Investments, health insurance and estate planning are the three key aspects to managing longevity risk, said Kevin Strain, a senior vice-president with Sun Life Financial Canada.
Keep in mind that the phase of life when you’re dipping into your investments to pay for your living expenses may require a very different strategy than when you’re still working and accumulating assets.
“When you’re investing with a long time horizon ahead of you, stock market fluctuations don’t mean as much,” Strain said. “But you have to be very aware of those ups and downs when you’re taking money out of your nest egg. You really can’t make up for those market declines.”
Along with pension income, RRSPs, and government benefits, Canadians tend to turn to GICs, segregated funds, and annuities for this phase.
Financial planning experts like to talk about layering, or moving investments out of the stock market in stages so that cash is available at regular intervals.
“You should be thinking about that five to 10 years before you retire. If you start thinking about it as you retire, some of your options can fall away,” Strain said.
Segregated funds can offer a lifetime withdrawal benefit, and annuities can also provide a guaranteed stream of income.
“We’ve had a growing interest in annuities the past two years and I think it’s a combination of people looking for guarantees and also the fact that more Canadians are over age 65. they’re the target market for annuities,” Strain said.
The next big thing to think about is health costs. Health benefits you had through your company probably don’t last through retirement, and that means you may need to buy your own personal health insurance. You may also need to think about long-term care or critical illness insurance.
“Some of those products, the younger you are, the cheaper they are because the healthier you are,” Strain said. “People are living longer but that doesn’t mean they’re living healthier.”
Basic estate planning, including having an updated will with power of attorney, is the other leg on the stool.
That means making sure you have adequate life insurance, as well. The will ensures that your assets are passed down to a surviving spouse, children, friends, or charities, according to your wishes, and ideally, in a tax-efficient manner.
“People really need help to put together an effective plan because the products are pretty sophisticated and the needs are pretty complex,” Strain said. “Aligning the needs to the right products, having a plan, and starting it early are really what’s needed to help Canadians get the kind of retirement they want.”
Keywords: retirement, longevity
