Readers denounce it: financial planners, especially when they intervene in our section Life train, make retirement projections with a death horizon of 95 years, while life expectancy in Quebec is closer to 82 years.
Reactions like this.
“Please, stop thinking that the life expectancy is 95! 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). Not to mention 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 Institut de la statistique du Québec.
“It annoys me that people say it’s dishonest and needlessly inflate things. It really irritates me! 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 Standards for Projection Assumptions of the Quebec Institute for Financial Planning and the FP Standards Council.
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.
Males: 80.5 years
Women: 84.1 years
Males and females combined: 82.3 years
According to the update published by the Institut de la statistique du Québec 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’re one of those people, what do you do if you’ve run out of money?” “, continues the planner. You can’t ask me, as a professional, to take that risk for my clients. »
According to ISQ data, a 65-year-old man in 2022 has a life expectancy of 19.4 years, which brings 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% chance of reaching age 89. For women, this probability is to reach age 91.
Another reader, this time Daniel, wrote to us:
“All financial advisors make a calculation believing that we are going to spend the same amount of money at 95 as we did at 60. It’s as if a 90-year-old is going to have the same energy and the same ability to spend, for example on travel, as if they were 60. In addition, according to some studies, the number of healthy years is 10 years less than the life expectancy. What are the odds that a person will live to be 95 and mostly healthy to be able to do their normal activities? »
A nonagenarian has less energy for his travels?
” I agree ! “says Nathalie Bachand.
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, it doesn’t cost anything anymore?” You don’t eat, you don’t have care, you don’t have medicine? 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. »
Will you exceed your life expectancy? This 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 assume age 95.
“When we do analyzes for the Sunday Train de vie, we are limited in the number of words. In real life, when you’re planning for a client, you have discussions,” the planner further argues.
“I show people the moment when there’s no more money: ‘You’ll have emptied your assets at 75, I’m not comfortable. So I made an additional scenario where you work longer, where you 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 be tending 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.
“If we take the numbers for 2022, your reader wasn’t too far away,” says Frédéric Fleury-Payeur, expert demographer and coordinator of the demographic outlook and mortality analysis program at the Department of Socio-Demographic Statistics. 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.
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. 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 around 5 per 1,000, some 99,500 of them survive to the age of 1 year. “We apply the 1-year mortality rate to them, and then we go to 2 years, and so on. »
According to the 2022 mortality table that combines the two sexes, there are still about 90,000 survivors at age 65.
To establish the probability that a 65-year-old can reach 95, simply compare the number of survivors at age 95 to those who survived at age 65 and make a simple rule of three.
“If there are 13,000 of 90,000 left, that’s our probability of surviving between ages 65 and 95, which is 14 percent,” he says.
The point at which the probability of survival is 50% gives us the life expectancy at a given age.
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 that life for us. “Because there are still some expected gains in life expectancy over the next few decades. These babies are going to benefit. »
When they reach the age of 20 in 2042, they will live according to the mortality risks at age 20 that 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 we 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 death 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 we approach the question in a longitudinal way, the life expectancy of the 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.