From time to time I get asked – most particularly by one or another of my clients heading into retirement – the following question: ‘Tell me, Dave, should I work longer or save more?’
My response? It’s not an either/or question. You have to do both. Here’s why.
Most of us – unless we have put aside a considerable amount of money or have an inflation-protected defined-benefit pension plan – will have to continue working or power up our savings strategy.
Life expectancy is going through the roof
The reality is that most of us can expect to be retired for almost 40 years. As I wrote in a blog last year – Longer lives & retirement planning – life expectancy in Canada is going through the roof.
According to the Society of Actuaries, we live in an era where many couples expect to retire around 60 and there’s an 18% chance of at least one member of that couple living to 95 or beyond.
40 is the new 30
I quoted Wade Pfau, a professor of retirement income at American College in Bryn Mawr, Penn., who said: ‘When it comes to retirement planning, 40 years is becoming the new 30 years for highly educated, higher-income people.’
Additional support for this point-of-view comes from Olivia S. Mitchell1, professor of business economics and public policy at Wharton’s Pension Research Council, who observed:
‘In order to protect their retirement savings, today’s workers will have to stay longer in the workforce, save more and expect less in pension benefits.’ This is not just a U.S. phenomenon. Canadian pre-retirees are facing similar challenges, too.
Life expectancy is a killer
According to Chartered Financial Analyst Larry Berman, co-founder of ETF Capital Management writing in The Globe and Mail recently – It’s harder now to save for retirement, so we have to invest smarter2 (March 24, 2017) – world life expectancy has more than doubled in the past century.
Writes Mr. Berman: ‘When the Old Age Security (OAS) program started in Canada the 1950s, life expectancy was less than 70, and when the Canada Pension Plan (CPP) started in 1966, life expectancy was about 71. Today, life expectancy is in the mid-80s and according to an article in The Economist this week, kids born today could live to 120.’
Retirees have to become more flexible.
Retirees should be more willing than past generations to tap into their home equity to fund retirement.
Retirees should take a close look at variable-spending strategies, which adjust expenditures in line with portfolio performance. I can help you with this challenge.
Unless you’re very comfortably off and/or have a fabulous pension plan, seriously consider continuing to work and save for as long as you can.
You’ll be glad you did.
Dave Ritcey, The Ritcey Team, Scotia Wealth Management