Retirement income – if you’re 60+ in Canada, this topic is probably top-of-mind. And we hope it’s on your radar if you’re younger. It’s never too early to set yourself up for financial success in retirement.
RTOERO members and guests had the opportunity to hear from David Ashton, a freelance journalist who writes about retirement, investments and personal finance, as part of our Focus webinar series. David’s presentation about sustaining your finances throughout your retirement gave essential advice to help you set yourself up for retirement income success. This article is a summary of the tips from the webinar.
Any advice you receive about finance should be tailored to your circumstance. As you review these tips and others, consider how this applies to you and your situation. You may have different medical or caregiver responsibilities, so you need access to more money more efficiently. You may have particular goals you’re working towards or charitable causes you want to support. There’s no one-size-fits-all approach to retirement finances.
We live in a changing world with various circumstances outside our control. We’ve dealt with recent unforeseen challenges, such as the global pandemic and rising inflation rates. While you don’t know what will happen in the future, you can set yourself up to cope with current and future challenges, using these timeless tips.
A balanced portfolio is the key to managing through the situations you can’t control, like the economy, or life circumstances. In retirement, ideally, you have a mix of stocks and fixed income (e.g. bonds, GICs). Your stocks offer greater returns but are riskier. The fixed income helps you through downturns, while also providing some return.
The balance of your portfolio depends on your pension situation:
Structuring finances for good cash flow is straightforward with a defined benefit pension – that’s what they do. When you think about cash flow in retirement, think of two layers:
Together, the layers provide for your total spending needs.
If you’re heavily dependent on your portfolio for your cash flow, you want to avoid being forced to sell stocks at depressed prices. It could deplete your portfolio, which means it doesn’t rebound as stock prices recover. Here are two strategies to help you sustain your portfolio:
Divides portfolio into two buckets
During market downturns, take withdrawals from safe bucket. When the market recovers, you can take withdrawals from either.
Invest in blue-chip stocks that pay reliable dividends, and dividends grow over time.
A blue-chip stock is a large, well-known company with a great reputation.
Life circumstances can affect the need for ready-access money. Have at least three to six months, but ideally, a year of spending accessible in a high-interest savings account. (Don’t tie it up in stocks, RRSPs or regular GICs.) Short-term investment-grade bonds in your portfolio can serve double duty as an emergency fund.
The goal is to create a plan and portfolio that covers your spending needs throughout your lifespan and protects you should you need additional care as you age. A sustainable withdrawal rate is 4 per cent of the initial portfolio yearly, plus subsequent inflation adjustments if you retire at 65.
Unfortunately, the high costs of elder care across Canada can cause you to run short. Proactively, you can take action to maintain your wellness across your lifespan. And also take steps to be prepared to deal with your care needs as they arise.
A modest amount of money late in life can help with:
Backup options to cover your care needs:
Financial advice can help you build a plan and portfolio to meet your individual needs. Look for fee-for-service financial planners, as they’re typically lower cost. Mutual fund advisors are a main investment advice option for small investors, but the quality of advice can vary, and fees are relatively high.
Other investment advice options:
Read more: How to choose a financial planner
While wealth isn’t directly correlated to happiness or well-being, it certainly impacts your personal agency and ability to age well. Financial well-being in retirement is tied to decisions you make, as well as the circumstances that happen to you or that you’ve dealt with across your lifetime.
Do your best to safeguard yourself against economic changes and future care needs. Try to tap into existing services in your community to help you stay connected and age well. Also, consider ways to use your relative privilege to help others through volunteering your time and expertise or donating to support causes.
It’s also more important than ever to advocate for better political representation and focus on healthy, active aging. Learn more about our political advocacy efforts on behalf of RTOERO members and all Canadians for critical policy improvements to address urgent needs and create a more secure and compassionate future for everyone.
Access to presentations with expert speakers is one of the benefits of RTOERO membership. Recordings of past presentations are available on RTOERO Learning, our members-only learning platform.
Do you work in any role in the education sector in Canada? You’re eligible for membership, and it’s free until you retire. Sign up today.