We’re all living longer and we can thank technology, medical, and public health advancements but are you ready for it?

In Canada, in 1950, the average life expectancy from birth was 68 years and by the year 2000 the average life expectancy had increased to 79 years old. The U.N. projects that by 2050 the average Canadian will live to be 86 years old. If the projections hold true then life expectancies over the course of the century will have increased by 18 years, or almost two decades! This is something that we should all be very happy about as it means that we have more time to grow our minds, families, and our legacies but this increase in life expectancy can also be a curse if you aren’t prepared for it.

You’ve probably heard your grandparents or parents say, “in my day, a chocolate bar cost a dime,” or something else along these lines. Inflation is known as “the invisible thief” because you can’t see it, and (most of the time) you probably won’t notice it in your day-to-day lives, but it’s always there and is defined as the general rise in the prices of goods and services in an economy. Simply put, the amount of things that you can buy with $20 today will be less than what you can buy with $20 in years to come. Using 1950 as our baseline, Canadian inflation has averaged at a rate of 3.52% per year. By applying the average, we see that you need $10.95 in 2021 to purchase the same amount of goods that $1 would have purchase in 1950.

In Canada the average person retires at the age of 64, which means that they will need to have an adequate nest egg to live on for approximately 20 years. Bear in mind that I am using the average and 50% of people will need to have enough of a nest egg to last even longer than two decades. We are fortunate to have Government Pensions in Canada but they are only meant to replace some of the income that you lose once you make the decision to retire. In 2021, the average Canadian earns $14,858 total from CPP & OAS, which works out to $1,238 per month. Think about your day-to-day life and imagine how difficult it would be to live on that amount. Luckily for us, the CPP & OAS are indexed to inflation so “the invisible thief” doesn’t get a piece of this over time.

Let’s look at the math… the average income for a full-time worker in Canada is around $55,000 gross per year and we know that the average Canadian will have to fund a retirement of around 20 years. Using the historic average Canadian inflation rate of 3.52% then we see that someone starting their retirement today with an income of $55,000 per year will need an income of $109,862 per year after 20 years of retirement to buy the same amount of goods and services.

The only way to outrun “the invisible thief” is to ensure that you are earning at least 3.5% annually on the money that you are saving for your future. Today, achieving an interest rate even close to 3.5% per year in a savings account, GIC, or government bond is impossible so, unless the funds are earmarked for something specific in the short-term, the only way to ensure that you aren’t effectively losing money over time is to invest. I’m not talking about investing in the newest “hot stock” that your neighbor, colleague, friend, or financial television network pitches you. As well, I’m not saying that you won’t potentially get lucky by taking stock tips from people in your life but this is akin to gambling and I can’t provide advice on where the ball will land in a game of roulette either. I’m talking about a globally diversified investment solution that invests in corporations with a reputation for quality, reliability, and the ability to operate profitably in good and bad times.

A diversified investment solution is a means of achieving your goals but a financial plan is the map of how you get there. No plane takes off without a flight plan and no ship sets sail without a plotted course. No flight plan or plotted course is followed exactly either and there will be numerous challenges and course corrections that will need to be addressed during the journey. This is why it is so important to have a plan but it is even more important to update the plan (at least annually or whenever a material change occurs in your life). You shouldn’t embark on a multi-decade retirement journey without a plan as to how you are going to get there, what sort of obstacles that you may encounter along the way (possibly downsizing, dealing with health challenges, sickness & survivor planning) and what sort of legacy you want to leave behind to your heirs (estate planning with a focus on tax efficiency).

If you need help creating a vision for your own personal multi-decade journey then feel free to email info@financerx.ca.