|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
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
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, 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.