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
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.
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.
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 email@example.com.
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