Longevity and your money

For financial planning purposes I think it makes sense to adjust your Life Expectancy projections upward by perhaps ten years. Here’s why

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(Thomas Barwick/Getty Images)

(Thomas Barwick/Getty Images)

I’ve been reading a lot about longevity recently, in preparation for an upcoming talk I’ll be giving for the National Elder Planing Issues Conference in Niagara Falls. Believe it or not, if you search Amazon.com for books containing the keyword longevity you’ll come up with more than 5,500 titles!

The thrust of many of them is that there have been more gains in Life Expectancy in the past century than in the preceding two millennia. Keep in mind that Life Expectancy is not the same as the term Lifespan. Lifespan is the maximum age possible for the species, in the case of humans 122, the age to which France’s Jeanne Calment lived.

By contrast, Life expectancy is the age to which exactly half of a given population survives. The concept is like the median: half below, half above. A child born in 1950 had a Life expectancy of 67; someone aged 65 in 1950 had a Life expectancy of 78.9.

In recent blogs in this space, we’ve looked at the financial side of rising Life Expectancy: annuities, tontines and true pensions like employer-sponsored Defined Benefit plans. One of the terms I discovered in the Longevity literature is Workspan. It follows that if you’re reckoning on living, say, ten years longer than you once might have expected, and that most of the extra years are healthy ones, you might wish to work a little longer.

Certainly, governments around the world see a logical remedy to the rising pressure on schemes like America’s Social Security system: bump up the retirement age, which means in effect lengthening the workspan.

Now it’s easy to get carried away with the idea of ever-rising longevity. While currently only one person in 10,000 reaches 100 and centenarian status, some enthusiasts believe their numbers will soar by midway in the 21st century, while the lifespan for the hardiest of us pushes up to 150. You can even find some speculating on Methusalah-like ages of multiple 100s and others fantasying about immortality.

I don’t think that’s realistic, certainly not for aging baby boomers on the cusp of traditional retirement. But I do think that for financial planning purposes it makes sense to adjust your Life Expectancy projections upward by perhaps ten years. Maybe split the difference and decide to extend your Workspan by five years, which would have the effect of significantly raising your ultimate payouts from employer pensions, CPP and OAS. And for those with capital-appreciation plans like DC pensions, RRSPs, TFSAs and the like, you’d have an extra five years of growth and five fewer years drawing down on the balances.

So in my own case, even though I planned my “Findependence” by age 62 – now achieved – I continue to work on a self-employed basis, and will likely to do so until 67 or so. My focus may be on longer-term projects like books, public speaking and “fun” paid writing assignments.

Certainly it makes sense to maximize your chances by eating better, exercising regularly, minimize consumption of alcohol, tobacco and other potentially harmful substances. Medical science continues to push the boundaries with organ replacements both from human donors or artificial machines, as seen in the recently publicized case of Ottawa Senators team owner Eugene Melnyk and his successful appeal for the donation of a liver. Last week the media reported the amazing development of the first partial skull and scalp transplant, on a 55-year old who also received a new kidney and pancreas at the same time.

Without going into philosophical and religious arguments, I do think that eventually the human body will wear down. As many of the books argue, the human body is optimized for reproduction and once children have been produced the universe is relatively indifferent to the ultimate fate of the parents. We can push off heart disease or cancer, only to be felled by diabetes or the failure of some other organ. As the comedian Tom Lehrer once joked in the 1960s about the hazards of inner-city pollution, “If the hoods don’t get you, the monoxide will.”

Even if one’s physical health proves to be robust enough to make you live past 100, the scourge of dementia and Alzheimer’s will affect the minds of many who experience increased longevity. At that point, you better have converted your human capital to financial capital, because the last few years of your extra years could prove to be expensive. To quote again from ChangeRangers.com’s Mark Venning, we should plan NOT for retirement, but rather for longevity.

 

Jonathan Chevreau runs the Financial Independence Hub and can be reached at jonathan @findependencehub.com

 

 

 

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