Longevity is making retirement planning a necessity
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(Special) - There have been a lot of studies over the last couple of years that state pretty emphatically that Canadians are not preparing themselves for their retirement.
Here's a quick smattering of some of them.
The top three retirement concerns of Canadian boomers are longevity related — maintaining their standard of living, having enough savings and covering health care costs. The number one question they have on their minds is, "will I have enough money in retirement?" Almost half say they don't feel they are where they should be in terms of their saving for retirement.
Debt is causing many Canadians to live paycheque to paycheque, worry about their future and hindering their ability to save and prepare for a comfortable retirement, in some cases even forcing them to delay it. Canadians think they will need a retirement nest-egg of $1 million. The majority are unable to save enough and have fallen behind their retirement goals, with 76 per cent saying they've saved only a quarter of what they think they will need.
And a recent survey by the Canadian Payroll Association found that almost half of Canadians say they are living paycheque to paycheque and would have trouble meeting their financial obligations if their cheques were delayed even by a single week.
"Regardless of whether you have started early or late, everyone needs a plan," says Brian Burlacoff, a financial adviser with Sun Life Financial. "If you are going to drive to Florida you decide on your final destination and then plan a route to get you there. A retirement plan is no different — it's a GPS to get you where you want to go."
Today, perhaps the biggest risk in planning retirement is longevity. Canadians are living longer and can realistically expect to live 20 or even 30 years or more in retirement. The danger of longevity is outliving your money.
"This is helped in Canada by government plans such as the Old Age Security and Canada Pension Plan, defined benefit pension plans, private employer plans and savings vehicles like the Registered Retirement Savings Plan and Tax Free Savings Account," says Burlacoff. "The start of a good plan is to decide what you want your retirement to look like which will tell you how much money you will need."
The second major risk is inflation. "When making forecasts we assume our clients will to live to 95, do not take into account the value of their home and plan for an annual inflation rate of 2.5 per cent," Burlacoff says. "If you do this you will build in a good financial buffer into the plan."
The third is withdrawal rate risk. This is the danger of taking too much money out of your financial reserves too early. A common rule of thumb to make your money last 30 years is to withdraw no more than four or five per cent each year and then adjust the dollar amount to maintain purchasing power against inflation. This assumes that 50 per cent of savings is invested in stocks.
"When starting retirement at, say, age 65 you may want to have a higher percentage than that in your portfolio and reduce that over time as you get older," says Burlacoff. "Stocks and real estate generally are a good hedge against inflation but you should look at and review your asset allocation over time to ensure you are being provided with an adequate monthly income."
The last major risk is health. Burlacoff suggests people look at long term care insurance, medical and dental insurance and ensure they have a current will and designated powers of attorney for both property and health.
"All this planning is not simple so it's prudent to seek professional advice," Burlacoff says. "General advice is good but everyone is unique and a plan should be customized to you and your circumstances."
Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors.
Copyright 2017 Talbot Boggs
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