Sustainable Growth: How To Plan For An Extended Retirement

Longer lifespans mean that Canadians can now expect to live until 83 on average, giving us 18 years after retirement at age 65. Back in 1970, when the average life expectancy was 72, we only lived seven years after retiring. But the downside of this longevity revolution is that we now have to come up with a financial gameplan for those extra years. Little wonder that most polls suggest that “outliving our savings” is one of the most common fears of retirees.

For some top-line strategies on how to make your money last for today’s extended retirements, we chatted with two experts: Shannon Lee Simmons, a certified financial planner with the New School of Finance, an advice-only financial planning firm in Toronto; and Kevin Gebert, a certified financial planner and president of Greenrock Financial Group, based in Surrey, B.C.

Simmons has seen a big shift in retirement planning, partly thanks to longer life expectancy, but also due to worry about the increasing cost of living. When it comes to retirement planning, Simmons, notes: “I used to get a lot of ‘When can I retire?’ questions,” she recalls. “A lot of the questions now [are], ‘Can I even retire?’”

Step 1: Plan Your Route

To calm your nerves about the future, Simmons advises creating a financial plan. “People worry they’re going to have nothing,” she says. But when they see their financial situation, they are relieved – ‘Oh, that’s not as scary as I was expecting it to be.’”

 A financial plan puts things in perspective. “If it’s not working out, now you have a roadmap for what you’re supposed to do,” Simmons says. As for life expectancy, Simmons previously used age 90 in her plans for clients, but now her default is 100. “If [the plans] have to last another 10 years after 90, it really makes a huge difference.”

Gebert recommends including an estate plan and a retirement budget. To leave money from your estate to a family member, a charity or another beneficiary, you must subtract it from your available funds. The budget should cover money coming in – pensions, returns on investments and other expected income – and money going out.

Step 2: Control Costs

When planning for retirement, people often fixate on a number. For example, Canadians believe they will need $1.7 million to retire, according to a
BMO survey of 1,510 adults from November 2023. But Simmons points out it’s more important to consider the one thing we can control: how much we spend each month. Clients of all ages ask her how they can get to $1 million or $2 million in savings. She tries to show them that the number is relative. “Someone can have a very cosy retirement with $600,000 because their spending matches that. And somebody could have $1.5 [million] and feel [like they’re] scramblittng.”

 If reducing fixed costs is the name of the game, Simmons suggests paying down mortgages, lines of credit and other debt. In her experience, the most chilled-out retirees are those who benefitted from downsizing their homes. “In retirement, I think that there can be a really beautiful mindfulness around reduction in expenses that don’t actually hurt,” Simmons says, “because you just have more time to do the stuff that you couldn’t do when you were working.”

For those who will likely need to move out of their home for health reasons, it’s crucial to have a plan to foot the bill for assisted living. To prevent having to pay out of pocket, you can buy long-term care insurance, Gebert explains.

Step 3: Shore Up Income

If you don’t have a pension, you might consider getting a part-time job, joining the 14 per cent of Canadians 65 and older (up from  8.4 per cent in 2001) who are currently in the workforce, embracing semi-retirement over traditional retirement. The game plan here is to spend what you make and avoid touching your assets until age 70. “Then you have the higher level of Canada Pension Plan (CPP) and the higher level of Old Age Security (OAS),” says Simmons.

She sees a lot of entrepreneurs and other self-employed people waiting it out until 70. Unlike employees, they have the option to work part-time, Simmons notes. “And they like their job, so they have a purpose.” 

Simmons suggests that purchasing a second property and renting it out can be a long-term revenue generator, saying that it “creates income in retirement, or a pension-like income” with some inflation protection.

Step 4: Be Strategic

TFSAs, RRSPs, CPP, OAS – when saving for retirement and withdrawing funds in later years, customization is crucial, Simmons maintains. “Be strategic about how you take your money out of your accounts or how you save in the accounts, and what your plan is for CPP and Old Age Security, based on your personal financial situation.” 

When drawing down your assets in retirement, you must balance capital preservation with growth potential. Does that call for an eight- to 10-per-cent annual return? Probably not. Simmons suggests asking how much you need to stay above inflation to avoid running out of money. “It takes the anxiety out if you’re like, ‘OK, inflation was three or four per cent, and I got six per cent. I’m doing my two-and-a-half per cent above inflation – I’m good to go.´” 

The older you get, the less risk you might want to take on, Gebert observes. More risk could mean better returns, but what if there’s another crash like the 2007-08 financial crisis, when many Canadians’ investment portfolios took a huge hit? You just don’t have time to recover, especially those who can’t go back to work. 

A version of this article appeared in the June/July 2024 issue with the headline ‘Sustainable Growth’, p. 28.