How long to plan for in retirement

Last week made the case for waiting on CPP, and the bigger payment only wins if you live long enough to collect it. That leaves the question every retirement plan has to answer before any other, which is how many years your money needs to last.

Why an average age is the wrong target

If you plan to 85 because that's about how long people live, you're probably thinking of life expectancy at birth. That number includes everyone who died young, so it says very little about someone who has already made it to 65. By then you've skipped past all the years where you had a chance to die early, and your odds of a long life are better than most people assume.

FP Canada's Projection Assumption Guidelines, the standard Canadian financial planners work from, include survival tables for exactly this. For a 65-year-old, the 2026 tables look like this:

• A man has a 50% chance of reaching 89, and a 25% chance of reaching 94.
• A woman has a 50% chance of reaching 91, and a 25% chance of reaching 96.
• For a couple, there's a 50% chance at least one of them reaches 94, and a 25% chance one of them reaches 98.

A median is the age that half of people outlive, so a plan built to it has about a coin-flip chance of running out while you're still alive. The guidelines recommend planning to an age you have no more than a 25% chance of outliving. That's why the plans I build run to at least 94, and further for a couple, because the money has to last until the second of you dies.

When people guess how long they'll live, they usually think of their parents. Lifespans have kept rising from one generation to the next, so that anchor tends to be too low, and planning to the age they reached is one of the most common ways a good plan comes up short.

What planning long costs

Planning to a later age means spending a little less each year, though usually less than people fear. Take $500,000 in savings earning 3% per year after inflation, which is an assumption for the example rather than a promise:

• Planned to last from 65 to 85, it supports about $33,600 per year.
• Planned to last from 65 to 94, it supports about $26,100 per year.

Covering those nine extra years costs about $7,500 per year, or roughly 22% of the spending. Getting it wrong the other way costs far more. Spend at the 85 level and live to 94, and the savings run out at about 85, leaving nine years on CPP and OAS alone at an age when going back to work isn't an option.

If I was in your shoes, I'd take the smaller number and adjust as I went. Reach 80 with plenty left and you can spend more. You can't do the reverse at 88.

A long retirement isn't one long stretch

Thirty years of retirement rarely look the same from start to finish, and the spending changes with them. The first decade or so tends to be the active years: travel, projects, time with grandkids, the things you put off while working. The middle years usually slow down. The last stretch is often the care years, when health costs climb, sometimes sharply.

On average, spending after inflation drifts down through most of retirement, by roughly 1% per year early on and closer to 2% per year in the slower years. Health costs push it back up near the end, but on average not to where it started. So a plan that assumes you'll spend as much at 90 as at 66 is more cautious than it needs to be, and planning to 94 costs less in practice than the flat example above suggests.

The income that lasts as long as you do

Your own savings can run out, but CPP and OAS pay for as long as you live and rise with inflation, which is why last week's post called waiting on CPP the cheapest longevity insurance available. Every year you wait makes the part of your income that lasts for life bigger.

An annuity is the private version: you give an insurance company a lump sum and it pays you a set income for life. It works because the people who die early effectively fund the ones who live long, so the payments can be higher than you could safely take from the same money on your own. The choices in Canada are thinner than you might expect, and none sold here rise with inflation the way CPP does, which is one more reason to get the most out of CPP first.

A plan that runs to 94 also means a good part of your money stays invested well into your 80s, so it still needs room to grow. The asset mix you hold in retirement matters as much as the one you held while saving.

What's next

If the money has to last 30 years, it can't all sit in cash, and it has to come out of your accounts in some order. Next week looks at what to hold near retirement and which account to draw from first. That one is coming soon.

This is general financial education, not individual advice. The survival ages come from the FP Canada and Institut de planification financière 2026 Projection Assumption Guidelines, which are built on Canadian pension-plan mortality tables, so your own odds depend on your health and history. The $500,000 example assumes a steady 3% return after inflation with withdrawals at the end of each year, and is an illustration, not a projection. For advice specific to your situation, talk to a qualified professional.