February 12, 2024

Avoid key mistakes that can cramp your style in retirement

When we’re slaving away in our cubicles (or, more often these days, from our dining room tables), retirement can seem a far-off, almost imaginary time when work won’t be necessary.

But CTV’s Christopher Liew warns that to enjoy a long and financially stressless retirement, there are several key planning mistakes you need to avoid.

He begins his article by noting that one in four Canadians will be over 65 by 2043, and that our country “is home to an increasing number of centenarians (those 100 and older) as well.” As recently as 1990, he continues, Canucks could expect to live to age 77. Today that number has jumped to 83.

“Canada’s senior population is growing larger and living longer,” he writes. “While this is great news, it also means the younger generations need to pay more attention to retirement planning.” So, what are the things we need to avoid?

First, writes Liew, don’t start saving for retirement too late.

“If you want to build a substantial retirement fund, time is your greatest ally. The longer your retirement savings have to grow and earn compounding interest, the more you’ll have when it’s time to step back and start your retirement,” he explains.

He then gives an example – Person A, who “opens a retirement account at age 25… deposits $1,000 and contributes $500 a month,” and Person B, who at 45 opens an account, deposits $10,000, and contributes a grand per month.

“By the time these individuals turn 65, Person A will have $731,838.63 and Person B will have just $423,324.43,” Liew explains, all thanks to the “magic of compounding returns.”

Another error to avoid is failing to diversify your investments, writes Liew.

“Putting all your retirement eggs in one basket can be a risky game. Diversification is key to balancing the risk and returns in your investment portfolio. Failing to diversify can expose your retirement savings to market volatility and specific sector risks, potentially derailing your long-term plans,” he notes.

A third mistake is underestimating your retirement expenses.

“Retirement often brings its own set of financial demands, ranging from healthcare costs to leisure activities. Underestimating these can lead to financial strain, potentially forcing you to dip into savings faster than you anticipated,” he warns.

Be aware – in advance – of “all potential retirement expenses, including healthcare, travel and hobbies,” he recommends. Plan for things like “home repairs or health emergencies,” and “consider the impact of inflation on your future expenses.”

Fourth on the list is not having a clear plan for your retirement.

“Without a defined strategy and vision for your retirement, you risk running out of funds, missing out on investment opportunities, or failing to account for expenses. A clear retirement plan helps you stay focused and make informed decisions,” he suggests.

Last, but not least, is not accounting for inflation.

“Failing to account for the gradual increase in prices over time can significantly impact the purchasing power of your retirement savings. What seems like a sufficient nest egg today might fall short in the future, especially with the rising costs of living,” he concludes.

Diversification is a key strength of the Saskatchewan Pension Plan’s Balanced Fund. All the eggs are in different baskets, including Canadian and U.S. equities, non-North American equities, real estate, infrastructure, bonds, mortgages, private debt and short-term investments. Check out SPP today – a made-in-Saskatchewan retirement program that’s open to all Canadians with registered retirement savings plan room!

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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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