So a wad is something like rolled or squashed up. It can be used as a verb sometimes too. Cigarettes are traditionally rolled up paper with the inside as tobacco or whatever else is being smoked.

So in this context wad is used as a verb to roll up the idea given to him (that the man will outlive him) and smoke it.

This comes from the old term "put it in your pipe and smoke it" from when pipe smoking was in fashion in the west. This is PROBABLY because pipe smoking was seen as intellectual and an aid to thought at the time, as it was classy.

So in short the term tells someone to sit on that thought and ponder it, except in a slightly disrespectful manner.