Investors tend to worry most about the risks they can see.
A 20 per cent market decline gets attention immediately. So do recessions, interest rate changes, geopolitical events, and day-to-day market swings. Yet many investors spend far less time thinking about a potentially more consequential risk: whether their savings and investments will last for the rest of their lives.
Long-term risks are quieter. Living longer, inflation eroding purchasing power and becoming too conservative can take years or decades to reveal themselves.
The risk of a longer retirement
According to the Office of the Chief Actuary’s latest actuarial projections for the Canada Pension Plan, a 65-year-old Canadian male is projected to live another 21.6 years and a female 24.1 years, taking them to roughly age 87 and 89, respectively. Many Canadians could live well beyond those averages.
For couples, the planning horizon can be longer, as assets may need to support the surviving spouse. A portfolio may need to provide income, liquidity and growth for 25 or 30 years.
I was speaking recently with a client approaching retirement. After decades of building her savings, she asked whether it made sense to move all of her portfolio into GICs or treasury bills. Her question was understandable: “I’ve accumulated enough. Why continue taking market risk?”
Reducing some portfolio risk as retirement approaches can be appropriate. But when we looked beyond the next few years, the question changed. Her portfolio still needed to support her for the rest of her life while contending with inflation and withdrawals.
Moving entirely into GICs or treasury bills could reduce volatility today but also make it harder for the portfolio to keep pace with inflation over several decades. The goal should not be to eliminate short-term risk at the expense of greater long-term risk.
Short-term pain can obscure long-term progress
The COVID-19 market decline provides a useful example. The S&P 500 reached a then-record high in February 2020. Just over a month later, it had fallen approximately 34 per cent.
An investor who entered immediately before that decline could hardly have chosen a more uncomfortable time. Yet by September 2026, the S&P 500 had delivered a total return of more than 145 per cent from that February 2020 pre-COVID-19 peak, including reinvested dividends.
Bad timing can feel permanent in the moment. Time can change the arithmetic.
A GIC investor over that period would have avoided the sharp decline and earned a positive, predictable return, but with considerably less growth. Different assets solve different problems: GICs can provide certainty, while equities can provide growth that may help preserve purchasing power over longer periods.
The lesson is not that markets always recover quickly. Investors should distinguish between short-term volatility and long-term financial risk. Short-term market losses are obvious. The long-term cost of insufficient growth is harder to see.
Purchasing power matters
At just two per cent annual inflation, a lifestyle costing $100,000 today would require approximately $181,000 a year 30 years from now to maintain the same purchasing power.
A bad month in markets can be painful. A portfolio that fails to keep pace over 30 years can be far more consequential.
Cash and high-quality fixed-income investments can provide stability, income and liquidity for shorter-term needs. Conservative investments often play an important role in retirement. The question is whether the overall mix provides enough income, liquidity, and growth for the full planning horizon.
The objective should not be to favour one asset class over another but to maintain an appropriate balance that reflects an investor’s time horizon, spending needs and broader financial plan while remaining consistent with their investment suitability and risk tolerance.
Longevity is a total wealth planning issue
Whether an investor’s money lasts for the rest of their life depends on more than investment returns. Spending, taxes, pensions and other income, CPP and OAS decisions, RRSP and RRIF withdrawals, liquidity, health-care costs and estate objectives all matter.
This is why investors approaching retirement should consider developing a retirement projection or total wealth plan. A good plan can model spending, inflation, taxes, investment assumptions and retirement income.
A retirement projection can help answer a question investment returns alone cannot: Is the plan still sustainable if retirement lasts longer, inflation runs higher or markets deliver weaker returns than expected?
The goal is not simply to avoid short-term losses. It is to preserve financial flexibility and purchasing power over an entire lifetime.
Investors naturally focus on risks they can see today. Good planning also needs to prepare for risks that may not reveal themselves for many years.
This requires balancing near-term liquidity and income needs with sufficient long-term growth while considering investment strategy, retirement income, taxes, estate planning and other priorities within the context of each investor’s broader total wealth plan.
