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Low fixed-income returns can weigh on retirement plans
4/18/2019 10:49:20 AM
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Valuable insight and opinion on financial, investment, and retirement planning from an experienced industry expert.

By Bruce Loeppky  | Tuesday, September 04, 2018


It has been a long time since the credit crisis in 2009-10 when stock markets steeply corrected. Since then, we have been in a long run with good steady returns without too much volatility. That is great for retirees, many of whom are finding that in retirement their portfolio is holding steady despite monthly redemptions. It serves everyone well except those too heavily invested in short-term interest-bearing investments like GICs, savings accounts, and most forms of bonds. So what’s next?

The takeaway here is to stay the course and not jump too heavily into equities unless you are investing monthly. If you are very conservative and think you are a bit too aggressive, now might be the time to take some risk off the table. Just don’t go too heavily into fixed-income unless you have a lot of capital to buy some returns.

Funding a long retirement

All the statistics continue to point to most people living longer than they expect even though most people are well aware of the statistics. A recent study by the Society of Actuaries in the U.S. estimates that two thirds of married couples who both are 66 years old at retirement will have at least one spouse live to age 86 and one third will have one spouse, usually the female, live to age 92.

If you retire at 65, your assets must last 20 to 30 years. This is less worrisome if you have a Defined Benefit retirement plan and decent personal savings in Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs). If you have a Defined Contribution plan at work, you are in the decent shape, although not as good as someone with a DB plan. If you are coming to retirement with neither a DB or DC retirement plan at work, you need to do some serious math to see if you have enough assets to fund a lengthy retirement.

Canada Pension Plan (CPP) and Old Age Security (OAS) are helpful, but if they are your main source of income in retirement, you'd better have a home that has a zero or low mortgage to help you make ends meet. Canada is not a cheap place to live, especially if you have real estate in Toronto or Vancouver and have a lot of capital tied up in your principal residence.

Options include downsizing and using some of the capital from the sale to live on. Delay CPP payments to give you more guaranteed dollars per month when you do trigger it, and try to cut living expenses, which is never a fun exercise.

You could also get a bit more aggressive with your investment strategy if you are too heavily invested in fixed income, an asset class where it has been very difficult to make decent returns. If you have the bulk of your assets earning 2% to 3% year over year, that typically isn’t good enough. Even very conservative investors usually require 4% to 5% per year with inflation and taxation among other things eating at our income.

Retirement residences

As the Baby Boom tidal wave retires and grows older, we’ll have more people retiring (who might require assisted living services at some point) than actual residences available. It’s a good ideal to get your loved ones on the waiting lists as soon as possible, so they don’t end up on the outside looking in or being forced to settle for second-rate residences when the time comes. Demand for government subsidized facilities far exceeds supply. You may pay big bucks for a non-subsidized facility while your loved one waits to get into the facility of their choice.

Federal and provincial governments continue to promise extra funding for seniors’ care. This may or may not happen or may be only partially fulfilled. That’s why it’s important to ensure you have a financial plan in place now to be prepared for a more secure retirement.

Bruce Loeppky is based in Surrey, B.C. and is registered with Portfolio Strategies Corporation as a mutual funds person. He is a regular contributor to the Fund Library. He can be reached at

Notes and Disclaimers

© 2018 by Fund Library. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited.

The foregoing is for general information purposes only and is the opinion of the writer. No guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice. However, please contact the author to discuss your particular circumstances.

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