The luxury of longer lifespans is that you’ve got extra time to reach life’s big money milestones.
And yet, we operate on a timetable for life that looks appropriate for living to 70, not 90: Kids making choices about careers and university at 17; young adults hurling themselves into the housing market in their late 20s or early 30s; middle-aged people aiming to retire before 65. How much of today’s pervasive sense of money anxiety can be traced to our feeling that we’re not where we’re supposed to be, financially?
In a column last year, I looked at five financial challenges posed by the latest thinking on lifespans, which is that anyone who has made it to 60 already will last another 30 years or so on average. Now, it’s time to consider the financial benefits of having more time than we thought.
The idea for this column came from a visit I made last month to teacher Brennan Lee’s Grade 12 accounting class at Bell High School in Ottawa. (Full disclosure: I was invited as part of a financial literacy initiative run by the non-profit Investor Education Fund, which runs the GetSmarterAboutMoney.com website and has paid me for blog posts and speeches). Mr. Lee told me his students are feeling a lot of anxiety about choosing what to study in college and university, and about how they’ll pay for their education. We agreed about the absurdity of 17-year-olds being in such a position when they have the luxury of time on their side.
Today’s university grads could spend as long as five decades in the work force. They can afford to take their time getting started and, in fact, they would benefit by doing so. For example, there’s the “gap year” between high school and university, a time to work and build both savings and life experience. Another approach is to attend college or university part-time while working on the side. A workload of four instead of five courses would have a student graduating with an undergrad degree in five years instead of four, but with less debt because your work income can help pay for tuition and living expenses.
The luxury of time applies as well to making the wrong choice in what to study in college or university. Do-overs, while costly in terms of foregone tuition and other expenses, won’t set you back on the career track in any meaningful way.
The phenomenon of boomerang kids has to be reconsidered in terms of longer lifespans. Is it really a failure to launch as an adult if someone goes to university starting at age 18 and then moves back home for a while after graduation? If people are living to 90 or longer, it’s stupid to write them off for not hitting their stride in their early 20s.
Buying a house is something many young people feel pressured to do as soon as possible by friends and family. But rising house prices have made it tougher to afford both a down payment and the cost of a mortgage. Let’s take the pressure off young adults by saying they don’t have to buy a home in their early 30s. In fact, you can still buy a home at age 40 and make out fine.
By making accelerated biweekly payments instead of monthly payments, a 25-year amortization automatically gets squeezed down to 22 years. You’re mortgage-free by age 62, or sooner if you’re able to make some lump-sum prepayments during the life of the mortgage. One proviso if you buy a first home at 40: Make it one that you plan to live in for the long term. If you move up once or twice, you delay the date you get your mortgage paid off. One more disclaimer: Home buying at 40 will likely require you to start a family while still in an apartment or condo.
Killing off your mortgage in a timely fashion is important because the freed-up cash flow can be directed into your retirement savings. Worried you won’t have much time to do this if your house is paid off in your 60s? Don’t be – retirement is another milestone that needs a timetable adjustment.
It used to be that you’d retire at 60 or 65 and expect to live maybe another 10 years. We still expect to retire in that age range, and yet we might get another 20 or 30 years to live. In that context, retiring later seems natural.
Living longer definitely requires us to save and plan more aggressively, but it also gives us more time to reach life’s financial milestones. To all the people stressing about university, careers, homes and retirement: Relax – you have time.
Lifespan of a Personal Finance Columnist
Sun Life Financial offers a life expectancy calculator at: http://www.sunware.ca/illustrations/longevity.aspx. Here's how the numbers shake out for Globe personal finance columnist Rob Carrick:
Weight: 138 lbs
Blood pressure: Normal
Exercise: Several times per week
Alcohol: 2 drinks or less per day
Smoking: Never smoked
General estimate: 83
50% chance of living to 89
Precise estimate: 88
25% chance of living to 93
Personal Finance in 2014
I’m doing a Q&A session Tuesday on Twitter from noon to 1 p.m. ET. You can tune in via my Twitter feed at twitter.com/rcarrick or by doing a search on Twitter for #AskRob. Can I say something meaningful about personal finance in a 140-word tweet? Just watch me.