Someday you’ll die

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  By Guest Blogger Doug Rowat

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.Nikki Glaser—by far the best comedian at the recent Tom Brady roast—joked in her new Someday You’ll Die comedy special that she thinks about death no more than “10 or 15 hours a day.”

Hopefully, the subject doesn’t consume this much of your time, but it still deserves some thought. Despite its unpleasantness, in our business, estimating life expectancy is critical for financial planning.

We all want to make the best use of our money when we’re healthy and we need it to last, as the classic Monty Python bit goes, until Mr. Death comes about the reaping.

Naturally, life expectancy varies greatly based on where you live and, more importantly, WHEN you live. We often make the mistake of estimating our life expectancy based off of the present expectations for newborns. But, more accurately, we should estimate life expectancy based off of our birth year. For example, someone born today is much more likely to live longer than someone born in, say, 1964.

As Statistics Canada notes, the steady increase in life expectancy over time

…has been attributed to improved nutrition, better hygiene, access to safe drinking water, effective birth control and immunization and other medical interventions.

It could also be added, a better understanding of a whole variety of health dangers. Anyone remember sitting in the back seat of the family car in the 60s or 70s while their parents hacked darts up front with the windows closed? And that car probably had asbestos-lined brakes to boot. The point is, in subtle and not so subtle ways, the ignorant ways that we lived in the past have taken a toll on our present life expectancy.

Life expectancy varies greatly by date of birth: someone born in, say, 1964 (top) will, statistically speaking, not live as long as someone born recently (bottom)

Source: Our World in Data

According to the chart above, life expectancy in Canada ramps up by more than a full decade for someone born in 2021 (82.7 years) versus someone born in 1964 (71.6 years). Naturally, not everyone born in 1964 is dead yet, so we don’t know precisely their life expectancy, but cohort analysis—studying different age groups over time and overlaying some advanced statistics—can fill in the gaps. In this way, we’re able to fairly predict that someone born today is likely to make it well past 80.

A useful strategy then is to be optimistic (i.e., estimate a longer life expectancy) when considering ‘Will the money last?’ scenarios, but to be pessimistic (i.e., estimate a shorter life expectancy) when making decisions regarding when to collect a work pension or a government entitlement (CPP, for example). By being both optimistic and pessimistic in this way, you’ll effectively be taking a conservative approach with your financial planning.

I didn’t entirely select 1964 randomly. This is the birth year for those eligible to start taking CPP now (age 60) and therefore these individuals have a decision to make regarding whether to take it early or delay it as far out as age 70. An individual’s life circumstances and health history are myriad, but let’s take a very simple example. What utility would there be for an individual born in 1964 and living alone (i.e., no survivor’s pension to consider) to delay taking CPP until age 70 when their statistical life expectancy isn’t even 72? And, if we’re being pessimistic, which, as I suggest above, is prudent in such circumstances, you might assume that you won’t even live long enough to receive CPP at all.

Depressing, I know. But it gets worse.

Statistics Canada goes on to point out that

…although life expectancy is increasing, not all years will necessarily be spent in full health; on average, Canadians can expect to spend 70 of 80 years in good health.

In other words, for most of us, that last decade will be problematic. It begs the question: would you not want more control of your money earlier when you’re healthier and can enjoy it? And how much of a gamble are you willing to take with your life expectancy in the hope of later realizing a few more dollars each month? Life is short. And, if you’re viewing life expectancy correctly, maybe shorter than you think.

Now I’ve really got you thinking about death.

However, you’re reading this, so you’re not dead yet. Until then, laugh a little:

@nikkiglaser

Someday You’ll Die so make sure to watch my brand new standup special tonight on @HBO at 10/9c and then stream it on @Max for eternity! Also, listen to my new song of the same title over and over and over wherever you stream your music! #nikkiglaser #somedayyoulldie #hbo #standupcomedy #standupspecial #comedyspecial #newmusic

♬ SOMEDAY YOULL DIE Nikki Glaser – NikkiGlaser

Doug Rowat, FCSI® is Portfolio Manager with Turner Investments and Senior Investment Advisor, Private Client Group, Raymond James Ltd.