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How to stop retirement anxiety syndrome

Tuesday September 30, 2014

Driven by the aging Baby Boomer demographic, some strong currents are having huge implications for retirement planning in Canada and the U.S. Everything from investment returns, to healthcare, to quality of life will be affected. If you’re not even slightly nervous, then you probably already have a sizeable nest-egg, and a workable retirement plan, including health and care contingencies as you age. But if this doesn’t describe you, then you’re probably suffering from retirement anxiety syndrome. But read on. You might still have time to get on the right track for retirement planning..

Aging Population

The wave of Baby Boomers who will retire in the next decade may have several negative implications for North America, and this will affect stock markets as well. Primarily, when people decide (or are forced) to retire, they will cease contributions to government coffers and instead start what could be a lengthy period on CPP/OAS while using doctors and all things medical, much more so than in their working years.

This impact will be massive as government revenues shrink and expenses increase. If people think wait times for operations are long now, just think to where they could go in 10 to 15 years.

Multinational companies operating in this environment may do okay, because as retirees in their North American markets consume less, they may offset this decline with growth in emerging markets, which have more favourable demographics, so your stocks, ETFs, and mutual funds may still do fine.

Note, however, that they will have to do fine, because with interest rates hovering at, and expected to remain at, historic lows, you simply must have money in equities. GICs and bonds may offer a return of only 1%-3%, which isn’t much when inflation and taxation are factored in. In fact, the real return may in fact be a loss, so you would need a massive amount of capital for this strategy to work for longer periods of time.

When considering your portfolio, make sure you are diversified by asset class and geography, which will help smooth out the ride. Getting advice helps, because it’s hard to be objective and easy to be emotional when it’s your own money.

Plan your retirement

Being optimistic people, we all think we can plan our retirement and decide the day/month/year to say goodbye to corporate Canada. This would also be when our investments and assets are exactly where we want them to be for our individual comfort levels.

The facts tell a different story. According to research done by mutual fund company Fidelity, 50% of retirees leave their jobs early. The reasons are many but include health issues, elimination of a job, and loss of enthusiasm for job. What does this mean for you? It means don’t push off retirement planning until you’re 55, thinking that with kids gone, you can save huge dollars for 10 years. None of us knows what the future will bring, and risks increase as you get into your late 50s. You may only have only three or four years left before retirement is forced on you one way or another.

Start early

Start early, even if you’re only adding $100 or $200 a month into an RRSP or TFSA. When life circumstances allow you to increase the amount, do so. Sticking with this strategy will allow compounding to work for you, so at age 55 you will already be sitting on a good-sized nest egg. At that poing you can add the “gravy.” Procrastinate and you increase the risk exponentially that even little bad luck or health problems could have you looking to family and friends to support you, and none of us wants that.

Once you get to pre-retirement age, you can look more closely at how much money you will need and when is an opportune time to stop working if you one of the lucky ones who can decide the date. As long as you keep investing (monthly is best) and don’t get overly aggressive or overly conservative, over time you will likely be among the population who are comfortably retired as opposed to just scraping by.

Who wants to work 30-plus years to be counting pennies (nickels now) in retirement? If you love to travel and golf, then you will require more assets. If gardening and walking in the park with your dog suit you, then you can get by with less.

None of knows what our health will be like in retirement and what the financial implications of poor health may be. Going into long-term care isn’t cheap, especially if it’s for a decade or longer. For many, selling a principal residence could pay for this care if required, providing your spouse isn’t still living in it.

Professional planning can help

These are but a few of the many factors involved in this marathon to transition from working full time to either part-time work or comfortable full-time retirement. Inflation, issues with children asking for assistance, investment returns, family relations and estate issues within that dynamic, your own longevity, and many other factors driven by your personal circumstances will affect how well you fare in retirement.

That’s why it’s important to start early, build a plan if you know how, or get professional financial help if you don’t.



Generic Mutual Fund Disclaimer

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the simplified prospectus before investing. Mutual funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently and past performance may not be repeated.

Personal Opinions & Recommendations Disclaimer

The foregoing is for general information purposes only and is the opinion of the writer. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice. However, please call the author to discuss your particular circumstances.