Camryn Bass
July 26, 2022
Money Wellness Financial literacy Economy Lifestyle Travel Commentary In the news NewsWhy Most Retirement Plans Fail
Picture yourself in retirement. Do you envision years of traveling and adventures? Do you desire peaceful recreation and relaxation? Or do you want to dedicate more time to your family and improving yourself and your skills? As perfect as these plans sound, do you also foresee your health declining, potentially limiting those dreams? While it is not comfortable to consider the aspect of our physical decline, it can be comforting to know that you have a retirement plan that realistically accounts for the reality of aging on your future financial needs.
When planning for your retirement, it is crucial to make a plan that is realistic, not idealistic. Life expectancies are rising, which means it’s more important than ever to make smart and dynamic plans that will preserve your financial welfare for many years to come. My team and I take an informed holistic approach to retirement planning that you won’t hear from the average financial advisor. Using information from a study conducted by the Public Health Agency of Canada, it is clear that retirement planning must involve more informed strategies.
The primary modern failure of most retirement plans is that they assume the same income amount will be used every year throughout retirement. This flawed rule of thumb that recommends taking 3.5 - 4% of the value of your portfolio yearly in retirement simply will not work best for most people. Life is not a straight path, especially in retirement. Family, pandemics, economic crises, and your personal health and wellness will all change throughout your years of retirement. While we cannot control pandemics and the current (and future) economic upheaval, we can look at the impact of aging and how long you are expected to enjoy a healthy lifestyle. It is important to consider how your health will impact your ability to do many of the things you enjoy, such as traveling, spending time with friends and family, and experiencing the many other life adventures you have dreamed of.
So how can you take factors such as your aging health into account?
Consider taking more income at the start of your retirement to enjoy life while you are young and healthy.
Understanding the number of years that you are expected to live in a healthy state is your “Health-Adjusted Life Expectancy (HALE)”.
This report1 by Wang et al. from the Public Health Agency of Canada benchmarks how chronic conditions are likely to influence the typical healthy life expectancy predicted from various ages and by gender. Common chronic diseases such as diabetes, hypertension and cancer are associated with a significant loss in how long you will live in a healthy state according to your HALE. From this information, we can conclude that while many people may survive to significant old age, they will only have the health, energy, and mental wellness to make the most of a fraction of that time.
From the chart to the right, we can see how drastic the difference between life expectancy (red for females and grey for males) and health-adjusted life expectancy (yellow for females and black for males) can be. In some cases, the expected loss of healthy life can be upwards of 10 years, and this is only when considering the average person.
For example, according to the Public Health Agency of Canada, the average 60-year-old woman will have a life expectancy (LE) of 26.1 more years, passing away at age 86.1, but she is only expected to live healthily for 19.8 years more, to the age of 79.8. These numbers are even more startling when looking at people with common diseases such as diabetes, and hypertension, with the average healthy life expectancy falling nearly 15 years.
A 45-year-old man who was previously expected to live to the age of 82.1 but who develops diabetes and hypertension will see his overall life expectancy drop by 7 years to age 74.9. Worse than that, he will only have a health-adjusted life expectancy of 67.4. That difference is close to 15 years, which is a dramatic change considering almost 1 in 4 Canadians will develop hypertension, and 8.8% of Canadians already have diabetes, with these rates rising each year.
The statistics on cancer are an even more striking awakening on the impact of healthy lifestyle choices. Upwards of 2 in 5 Canadians can expect to develop cancer in their lifetime, according to the Canadian Cancer Society2, with 32.8% of people developing cancer before the age of 753. According to Public Health Agency of Canada, A 65-year-old who develops cancer will have their life expectancy reduced from 88.2 years to just 74.5, and, more importantly, their HALE (health adjusted life expectancy) adjusts from age 82.1 to 71.8.
With these drastic disparities in projected life and health, it’s easy to see why betting on a perfectly long and healthy life is much more unrealistic than it initially seems. There’s no use in holding out for a big vacation 20+ years into retirement when it’s likely most Canadians won’t be healthy enough to make the most of it when it comes. Due to all these factors and more, that’s why we recommend taking more income at the start of your retirement instead of holding out.
My team and I dedicate ourselves to building plans that fit for you. We regularly draw from highly accredited peer-reviewed studies such as these to make the best and most-informed decisions with you. There are many ways in we can make your money work optimally for you. Ensuring you can live your life to the fullest can begin with a simple consultation. Contact us today to get started and build a custom-tailored financial plan.
Works Cited
1. LeBlanc, Allana G, et al. “At-a-Glance - Twenty Years of Diabetes Surveillance Using the Canadian Chronic Disease Surveillance System.” Health Promotion and Chronic Disease Prevention in Canada : Research, Policy and Practice, Public Health Agency of Canada, Nov. 2019, https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6876649/#:~:text=Currently%2C%208.8%25%20of%20Canadians%20(,average%20of%203.3%25%20per%20year.
2. Leung, Alexander A, et al. Risk Factors for Hypertension in Canada, Statistics Canada, 20 Feb. 2019, https://www150.statcan.gc.ca/n1/pub/82-003-x/2019002/article/00001-eng.htm.
3. Public Health Agency of Canada Steering Committee on Health-Adjusted Life Expectancy. “Health-Adjusted Life Expectancy in Canada: 2012 Report by the Public Health Agency of Canada.” Canada.ca, Public Health Agency of Canada, 17 June 2016, https://www.canada.ca/en/public-health/services/publications/science-research-data/health-adjusted-life-expectancy-canada-2012-report-public-health-agency-canada.html.