Planning for the unexpected in retirement: living longer than you expect

By Linda Lamarche, CFP‌Ⓡ‌ 15 June 2022 4 min read

Even if you’ve done great retirement planning, and anticipate your desired level of income will last throughout your lifetime, there are unexpected events that can derail your plans. In this series, we cover four scenarios, and how to mitigate risk and ensure your future is protected no matter what happens.

Although living a longer-than-expected life sounds like a good problem to have, it can be an actual problem if you haven’t planned for it. People often underestimate how long they will live. According to FP Canada's Projection Assumption Guidelines, a couple in their 40s or 50s has a 25% probability that one of them will live to age 98, and a 10% probability that one of them will live to age 101. 

Living longer does not necessarily mean you will remain in good health. Maintaining strong social connections and being mentally and physically active are not only key to your happiness in retirement, they can also reduce or defer the costs associated with declining health later in life. 

The longer you live the greater your likelihood of requiring long-term or continuing care. The need for continuing care is not limited to the very elderly, and should be included in your retirement planning, regardless of your age. To learn about the services available and the potential costs of those services, refer to Continuing care in Alberta: What options are available and how do I plan for it?

You also need to ensure you have incapacity documents in place before they are needed. An Enduring Power of Attorney and Personal Directive will provide the authority for the person(s)  you choose to make decisions for you in case of a physical or mental incapacity.  

If you do experience a longer-than-average life expectancy, there are steps you can take to lessen the chance that you will outlive your investments or have insufficient income: 

  • Stay in the workforce longer. If you anticipate a longer than average life expectancy consider working longer. This generates current income which postpones withdrawals from your investments, and gives you the opportunity to add to your retirement savings. In addition, working and even volunteering will provide physical, psychological and social benefits which, in turn, contribute to a more fulfilling retirement.
  • Consider the purchase of a life annuity. Annuities can play an important role in providing retirement income. A life annuity will pay you a guaranteed amount of monthly or annual income for the duration of your lifetime, similar to a defined benefit pension plan. The annuity is purchased from an insurance company and the amount of income you will be entitled to is based on a variety of factors including the current interest rate, your age, your health and your life expectancy. Since you can no longer access the capital, you have to consider the benefit of guaranteed lifetime income versus the lack of flexibility and access to capital should an unexpected expense occur.
  • Defer your government benefits, preferably CPP as long as possible. You can elect your CPP benefits as early as age 60 or as late as age 70. And, although it might sound counterintuitive to postpone government benefits, not only are OAS & CPP amounts indexed to inflation, but by deferring past age 65, your payment amount is adjusted upward. This is to account for what is anticipated to be less payments over your lifetime. OAS & CPP benefits are increased by 0.6% and 0.7% per month of deferral, respectively. If you defer to age 70, that’s a 36% increase for the amount of your OAS payment and a 42% increase in your CPP payment. This maximizes these sources of guaranteed indexed income later in your life. As discussed in The Society of Actuaries White Paper, CPP Take-Up Decision, generally speaking, if you do not need the income earlier and expect at least an average life expectancy, it is recommended that you defer your own CPP to age 70. 

There are many other unplanned situations you may experience in retirement that could create havoc with your finances. Regardless if the situation is one we’ve discussed above, or some other incident such as an unexpected health event, your adult children requiring financial assistance or an unexpected home maintenance cost, basic financial management strategies can help mitigate such events. Having an emergency fund, ongoing budgeting and making appropriate adjustments to your financial plan are essential for protecting your financial security. 

Retirement planning doesn’t stop once you start retirement. It is important that there is ongoing review of your financial plan and the assumptions that have been made. You may have to adjust your goals or make adjustments for life expectancy, inflation, your investment allocation or withdrawal strategies. An ATB Wealth advisor can work with you to review and monitor your plan and keep you on the path to reaching your lifetime goals. 


Read more articles below to learn about other common scenarios that can impact retirement and how to create a plan that protects your goals.

Planning for the unexpected in retirement

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