Thinking about your future? If you start saving today, you want to make sure the money you invest lasts you all through retirement.
That’s why your retirement plan needs to change over time as you get closer to the big day.
“Investing gives your money the chance to grow – which is important, because you never know what the future holds,” says Leslie Hanson, Financial Advisor at Cambrian and Aviso Wealth.
“You can survive on a basic pension plan and government benefits, but investments open up more choices for your lifestyle in retirement.”
We sat down with Leslie to discuss different investment approaches to consider as you prepare for retirement:
By investing, you can outpace inflation and protect your savings throughout retirement.
“If you want to maintain your lifestyle in retirement, you likely need another source of income aside from Canada Pension Plan (CPP), Old Age Security (OAS), or Guaranteed Income Supplement (GIS) – and that’s what investments can provide you,” says Leslie.
“Investments give you choices. For example, the choice to travel, purchase a second property, or help family members.”
As your life changes, your comfort level with risk and objectives for your investments might change.
Annual portfolio reviews with your advisor give you the opportunity to assess if the investments you have still make sense or if adjustments need to be made.
In general, you should select riskier / more aggressive investment portfolios when you’re younger, and more conservative ones as retirement draws near. But not too conservative, or you could miss out on growth potential.
“Some people think: I’m retiring soon, so I should get out of the market. But you aren’t going to spend all your money the day you retire!” says Leslie.
Instead, it’s more likely that you’ll withdraw a small portion each year/month to cover your expenses. This will keep your annual income lower and save you on taxes!
Once you reach retirement age, your investment strategy will change. That’s because you’ll convert your Registered Retirement Savings Plan (RRSP) to a Registered Retirement Income Fund (RRIF) and start withdrawing funds to use as retirement income.
So, how should you invest the money that remains in your retirement fund? It may be tempting to take the safest approach, but consider this:
The average life expectancy in Canada has steadily increased over the years. For 2023, the life expectancy of the average Canadian is 82 years.
“People are living longer, so they need their money to last,” says Leslie.
If you retire at age 65, that means you could potentially have 15+ years to continue investing your retirement savings. That’s a lot of time in the market!
“Some of your savings will stay invested for another 15-20 years, and you still want that money to grow.”
“The longer time horizon you have, the more aggressive you can be in your investments. That increased longevity means that if you’re too conservative too soon, you could jeopardize your savings.”
If you only choose low-risk investments, you could be missing out on greater gains. That’s why it’s still important to allocate part of your retirement account towards more aggressive or moderate investments.
Before you can answer that, you need to ask yourself what you want your retirement to look like. Then, you can get a better idea of what it will cost – and if you’re on track to save enough for it!
“First, you must figure out how much money you need to live off. How do you know if your money will last if you don’t know how much you’re spending?” asks Leslie.
“If you’re worried about whether you’re on track to save enough for retirement, having a written financial plan is really important,” says Leslie.
“It may be a bit of work, but you’ll notice your stress levels go down significantly when you start that plan! Then, you can see where you need to make adjustments to meet your financial goals.”
Learn more about how much you need to retire.
It’s a concern shared by many: Are you investing enough to last throughout your retirement?
“Inflation and taxes can really diminish your retirement fund. By investing aggressively, you can offset those costs and open up more lifestyle choices for yourself in retirement,” says Leslie.
“By going too conservative with your portfolio—for example, relying on high-interest savings accounts or GICs rather than investments—you could run out of money during retirement.”
“As people get older, they tend to have less need for money and their expenses are lower; they’re past the age they want to travel or buy a second property.”
“You still need your investments to grow, but for different reasons. For example, financial security; if a spouse passes away and you lose some of their pension, or unexpected personal health issues can put a strain on your income,” says Leslie.
We’re here to help you throughout all stages of your financial journey.
“Consistent investing from an early age is key. Pay yourself first! By investing monthly, weekly, or bi-weekly, you can make it an automatic habit,” says Leslie.
Book a meeting today, and let’s start working on your retirement investment plan!
Disclaimer
Mutual funds and other securities are offered through Aviso Wealth, a division of Aviso Financial Inc.
We would be happy to discuss your unique situation with you.
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