It is a scandal !
Readers denounce it: the financial planners, in particular when they intervene in our section Train of life, make projections of retirement with a horizon of death at 95 years, whereas the life expectancy in Quebec is closer to 82 years.
Reactions like this.
“Please, stop considering that the life expectancy is 95 years! Alain wrote to us. It is rather 81 years for men and 83 years for women. That’s an average of 26 more years of savings (for a couple). You lose all credibility there (it’s dishonest and you inflate things unnecessarily). This is without taking into account that we spend a lot less in the last 10 years of life. »
For our information, he refers to the site of the Quebec Institute of Statistics, where a publication dating from May 2022 tells us that life expectancy in Quebec had returned to its pre-pandemic level of 83 years.
We first asked an emeritus financial planner for clarification, and then an equally emeritus demographer from the Quebec Institute of Statistics.
Dishonest ?
“It annoys me that people say that it is dishonest and that we inflate things unnecessarily. It irritates me deeply! exclaims independent financial planner Nathalie Bachand, of the firm Bachand Lafleur Groupe conseil.
She feels all the more challenged – not to say stung – because she is chair of the board of the non-profit organization ÉducÉspargne and a member of the committee that updates the Norms of projection assumptions of the Quebec Institute for Financial Planning and the FP Standards Council.
PHOTO MARTIN TREMBLAY, PRESS ARCHIVES
Nathalie Bachand, financial planner at Bachand Lafleur Groupe conseil
As a professional, I always tell my clients that my fear is that they’ll come back to see me at 80 on a walker to tell me: “Nathalie, your plan didn’t work, and I still need the money.”
Nathalie Bachand, financial planner at Bachand Lafleur Groupe conseil
The most recent version of the Standards, revised annually, was published on April 30, 2023.
First nuance: these standards, and the planners who apply them, are only indirectly interested in life expectancy. Rather, it is the probability of survival that concerns them.
Life expectancy at birth in 2022
Men: 80.5 years
Women: 84.1 years
Men and women combined: 82.3 years
Source: Statistical Institute of Quebec, May 2023
One chance out of two
According to the update published by the Statistical Institute of Quebec in May 2023, life expectancy at birth in 2022 was 82.3 years.
“You have a one in two chance of exceeding your life expectancy, 50% chance! “says Nathalie Bachand.
Life expectancy is not a boundary, a deadline or a guarantee. Someone unlucky might overtake her, perhaps by a lot.
“If you are one of those people, what do you do if you have no more money? “, continues the planner. You can’t ask me, as a professional, to take that risk for my clients. »
The life expectancy of a 65-year-old person is higher than the life expectancy at birth, because this person has successfully faced the risks of dying during his first 65 years of life.
According to ISQ data, a 65-year-old man in 2022 has a life expectancy of 19.4 years, which takes him to 84.4 years. For a 65-year-old woman, the life expectancy of 22 years puts her at 87.
The IQPF Norms survival probability table indicates that a 65-year-old man has a 50% probability of reaching age 89. For women, this probability is to reach age 91.
Do we spend less with age?
Another reader, Daniel this time, wrote to us:
“All financial advisers make a calculation believing that we are going to spend the same amount of money at 95 as at 60. It’s as if a 90-year-old person will have the same energy and the same ability to spend, for example on travel, as if they were 60 years old. Moreover, according to some studies, the number of healthy years is 10 years less than the life expectancy. What are the chances that a person will live to be 95 years old and above all in good health to be able to do their normal activities? »
A nonagenarian has less energy for his travels?
” I agree ! “says Nathalie Bachand.
But perhaps his travels, at age 90, will be replaced by health care. Maybe this person will decide to go private to have a hip replaced because there are four years of waiting in public. It will be the equivalent of the trip she would have paid at age 60.
Nathalie Bachand, financial planner at Bachand Lafleur Groupe conseil
In short, active spending is gradually being replaced by passive spending: health care, accommodation in seniors’ residences, etc.
The planner also agrees that the number of years in good health is about ten years less than the life horizon.
“But when you’re sick, doesn’t it cost anything anymore?” You don’t eat anymore, you don’t have care, you don’t have medication? Do you eat soft and rock in a CHSLD? “, she pronounces with an irony strongly tinged with common sense.
“That’s why we maintain the same standard of living. »
The uncertainty of real life
Will you exceed your life expectancy? It is the equivalent of a coin toss.
To take into account the detestable possibility of living old, the IQPF Norms recommend “using a projection period where the probability of survival does not exceed 25%”.
A one in four chance rather than a one in two chance.
The calculation is based on the age reached by the future retiree.
A 65-year-old man has a 25% chance of reaching age 94. A 65-year-old woman has a one in four chance of still being alive at 96.
For simplicity, planners generally use the age of 95.
“When we do analyzes for the Train de vie du dimanche, we are limited in the number of words. In real life, when you do a planning for a client, you have discussions, ”says the planner again.
“I show people the moment when there is no more money: ‘You will have emptied your assets at 75, I’m not comfortable. So I made an additional scenario where you work longer, reduce your expenses, etc. »
Because retirement planning is not an exact science. Parameters change over time. And it is true that the deadline of 95 years is not absolute.
In short, the journey may tend towards a 95-year terminus, but nothing prevents it from being adapted along the way. The important thing is to have an overview of the route.
What Lies Beneath Life Expectancy
“If we take the figures for 2022, your reader was not too far away,” says Frédéric Fleury-Payeur, expert demographer and coordinator of the demographic outlook and mortality analysis program at the Department of Sociodemographic Statistics of the Institute of Statistics of Quebec (ISQ).
In fact, life expectancy at birth, according to the latest ISQ data published last May, in 2022 stood at 80.5 years for men and 84.1 years for women.
Live your whole life in 2022
But how is this life expectancy calculated? This is what experts call the current life expectancy.
It measures the average number of years that the population could expect to live if it were subjected throughout its life to the mortality conditions of a given year.
For life expectancy at birth in 2022, demographers assume that a baby born in 2022 will live each of their years of life in 2022, with the risks of death in 2022.
Take the example of Quebecers aged 20 in 2022. Their mortality rate is given by the number of them who died in 2022 compared to all Quebecers aged 20.
This calculation is repeated for each age, from birth to 120 years. These death rates are combined into a life table, which tracks the fate of a typical population of 100,000 people.
“We start, for example, with 100,000 babies at birth and we make them successively experience the mortality rates at each age”, describes Frédéric Fleury-Payeur.
With a mortality rate at birth of about 5 per 1000, some 99,500 of them survive to the age of 1 year. “We apply the mortality rate to them at 1 year, and then we go to 2 years, and so on. »
According to the 2022 mortality table that combines the two sexes, there are still around 90,000 survivors at age 65.
PHOTO PATRICE LAROCHE, LE SOLEIL ARCHIVES
Frédéric Fleury-Payeur, expert demographer and coordinator of the demographic outlook and mortality analysis program at the Sociodemographic Statistics Department of the Institut de la statistique du Québec (ISQ)
This means that there are 90% of Quebecers who can be expected to be alive at 65, according to the conditions of 2022.
Frédéric Fleury-Payeur, expert demographer and coordinator of the demographic outlook and mortality analysis program at the Sociodemographic Statistics Department of the Institut de la statistique du Québec (ISQ)
To establish the probability that a 65-year-old can reach 95, simply compare the number of survivors at 95 to those who survived at 65 and make a simple rule of three.
“If there are 13,000 left out of 90,000, we get our probability of surviving between 65 and 95, which is 14%,” he says.
The point at which the probability of survival is 50% gives us the life expectancy at a given age.
A stretched life expectancy
These magnificent calculations have therefore enabled demographers to establish that the life expectancy at birth of Quebecers in 2022 was 82.3 years. “Is this really a prediction for how long babies born in 2022 will actually live? No, not necessarily”, asks Frédéric Fleury-Payeur, to complicate this life for us. “Because it is expected that there will still be some gains in life expectancy over the next few decades. These babies are going to benefit. »
Having reached the age of 20, in 2042, they will live according to the mortality risks at age 20 which will prevail in 2042. And so on.
To take into account this effect of improvement over time, the ISQ publishes analyzes on the life expectancy of generations. “We compile our hypotheses for the evolution of life expectancy and put them end to end for the same generation”, explains the demographer.
For the generation of 2022, for example, the curve will take into account the risk of mortality at birth in 2022, followed by the risk of death that members of this generation will be exposed to at 1 year in 2023, then the risk of death at 3 years. in 2024, etc.
The most recent analysis of the life expectancy of generations in Quebec was published in 2016, so before the pandemic came to zigzag the curves which until then showed a good regularity.
“But it still gives an idea,” says the demographer, “and it shows that when the question is approached longitudinally, the life expectancy of generations is higher than the life expectancy of the moment. »
For example, the current life expectancy in 2015 for a 65-year-old man, born in 1950, was 19.2 years, which brought him to 84.2 years. But according to the projection of the 1950 generation, its life expectancy was rather 21.4 years, so a death at 86.4 years, or 2.2 years more.
“Out of curiosity, I calculated the survival probabilities to age 95 that we get with the baseline scenario for a 65-year-old in 2022 (1957 generation),” he said in an email that was followed the interview. “That gives us 22% for men and 33% for women. Genders combined, we are at 28%, which is therefore very close to 25%. »
So very close to the calculation of the IQPF tables.