Will your money last as long as you will?

Longevity and retirement savings

If you have ever had month left over at the end of your money, imagine running out of retirement funds when you still have years of life ahead of you.

The statistics about life expectancy and retirement savings don’t bode well for most investors.

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The plan to overcome this situation must include several factors like a disciplined saving approach matched to investment management (as well as excellent investment picks with corrective action when they aren’t so excellent).

But the simplest action is to save longer -- the power of compound interest is the magic potion for most potential retirees.

For example:

•Starting at age 25, put $10,000 (or $200/week) into a tax-sheltered, registered account for three years for a total of $30,000.

•The deposits grow at an annualized return for 40, 39 and 38 years, until you reach 65.

With no adjustments for tax considerations (to keep it simple) you will see:

  • at 5% per year these three deposits of $10,000 grow to $201,302 by age 65
  • at 7% the total would be $420,485
  • at 10% the total would be $1,238,083!

So you can see how investing early and enjoying all that compound interest is much better than waiting and starting your investments later in life, when you will have to put aside far larger chunks of money ($140,000 a year for three years) to catch up to returns like those shown above.

Life expectancy

The following findings were prepared by the Office of the Chief Actuary:

•Currently, the life expectancy for men at age 65 is 86; the life expectancy for women at age 65 is 88.

•It is further projected to increase to 89 years for men and to 91 years for women by 2075. This means that Canadians are expected to live beyond age 90 on average in the future.

•Now, five out of ten Canadians aged 20 are expected to reach age 90, while one out of ten is expected to live to 100.

Some of those statistics could be dizzying, but remember that those who achieve 65 years of age will live another 21 or 23 years on average. More than half of us will have to fund 20+ years of retirement if we retire at 65.

In order to acquire enough retirement assets and maximize the nest-egg at the end, investors must put more into savings each year, earn a higher compound rate of return over their lifetime, and utilize a longer time frame for compounding to occur and for deposits to accumulate.

There are two options: begin saving earlier, or keep working and saving longer, perhaps well past age 65.


Harley McCormick is a financial advisor at Keystone Wealth Management.

The information provided on this article is intended for informational purposes only

and is not intended to constitute financial, accounting, legal or tax advice.

For information specific to your situation, consult a professional.


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