Longer and more active retirements are testing conventional financial plans.GETTY IMAGES
A recent financial review gave one of Francesca Tarantino’s clients something more valuable than a projected balance: a eureka moment.
Running the numbers presented retirement as a viable option, says Ms. Tarantino, a portfolio manager at Scotia Jarislowsky Fraser in Vaughan, Ont.
Financial planning has become increasingly complex as many Canadians prepare for retirements that could last nearly as long as their careers. By 2030, CPP Investments notes that more than one in five citizens will be 65 or older. Official estimates project that Canadians who reached 65 in 2025 will live an average of another 21.6 years if male, and 24.1 years if female.
That makes planning into your 90s not just prudent but closer to obligatory. It also exposes the limits of conventional norms used by investors for decades, which were built around replacing 70 per cent of employment income, withdrawing 4 per cent annually or automatically shifting from stocks into bonds.
Today’s blueprint must integrate lifestyle, health, portfolio growth, income, taxes and family goals that now extend decades out. Here are three key points:
1. Start with the life that retirement is meant to fund
The process begins not with investments, but choices. When do you (and your spouse) want to retire? Where do you hope to live? How will you spend your time? What level of care do you want if your health declines?
Ms. Tarantino says a longer life does not necessarily mean more healthy years. A plan may need to account for renovations to enable remaining at home, for assisted living or for long-term care – that’s all on top of planning for routine spending and wish-lists like travel.
Investors can estimate costs, test lower returns and higher expenses, and identify trade-offs. Those might include retiring later, moderating discretionary spending, or reserving home equity as a future care buffer.
Advisors typically model to age 95, taking a deliberately conservative view, says Peter Kollias, senior wealth advisor and portfolio manager at Wellington-Altus Private Wealth in Calgary. “We want the money to outlive you.”
2. Keep the portfolio working
A retirement alone shouldn’t prompt an abrupt overhaul of a portfolio, Mr. Kollias says. “It’s 30 years to build it, and then 30 years for maintenance going forward.”
That requires a careful balance. “What is the portfolio being asked to do?” Ms. Tarantino inquires. Inflation and longevity require suitable sources of growth and income. Dividend-paying blue-chip equities may provide both, while bonds and annuities can add stability and predictability.
Mr. Kollias adds that portfolios may also include covered-call strategies, private credit or liquid alternatives, where suitable, to provide uncorrelated income and capital appreciation.
While alternatives can diversify returns or generate income, Ms. Tarantino cautions that some carry “lockup” periods when you can’t withdraw the capital. Investors must tolerate the risks and illiquidity differing asset classes possess.
3. Protect the plan from bad timing
A market decline early in retirement can be especially damaging. Withdrawals can force an investor to sell depressed assets, leaving less capital to recover.
Mr. Kollias suggests preparing one to three years before retirement by building a “cash wedge” of low-risk, low-volatility assets sufficient to cover roughly two years of withdrawals. It’s both a spending reserve and a behavioural safeguard, allowing the growth portfolio time to rebound.
Ms. Tarantino likewise stresses emergency savings, diversification and stress tests. The key is avoiding panic. “The worst thing to do is panic and sell when you have one of those downturns.”
CPP, OAS, workplace pensions, RRSPs, RRIFs, TFSAs and taxable accounts create multiple planning levers that a plan focused on longevity must balance. Starting CPP at 60 reduces monthly payments by as much as 36 per cent relative to 65, and waiting until 70 increases them by as much as 42 per cent. Health and other income should guide the choice.
“I like to have options,” Ms. Tarantino says. Drawing from a TFSA in a high-income year or an RRSP in a low-income year can help manage tax burdens. Couples must also coordinate retirement dates and protect the surviving spouse through beneficiary and estate planning.
No retirement planning blueprint can predict markets, health or lifespan. But the best ones are adaptable. When done well, Mr. Kollias says they give people something invaluable: “Freedom.”