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Retirement – A Good Time and a Long Time


When you think of retirement, do you think of vacations, beaches, family time and maybe just a little golf too? Retirement is something – no matter how it looks – that we’re all looking forward to.

Although getting to retirement will be different for everyone, what we all share in common is the need for a plan. Why? Because: (1) markets are volatile and (2) we are living longer than ever before.
 
1. Volatility and “sequence of returns”
While the average return for investors could be 4.7% over a 25-year period, that does not mean markets returned 4.7% every year. Markets, on the other hand, are up some years and down others. Sometimes markets don’t go anywhere.
 
If you’re thinking about retirement, you need to think about the sequence of returns as well. See the table below.
 
Sequence of Returns
 
Table data is for illustrative purposes only. Returns are hypothetical.
 
In the two scenarios above, the beginning value, annual withdrawals, average return and standard deviation (a measure of volatility) were identical. What changes, was the order of returns, and the results were dramatic – in one scenario, you’re up $1,856,062; in the other, your portfolio is $0.
 
As you approach retirement, you need to become more aware of what a few years of poor performance could do to your portfolio. Luckily, building a nest egg early on is a straightforward way to manage this possibility.
 
2. We are living longer and our retirements are getting longer too
Here are a few critical stats to think about: the average age of retirement is 63, and the average life expectancy in Canada is 84 years for men and 87 years for women.1
 
That means your retirement could easily be 20 to 25 years. It’s possible that some people may enjoy as much time in retirement as they spent working! This really is an incredible time for many Canadians.
 
You don’t, however, want to outlive your money – that’s the challenge of longevity.
 
So, it’s important to have a good sense of what your savings goal is, and consider the other factors that can affect your income in retirement – from travel plans to gifting, from living assistance to health care, and from life insurance to CPP. All of these will be affected in one way or another by market volatility and a longer retirement.
 
It takes some planning to ensure you overcome the income challenges of retirement. Work with us today to make sure your retirement is a good one and a long one.
 
1 Statistics Canada Life expectancy table, May 2012.

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