Planning to live a long, healthy life? How to make your money last

Ted Rechtshaffen: Combining your financial and health picture along with general life expectancy data gets you a good part of the way there

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There is an all-encompassing statistic for baseball players called WAR, or wins above replacement. The higher the WAR over a career, the better the player. The very best Hall of Fame players might have a WAR of more than 100.

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A career for one of these greats might last 20 years, but their WAR is usually all earned in the first 12 to 15 years, and sometimes they go several years without amassing any WAR, and it can even become negative. I find that this can be a good parallel to the concept of life expectancy versus healthy years, and it is a very important one for all of us.

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We might make a financial plan to last until someone is age 95 or 100 in consideration of an extra-long lifespan. But how many of these years are healthy ones? If it is a plan for a couple, how many years until one person becomes unhealthy and it slows life down for both?

If you are now 60 years old in the United States, your average life expectancy is 84.1 years, and your average healthy life expectancy is 78.9 years, according to World Health Organization data. As expected, the numbers are slightly different for men and women. Women are expected to live 2.6 years longer than men on average (85.3 compared to 82.7 years), and enjoy good health for almost two years longer (79.8 versus 77.9 years).

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Five years of non-healthy life

This suggests that, on average, most people will have about five years of non-healthy life — that is, years significantly weakened by disabling illnesses or injuries, or, put another way, years in which someone is physically or mentally unable to travel .

One other important data point is on spending. US Bureau of Labor Statistics data from 2013 shows that household spending, based on the age of the “reference” person or senior person in the household, looks like the following: under 25: $30,373; 25-34: $48,087; 35-44: $58,784; 45-54: $60,524; 55-64: $55,892; 65-74: $46,757; 75-plus: $34,382 (all figures in US$).

The dramatic falloff in spending from 55-64 to 75-plus is consistent with what we see with the families we work with, and it’s also similar to Canadian studies. The reason I quoted the US numbers is that it specifically looks at those 75 and over.

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The decline in spending is partly due to having a less active lifestyle, and a decline in the average size of the household.

But these numbers don’t answer some specific questions that are important to you: How long will you live? How healthy will you be? What kind of drop off will you likely see in your spending over time?

Live another 24 years

These are big unknowns, but what if you knew? What if you knew you would live another 18 years, but also knew your health would be a major challenge for the final six years? What if you knew your partner would live another 24 years, and health would only be a challenge for the last two?

If you know, here are some things this information could help answer:

If you’re still working, can you stop now? If you can stop working now, what do you want?

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If you have 12 healthy years left, what travel plans do you want to make sure you fulfill? How soon can you start?

If your financial plan stops after 24 years, what is your likely estate value? If that is higher than you would like it to be, how do you start spending more on yourself or others (including charity) to make the next 18 and 24 years more meaningful?

Is there any tax planning you can maximize better? For example, drawing down a registered retirement savings plan (RRSP) registered retirement income fund (RRIF) so there is nothing left at the end. Another example might be planning charitable giving to gift more quickly and take full advantage of all tax credits.

Life insurance can be a very good investment if you know your longevity.

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Given the certain length of life, and financial projections, you can be specific in terms of gifting children to help with real estate. You can also be comfortable gifting sooner.

Are there relationships that are most important to you, and ones you want to make more of an effort to improve in the time left?

Are there things you have always wanted to do that you have always put off? Learning an instrument or a language? Writing a book? Volunteering with children? With 12 healthy years left (or 22 healthy years left), you may need to act sooner to achieve some of these.

I would argue that you probably have the information at hand today to answer most of these questions and take some action now.

If you combine the specifics about your financial and health picture into a financial plan today, and then combine that with general data on life expectancy, healthy years and typical declines in spending, you are most of the way there. This is how we typically help our clients make some key decisions today, as opposed to waiting until it might be too late.

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To continue the baseball theme, the Toronto Blue Jays and other teams are using a player’s specific piece of data and the data of all the other players to make detailed future predictions. Your future home run totals may not be that relevant, but your future financial and health certainly is.

Just like in baseball, much of your future can be predicted with a reasonable degree of accuracy. With that information, you can make important investment and personal finance decisions today to help make the rest of your life much better.

Ted Rechtshaffen, MBA, CFP, CIM, is president and wealth adviser at TriDelta Financial, a boutique wealth management firm focused on investment counseling and high-net-worth financial planning. You can contact him directly at [email protected].

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