From the Editor: Shift Happens

It is not new news that Canada’s population is getting older. However, there are several interesting statistics in The Canadian Longitudinal Study on Aging (CLSA) Report on Health and Aging in Canada. You may be surprised to know that in 2016, for the first time in our history, the number of Canadians over age 65 exceeded the number of those aged 14 and under. In fact, by 2031, one in four Canadians will be 65 or older. The implication is that the proportion of those who participate in the workforce is shrinking. But one of the other shifts noted, is that the employment rate for adults age 55 and older has been increasing for both women and men, leading to an overall older workforce. ⁽¹⁾

Most clients probably think I am slightly crazy, but are far too polite to say so, when I present them with a financial plan that has them living out to age 100. I do this because one Nexus client lived to age 103, and more than a handful are in their late 90’s. Planning for your assets to last until age 100 is an insurance policy in case you live a long life. One way to ensure that you are engaged, healthy and in good financial shape as you journey through retirement, is to work longer. I have anecdotal evidence that many are choosing to go back to work after what would be considered a traditional retirement age, but not in the 9 to 5 sort of way you might think. Perhaps this trend can be called the next wave entrepreneur. I see clients consulting, coaching and some have started small businesses.

Living longer has implications for financial planning. Health, wealth, disability and caregiving obligations all contribute to clients’ retirement planning and what age they might chose to retire. One of the speakers at the conference suggested that a mind-set shift is required when talking about retirement planning today. Conversations should no longer be about financing for retirement, but rather financing for longevity.

Longevity also has implications on portfolio construction for investors. Equities, while volatile, provide inflation protection in a portfolio with a long time-horizon. Plus, the dividends and realized capital gains from equities are taxed at preferred rates to interest and other forms of investment income. However, equity volatility can affect the longevity of a portfolio, especially for investors living off their portfolios if they are forced to make withdrawals in down markets. Therefore, income requirements on a portfolio often demand more stability than equities offer. This is where fixed income (or bonds) come in. Bonds have traditionally been used for income generation and to mitigate volatility. But in today’s investment environment, bonds pose a conundrum. Returns on this traditionally safe and reliable asset class have recently been negative. In this issue of Nexus Notes we have an article that addresses this fixed income conundrum.

Also in this issue, Alex Jemetz has written a third article in our Leaving a Legacy series. This article focuses on special needs. Estate planning is important for everyone, but even more so for parents dealing with a child that has special needs.

Happy reading and I hope everyone enjoys the shift into the lazy days of summer!