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The realities you face when you stop working can be very different from your retirement dream. There are plenty of pitfalls you could encounter. If you haven’t properly prepared for leaving the working world and living without a paycheck, you’ll have to face the ugly truths about retirement.
With today’s realities of minuscule interest rates, decreasing availability of employer-provided defined benefit (DB) pension plans and the potential of longer life expectancy, extending retirement resources over one’s lifetime is more than a theoretical problem.
It’s great news that we may live a long time, the challenge is preparing clients for a retirement that could go from age 60 to 100. The big fear is running out of money. In my experience, retirees need to address ten key issues:
Issue #3: Inflation Will Impact Your Retirement Income Needs
Everyone has experienced inflation which has been out of control this year. As you calculate your retirement income needs, you’ll need to take inflation into account. It’s important to understand the effects of this silent enemy. Inflation dramatically impacts your purchasing power. In order to maintain your current standard of living in retirement, count on spending more over the years as the cost-of-living rises.
Inflation is an insidious process that steadily cuts into your purchasing power. If inflation remains a constant 4% per year for your entire retirement horizon, that means an initial retirement income goal of $100,000 per year will require more than $148,000 in 10 years, $219,000 in 20 years and $324,000 in 30 years. Keep in mind, those numbers are just to maintain the same purchasing power!
Solution: Invest in Equities and delay certain income streams
In order to maintain your purchasing power and outpace inflation, you should consider investing in assets with a higher rate of return to avoid running out of money in retirement. When it comes to investing, it may be a mistake to follow conventional wisdom and invest more and more in bonds as you age, and less in equities.
Periodic retirement projection estimates are crucial to understand how much capital preservation will be necessary to meet family income goals. The wrong investing profile can inflict irreversible financial damage both if you’re too aggressive, as well as too conservative.
One solution is to include global equities in your investment mix since you will likely need your savings to continue to grow while in retirement. Families need a sensible balance between incurring risk and seeking investing returns.
Another way to reduce this impact is to consider delaying the receipt of certain income streams until closer to age 70. CPP increases by 8.4 per cent each year of deferral after age 65 and OAS is only 7.2 per cent, so CPP is a more lucrative pension to defer. CPP also has a survivor benefit that is payable to a spouse or common law partner, unlike OAS, so that mitigates some of the risk for a couple when one or both defer CPP. So, by delaying the onset of benefits, not only will you have a higher level of benefits than if you had begun at 60 or 65, but you will have a greater level of protection against inflation. The same could be true for an employer-provided Defined-Benefit pension plan. While not all pensions are indexed to inflation, those that are will generally pay progressively more for every year you delay receipt of benefits. For example, you might choose to postpone CPP and OAS, gradually start to draw down on non-registered assets and defer your RIF as long as possible.
You might be asking yourself, “Where do I find the right Financial Consultant near me who charges a flat fee and will treat me fairly?” “Where can I find an advisor who can create an Integrated Aligned Overarching Strategy?” or “Where can I find an advisor who will only invest my money in proven passive investments? We suggest that you interview several. You’ll quickly learn that there are very few who are fiduciaries, believe in passive investing and have a process to create an Integrated Aligned Overarching Strategy. When you do find the right advisor, you’ll be able to relax in the knowledge that you are in the right hands and that your financial future is secure. Feel free to reach out to me with your questions. I’m committed to investor education.
Dean Kendall is a Financial Organizer in Calgary, handling all of the financial affairs for a select group of clients who value unbiased quality advice for one simple flat fee.
His book - Stop Paying Hidden Investment Fees! Click here for more information https://www.ideallifeexperience.com/Stop-Paying-Hidden-Investment-Fees
Newest book - Becoming The Champion of Your Dreams: How to Set and Achieve Your Most Important Goals Click here for more information. https://www.ideallifeexperience.com/Becoming-the-Champion-of-Your-Dreams
In addition, Dean is a 3X Canadian National # 1 Amateur, a 5X Canadian National #1 Professional BMX rider, downhill mountain biker and an avid snowboarder. He is an expert at winning. Let him show you how to win the money game. You can reach Dean at dean@ideal-life-experience.ca or Phone 403-543 -7226
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