Nov 14: BEST FROM THE BLOGOSPHERE

November 14, 2022

Avoiding the top 10 mistakes in retirement

Writing in the Times-Colonist, wealth advisor/portfolio manager Kevin Greenard highlights 10 things that can go wrong for retirees – and steps you can take to avoid those problems.

It’s critical, his column begins, to “not underestimate” the impact of inflation on retiree purchasing power. With inflation recently running as high as 8.1 per cent, he recommends “determining an appropriate asset mix, an optimal number of holdings and position size, ensuring appropriate diversification to manage concentration risk, taking a disciplined approach to rebalancing, and managing your time horizon for investing.” In other words, account for inflation in the design of your investment portfolio.

Next, he talks about longevity – you need, he writes, to factor in the possibility that you may live as long as, or longer, than your parents. “If you have one, or both, parents who lived well into their 90s, or are alive and in their 90s, then it’s prudent to plan that you too will live into, or past, your 90s,” he writes.

Greenard says his firm always assumes a conservative future return rate of four per cent. If you withdraw funds assuming a rate of return that is too high, you can deplete your money too quickly and have little to no money left 25 years into retirement.

He also talks about the risk of being “too conservative” with investments. Those of us who “store cash under the mattress” or invest only in safe, interest-bearing investments like Guaranteed Investment Certificates can actually lose money over time compared with those who take a little more risk with their asset mix. “The key is to find a happy medium that you are comfortable with, and invest only in good quality, non-speculative investments,” Greenard writes.

It’s a fine line, he adds – those who take on too much risk can also have problems. “We have seen many scenarios where significant sums of money have been lost as a result of investing in speculative, high-risk holdings, or having not managed concentration risk by holding excessive position sizes,” he explains.

Other problems that can be addressed include a lack of communications about retirement goals, failure to map out cashflow needs, and not starting a retirement savings plan early enough.

“If you have put off saving for retirement, we encourage you to start today. To benefit from compounding growth, the sooner you can start, the better off you’ll be for it in the long run,” he advises.

His final points are the importance of having an estate plan and a “total wealth plan,” as understanding your overall wealth goals will make planning the retirement component much easier.

Greenard makes some very good points in this column. We have neighbours and friends who over-decumulated from their retirement savings in the early years of retirement and had to either go back to work or adjust (downward) their lifestyle costs.

The best advice we ever received about retirement income was to do a “net to net” comparison, work income versus retirement income, which ties in to what Greenard writes about knowing your cash flows.

When you factor in the lower taxes you pay when retired (generally), and the fact that you are no longer paying into the Canada Pension Plan, Employment Insurance, a workplace pension or other retirement arrangements, you may find like we did that the income “gap” between working and retiring isn’t as huge as a “gross to gross” comparison might suggest.

If you haven’t started saving for retirement, the Saskatchewan Pension Plan is a resource you need to be aware of. SPP is an open defined contribution pension plan that any Canadian with registered retirement savings plan room can join. Once you are an SPP member, you can contribute any amount annually up to $7,000, and SPP will prudently invest your savings at a low cost. At retirement time, SPP have several income options, including an in-house line of lifetime annuity payments. Check out SPP today!

Join the Wealthcare Revolution – follow SPP on Facebook!

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.

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