One hundred years – that’s a long time.  But celebrating a century of life will become more common in the coming years for a growing number of Canadians – maybe you.  According to Statistics Canada, people are living longer, with the fastest growing portion of the population as those 80 and over.  In fact, from 1991 to 2001, their number jumped by over 41 percent to about 932,000 – and the trend is expected to continue with the number of people 80 and over rising by another 43 percent to more than 1.3 million from 2001 to 2011.  Not surprisingly, the number of centenarians is also increasing.  In 2001, there were 3,795 centenarians in Canada, an increase of about 21 percent from just 1996.

Living longer – that’s a priceless gift, isn’t it?  Well, sort of.  There’s no doubt that a longer life expectancy is wonderful, especially for those who remain active and in good health for all their years.  But, there are all those years to consider – extra retirement years that will require you to generate more income – and that will definitely be price-y not price-less. 

Until now, it has been common to plan for a retirement that ends at age 80 (the average life expectancy in Canada today is 79.7 years) not 100.  But here’s what could happen if you retire at age 65, put your retirement investments into a RRIF that earns 6 percent* and draw $3,000 from your RRIF each month (without indexing):  Ignoring taxes, you would need to have $375,425 in your RRIF to last until age 80; however, if you need your RRIF to last until age 100, you would need $543,160 or $167,635 more at age 65.

Planning for retirement has always been important, but when you factor in those extra years that you want to be able to enjoy to their fullest, it becomes even more so.  You’ve always understood the value of your RRSP as a great tax-reducing income builder for retirement. But there are strict government regulations on the total amount you can contribute to your RRSP – meaning that it’s unlikely that your RRSP alone can deliver the level of income you’ll need for a long retirement lived on your own terms.  The solution is to maintain a well-chosen portfolio of non-registered investments to enhance your RRSP investments.   And while non-registered investments don’t enjoy the same tax sheltering as your RRSP, there are strategies you can use to select non-registered investments that minimize your yearly taxes and maximize long-term returns:

·         Choose non-registered investments that benefit from preferential tax treatment on capital gains and dividends, which are taxed much less heavily than interest income.   Your investment choices in this category include qualifying Canadian corporations or equity mutual funds.

·         Choose tax-advantaged mutual funds.  Unlike most mutual funds, which trigger tax consequences when you switch from one non-registered fund to another, funds within the same tax-advantaged fund structure are treated as a single entity for tax purposes – allowing you to move assets freely among share classes while deferring taxation of any capital gains until you redeem your investment from the fund structure.

·         Choose mutual funds specifically managed to minimize annual distributions.  You may not have to report any investment income until you sell your investment so you can time each sale for minimal tax exposure.

·         Choose Universal Life insurance.  If you’ve maxed out your RRSP contributions and have your debt under control, you can take advantage of universal life’s ability to shelter excess capital while maximizing the value of your estate.

A longer life is a wonderful gift – but it does have implications for your financial and retirement plans.  A financial advisor can help you develop a tax-efficient registered and non-registered investment strategy that can have you celebrating in style no matter how many candles are on your birthday cake.

*The rate of return is used only to illustrate the effects of the compound growth rate and is not intended to reflect future returns on investment.