While on a research call earlier this month, we heard something that truly made us stop and think. “People are more concerned about going broke tomorrow, than dying”. Despite having experienced strong market growth this year, we’ve had a fair number of emotional phone calls with investors who are worried about the possibility of a market crash because of Trump, trade, tariff’s, debt levels, social unrest, political unrest, recession and the list goes on. Although we need to recognize all these risks, perhaps the biggest risk we all face, and arguably the one we should be most concerned about, is how long we are going to live. Looking through our planning lens begs the question, how many years of retirement do we need to plan for?
Why is the Retirement Age 65 in most developed countries?
The retirement age is 65 because when it was selected in 1880, hardly anyone lived that long.
The age of 65 was originally selected as the time for retirement by the “Iron Chancellor,” Otto Von Bismarck of Germany, when he introduced a social security system to appeal to the German working class and combat the power of the Socialist Party in Germany during the late 1800s. Somewhat cynically, Bismarck knew that the program would cost little because the average German worker never reached 65, and many of those who did lived only a few years beyond that age. When the United States finally passed a social security law in 1935 (more than 55 years after the conservative German chancellor introduced it in Germany), the average life expectancy in America was only 61.7 years.
What has changed since the 1880’s is a massive amount of technological, medical and process innovation that has led to much longer lifespans? Yet…we still define retirement age as 65.
What is the life expectancy for Canadians?
Today, the average Canadian life expectancy is 82.11 years of age. Many Canadians are living healthy lives well past 90, and centenarians are the fastest growing segment of our population. When you compare that to an average life expectancy of just 72.5 years of age in 1969 (50 years ago), it clearly shows what innovation has accomplished.
What should we focus on?
We need to ensure that we manage the short-term risks that are inherent in financial markets but, we should not forget that we need growth in order to fund what will certainly be longer retirement periods in the future.
As always, we welcome your calls and comments.