Should retirement age eligibility be based on life expectancy?

Planning for retirement involves assessing your client’s expected life span. For clients with a family history of good health, that means planning to live to age 90 — or longer. StatsCan data reveal that centenarians were the fastest-growing population from 2011 to 2016 (+41.3%).

Read: Make way for centenarians

“The increasing life expectancy of Canadians is gradually bringing the number and proportion of seniors upward,” says StatsCan in a report.

In addition to posing a challenge to financial planning, increasing life expectancy makes funding seniors benefits, like CPP and OAS, more difficult. Policymakers are asking if the age of eligibility (AOE) should be raised.

That’s an uncomfortable question in political circles, as evident in how the Trudeau government restored the OAS eligibility age to 65.

Read: How long will your client live?

But what if politics was removed from the equation?

That’s the question asked by Robert Brown and Shantel Aris in an article in the Financial Post. They propose Ottawa adopt “an automatic balancing mechanism” that would adjust the AOE based on demographic calculations, not on political decisions.

“The formula would deem that a constant proportion of one’s adult life be spent in retirement,” says the article. “Thus, as life expectancy rises, there would be an automatic upward shift in the AOE for social security.” Such increases in AOE exist in other countries, the article notes.

Read: Canada’s retirement system gets a B from global pension index

If the plan were adopted, benefits would cost less and be sustainable, and CPP contribution rates could be lowered.

For advisors, however, an increasing AOE would potentially turn planning on its head: post-retirement planning might be easier, and pre-retirement planning harder.

Read the full article.

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