Dear Mike: I’m looking at retirement in the next five years. But with all that’s happened over the last five years, I’m concerned that I may not be ready. What can I do to make sure I’ve got all my ducks lined up?
John in Saanich
With the recent market volatility, not to mention the extreme market turbulence of the last five years, many Canadians are wondering whether they can retire when they want to, or even at all.
When polled, a significant portion of the population is concerned that they may not be able to enjoy a comfortable retirement, or that they may have to delay the retirement to ensure that they won’t have to return to work at a later date.
A recent study, published in the inaugural edition of Insights on Canadian Society, a new Statistics Canada online publication, shows that older workers are more likely to retire later than they did in the late 1990s, regardless of their level of education.
Among those with less than a high school diploma, a 50-year-old worker in 2009 could expect to work another 14.3 years before retiring. In comparison, this same worker could expect to work 12.3 years in 1998.
Similarly, a 50-year-old worker with a postsecondary education could expect to work 14.6 years in 2009, compared with 12.0 in 1998.
So, if you find yourself in the group that feels they may have a less than ideal retirement, or must delay their retirement, what can you do to address these concerns? As with any retirement plan, the first step is to establish an approximate date for your retirement to start.
Once you have a date in mind, you need to figure out how much it’s going to cost you.
I am a firm believer in being conservative with these calculations. If you are setting a budget, give yourself some cushion for unforeseen expenses.
Also, be realistic about your spending habits. If you spend fairly freely while you are working, it’s unrealistic to expect to turn on a dime and live ultra-frugally in retirement.
Now that you have a budget, what kind of longevity can you expect? Is your family history littered with octogenarians, or are they shorter-lived?
According to Statistics Canada, the average life expectancy in Canada from 2007 to 2009 was 79 for men and 84 for women.
Again, if you can, set your budget to live past that date. It’s always better to leave some money behind, than to run out of funds with five years left on the clock.
At this point, you should have a good idea of your required retirement income and the investment totals needed to deliver that to you. If you still have time to save, have your financial adviser crunch the numbers to determine how much you need to sock away to hit the requirements at your target date. If the numbers still don’t work, you may be required to push that date out a little.
Finally, be realistic with your investment portfolio — both positively and negatively.
You want to base your retirement calculations on prudent numbers. That means you should not rely on double digit returns to fund your income in retirement. It also means that you shouldn’t be constantly expecting the financial markets to crash at the drop of a hat.
Structure your portfolio to be defensive, but not so much so that you completely sacrifice returns.
While past performance cannot predict future performance, a balanced portfolio of quality investments will most likely provide you with a solid risk/return scenario.
Do what you can to manage the things that are within your control. But be flexible in your plans and your thinking should something happen that you hadn’t bargained on.
By covering your bases, you should be ready for whatever comes your way.
Mike Watkins, CFP, FMA, FCSI, CSWP
Watkins is a wealth advisor and financial planner with ScotiaMcLeod and author of the financial planning guide It’s Only Money. To ask a question, call 250-418-0114 or email michael.watkins@scotiamcleod.com or see www.watkinsnoblegrewar.com
