The Five Key Risks: to Retirement Income

Sharply falling stock markets during the global financial crisis and recession of 2008-2009 led to a great deal of emotional distress and uncertainty among Canadian investors – particularly older Canadians who depend on their savings for income to support the lifestyle they’ve worked for and deserve in retirement.

As the population ages and the provision of workplace pensions has declined, it is more important than ever for Canadians to recognize the financial risks we face in retirement and to create an objective written plan to mitigate those risks.  The good news is that these risks can be managed.

The five key risks to retirement income planning are:

•    Longevity:  We are living longer and healthier lives – therefore we need to plan for a retirement lasting 20 or 30 years or longer.

•    Inflation:  We need to structure our portfolios to keep up with inflation – even if we have modest inflation of 2% it can erode our purchasing power by 40% over a 25 year retirement.

•    Asset Allocation:  The global financial crisis heightened our anxiety about the equity market, but historically equities have provided the long-term growth that is critical to a retirement plan.  A diversified portfolio that includes equity and a Bomb Shelter™ provides growth and protection against market volatility.

•    Withdrawal Rate:  Increased market volatility highlights the need for conservative withdrawal rates.  Retirees who make annual inflation-adjusted withdrawals of more that 4-5% of the original value of their portfolio at retirement run the risk of running out of money.

•    Health Care:  Retirees list health concerns as one of the top reasons they retire.  Individuals need to understand what health care costs are and are not covered by government health care programs, and what their own needs could be and plan accordingly.

A significant portion of our population is, or will soon be, focusing on funding retirement, as the largest generation in Canadian history – the 10 million baby boomers born between the years 1946 and 1965 – enters retirement. In 2011, the first baby boomers reached age 65. This group is particularly vulnerable to volatility in stock markets, which can affect both their total retirement savings and, almost as important, the consistency of the retirement income generated from their nest egg. A shortfall may force changes to lifestyle, work and family plans.

Demographic Changes:

•    Today more that four and a half million Canadians, or 12.5%, are 65 and over.
•    Every day, approximately 1,000 Canadians turn 65.
•    The biggest increase in the number of Canadians over 65 will occur over the next 10-20 years.  Eventually those over 65 will account for 25% of the Canadian population.

More information can be found at http://www.thedelfinogroup.com

We would be pleased to provide you with a copy of the Five Key Risks to Retirement Income Package. Contact Erin Boudreault @ 613-271-6675 or erin_boudreault@scotiamcleod.com


Source: Fidelity Investments “Viewpoint: After the global financial crisis – The 5 key risks to retirement income” 06/11