How long will you live?
Check out this chart to see your probability of survival rate for your current age. https://fpcanada.ca/docs/default-source/standards/2020-pag---english.pdf
The Projection Assumption Guidelines were released recently from the FP Canada Standards Council. This is essentially a group of people that are asked to review and formulate the suggested financial planning assumptions that should be used. How do you formulate the assumptions in your financial plan?
Let's talk about Life Expectancy today. If you are wrong about the date you will pass away in your financial plan by 5 years, this could mean being off by $1,000,000 or more of assets at the end of your retirement that you need to plan to save.
The plan I just finished off today when it was stressed tested by extending the date of death, it impacted them from achieving 100% of their goals to 83% of their goals. But for this couple, it meant $5,000,000 of retirement assets from age 90 to 95. This was because they are younger so there is a longer period of time for inflation to impact the plan and have on average a higher income goal.
Because you do not know when you will pass away, you need an estimated age, as well as a stress-tested age. If you are wrong on your age, what is your back up plan to fulfill those deficit years? Many times, we will not include a paid off a principal residence in a financial plan and that will be the assets to live off of if we are wrong. Having your kids or the government be your backup plan just isn't the right decision.
The chart on the following link outlines the current probability of outliving a certain life expectancy age.
For example, if you are 60 right now, you have a 25% chance of living until age 94 if you are a man and age 96 if you are a female. You only have a 10% change in living until age 97 for a man and age 100 for a female. And you have a 50% chance you will live to age 89 for a man and 91 for a female.
It is suggested by FP Canada that you use no more than the 25% column unless there is substantial evidence of a shortened life expectancy such as a current illness.
- For those who show evidence of good health may want to lean towards the 10% survival group.
- For those who are smokers, it would likely be ok to use the 30% survival group according to Statistics Canada.
- Also if you are planning today and you're currently at a younger age, you may also want to move towards the 10% column as medical advancements occur.