According to reports from market researcher Ipsos and the Canada Revenue Agency, Canadians aren’t saving enough, they’re spending too much and living much longer than they did 30 years ago. These factors combined—known as the longevity effect—can create a shaky financial foundation leading into the retirement years.
When I started at Island Savings, many of my members were working on the premise they would need about 15 years of retirement savings. The new reality is very different. Now, many retirees are faced with using the same amount of savings and stretching them at least twice as far.
StatsCan reports average life expectancy at birth is now 80 years for men and 84 for women, compared to 69 years and 76 respectively in 1970. While the government’s recent expansion of the Canadian Pension Plan (CPP) is a step in the right direction to closing this retirement savings gap, CPP should not be relied on to provide an adequate amount to meet your basic needs.
Saving can be hard. But there are some pretty tough realities to be faced if you exhaust your funds before you planned to. The simple truth is we need to save and plan more thoughtfully to compensate for our longer, healthier lives.
There are some things you can do now to offset the effect longevity will have on your retirement nest egg:
- Put more money away—at least 10 to 15 per cent of earnings should go to your future self
- Focus on building an additional emergency savings fund containing three to six months’ worth of salary to cover unexpected expenses
- Protect yourself in the form of supplemental critical illness and disability insurance
The reality is you’re far more likely to suffer a “dread” illness—cancer, heart attack or stroke—that leaves you with increased medical expenses then you are to pass away unexpectedly. Insurance or employer-paid health plans may help cover costs, but we must be more thoughtful and plan for some of those worst case scenarios.