“Plan on Living Past Your Life Expectancy” — this is the headline of a recent article in the Wall Street Journal that suggests that many of us will live longer than we expect.1 As advisors, we do our best to prepare our clients for retirement and beyond, and one of the challenges in this planning is that individuals continue to live longer and healthier lives. Indeed, we want to ensure that we have sufficient retirement funds to, in the least, last for our lifetime. However, underestimating our longevity is only one of the factors that can derail the financial success of a retirement plan.
Here are some additional considerations
Relying on income or capital sources that may not materialize. You may be planning on working to fund your retirement, but consider the situation where you become physically unable as you age. Or, you might suddenly find yourself without a job before retirement due to business or economic changes. Some Canadians may be counting on an inheritance to help fund a comfortable retirement. However, consider that your parents could outlive you, or that any inheritance may be less than expected.
Miscalculating the costs of dependents. There used to be a time when parents became empty nesters once a child turned 18 years old. Today, many parents are helping to support children well beyond post-secondary education. Have you planned for this? It may not end there. With elevated housing prices and the higher cost of assuming a mortgage due to rising interest rates, more children have been relying on parents for financial assistance with their home purchases. What if your children struggle to achieve financial independence and remain at home?
Relying on home equity. As housing prices have risen substantially across many Canadian cities over recent times, it may be tempting to see your home’s value as a potential source of retirement income. But this has its dangers: future real estate prices may fall or be less than expected. Even if a retiree was to downsize, they could fail to understand the true costs of a move to a new residence or not factor in all of the costs associated with a move, such as renovations or maintenance to an old house prior to its sale. For others, selling a lifelong home may end up being too emotionally difficult, which may cause them to reconsider a potential move.
Underestimating health care costs. Canada is well known around the world for our universal health care system, but we may incorrectly assume that it covers more than it does. Many Canadians are surprised to learn that care within a long-term care facility is not fully covered by the public health care system. Even with government subsidies, private room accommodations can require a co-payment of over $30,000 per year.2 And, private caregiving in your own home could cost up to $130,000 per year.3 While it may be uncomfortable to contemplate a future where we may be afflicted with a health condition, be aware of the financial impact should care be required, especially over the long term.
Unanticipated divorce or death of a spouse. While no one plans on getting divorced or losing a spouse, many underestimate the potential financial impact. Studies continue to show that family income can significantly decline in both situations.4 The emotional impact of losing a spouse in either circumstance can also make financial management difficult, especially if that spouse was the financial decision maker. While these events may be unpredictable, having a good understanding of your own financial position is important to help lessen the impact.
The Importance of a Wealth Plan
As a starting point, a wealth plan can be a valuable tool to act as a roadmap for retirement and beyond. Contingencies can be built into this plan to account for any potential risks. There may also be tools or strategies that can be put in place to provide additional support, such as tax or insurance planning — for example, perhaps there may be a need to explore long-term care insurance or an annuity. And as time progresses, the plan should be adjusted as your circumstances change — the wealth planning process is meant to be dynamic. he Importance of a Wealth Plan As a starting point, a wealth plan can be a valuable tool to act as a roadmap for retirement and beyond. Contingencies can be built into this plan to account for any potential risks. There may also be tools or strategies that can be put in place to provide additional support, such as tax or insurance planning — for example, perhaps there may be a need to explore long-term care insurance or an annuity. And as time progresses, the plan should be adjusted as your circumstances change — the wealth planning process is meant to be dynamic.
We Are Here To Help
As part of planning for the future, should any of these pitfalls stick out as roadblocks to achieving your retirement goals, we can help explore solutions. Even if retirement is still years away, now is the time to consider these matters.
“Plan On Living Past Your Life Expectancy” Wall Street Journal, Josh Zumbrun, 02/11/23; 2. www.seniorcareaccess.com/article/What+Does+Long+Term+Care+Cost%3F; 3. www.advisor.ca/news/industry-news/most-canadians-arent-planning-for-long-term-carecosts-survey/. At home, based on avg. cost of care of $30/hour, 12 hours/day, 365 days/year; 4. https://www.nber.org/digest/jul02/income-declines-after-divorce; https://www150.statcan. gc.ca/n1/pub/11-621-m/11-621-m2004015-eng.htm
The information contained herein has been provided for information purposes only. Graphs, charts and other numbers are used for illustrative purposes only and do not reflect future values or future performance of any investment. The information has been provided by J. Hirasawa & Associates and is drawn from sources believed to be reliable. The information does not provide financial, legal, tax or investment advice. Particular investment, tax, or trading strategies should be evaluated relative to each individual’s objectives and risk tolerance. This does not constitute a recommendation or solicitation to buy or sell securities of any kind. Market conditions may change which may impact the information contained in this document. Wellington-Altus Private Wealth Inc. (WAPW) and the authors do not guarantee the accuracy or completeness of the information contained herein, nor does WAPW, nor the authors, assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Before acting on any of the above, please contact me for individual financial advice based on your personal circumstances. WAPW is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.
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