Raymond James Ltd., in Oakville, Ont. “It’s going to be longer and likely way more active, and [clients are] going to want to live independently for longer, so it’s going to be more expensive.”
While statistics and mortality tables are important tools, Coleman said, they are based on averages. But “as advisors, we’re generally dealing with a relatively small subsection of the population that, in pretty much every category, has been above average — careers, travel, health care,” he said. “So, guess what? Their [life expectancy] is probably going to be above average as well.”
According to insights from the MIT AgeLab, an organization Coleman closely monitors, people should prepare for a retirement that will run about 8,000 days — or almost 22 years. “Pretty much as long as most people spent in school and about the same again in their primary careers,” Coleman said.
He believes most clients should use 100 as their target age. And if they’re female, don’t smoke and have a good family medical history, he said they could live even longer.
New research published by the University of Toronto Press addresses the importance of considering joint and survivor life expectancies for couples in Canada when making decisions about retirement, saving and long-term care.
This analysis shows that a heterosexual Canadian couple with both partners aged 65 can expect, on average, to live for another 14.1 years. If the wife survives her husband, she will live for 11.6 years, on average, after her husband’s death; if the husband outlives his wife, he can expect to live for an additional 8.3 years, according to the report.
Without understanding joint and survivor life expectancies, the report stated, couples may mistakenly use individual life expectancies to project couple mortality and inform decisions — thereby underestimating the number of years for which they need to plan.
Beyond the numbers, Coleman said, advisors need to make sure both spouses grasp the family’s finances. “We spend a lot of time making sure both partners know how to drive the financial car,” he said. “Because the reality is, at some point, one of them may have to drive alone.”
For Brady Plunkett, portfolio manager with PWL Capital Inc. in Ottawa, an effective approach to retirement planning is to focus on living a good life, and then use financial variables to drive that goal.
To establish a foundation for his clients, he begins by creating “preliminary assumptions” using FP Canada’s projection assumption guidelines and mortality tables. He then fine-tunes these assumptions through meaningful conversations with clients.
“We start with the most common assumptions and then we make that into a conversation with our clients,” Plunkett said.
Plunkett recognizes these assumptions are subject to change over time. Economic factors such as real estate trends, inflation rates and financial market conditions evolve, influencing his planning parameters.
Currently, Plunkett uses an inflation rate of 2.4% before factoring in administrative and investment-management fees and taxes. This figure is derived from averaging the 30-year Government of Canada bond break-even inflation rate, historical inflation rates and the Bank of Canada’s inflation target.
When selecting a market return assumption, Plunkett relies on tables developed by PWL. “Asset allocation is a huge component of our service, so our market return assumptions will change depending on a client’s needs and willingness to take on risk,” he said.
Stovel Rivers continually monitors several factors specific to each client’s situation. For example, she ensures her clients’ redemption rate does not exceed the rate of growth. Discretionary spending, such as on luxury travel, is another crucial element, she said. As clients age, their priorities often shift from extravagant experiences to health-related expenses or in-home care.
As with any financial planning, Stovel Rivers said, the earlier these conversations begin, the better. Longevity planning requires that the advisor “strike while the iron is hot and [the client is] still feeling a little bit invincible.”