These key factors are essential to address for a smart retirement plan and choosing the investments that will get Canadians through their key milestones.
Financial Goals in Retirement
Some have a rough idea, a rule of thumb or ballpark number they? like to hit in savings by the time they hit retirement. Few really think through the figures. You've got to have goals if you are going to get anywhere. You've also got to have the right goals. When thinking about retirement saving and investments Canadians should be asking what they are trying to achieve. Is it just a status quo figure regurgitated by an investment advisor? Or is it enough to survive retirement? How long should your retirement money last? 10 years, 20 years, 40 years, or more? The founder of one biohacking company in California recently announced he was confident it is now possible to live to 180 years old. Even if we make it half of that many may come up short on funds. What about a legacy? Do you want to have something left over to at least ensure your heirs have a roof over their head in an emergency, can get the education they need and have a good head start? Remember that just because you have no plans of having kids yet, things can change. What if you end up with 3 kids and 10 grandkids by the time you hit retirement? What types of investments will really help achieve these goals and protect from downside risks over the long term?
A Survey of Household Spending shows that the average household over 65 is spending $60,394 per year. That's not much. Yet, how many of us really aspire to be average and to work our entire lives just to live a mediocre retirement? Those figures also represent a generation who done a lot better at paying off homes, vehicles and credit card debt. Add those things on, plus a whole lot of inflation, Canadian home prices and an escalating interest rate environment and most will need a lot more income in retirement. Income is the most important thing in retirement. You can have a million dollars saved, but if you start using it, it may be gone in just a few years. Being able to produce income passively with that capital through good investments will make it last a lot longer. In fact, you may never need to touch your nest egg at all.
Taxes are one of the biggest threats to factor in retirement planning. Failing to accurately calculate and plan for tax hits can see goals missed by a long, long way. The Financial Post reports that the CRA is cracking down on amateur speculators in the condo market, and has recently assessed an additional $643M in extra taxes and fines on individuals. Invest with taxes in mind and know how to minimize them. It can halve the amount you have to carve out of your paycheck to save for retirement.
Preparing for Cognitive Challenges
Just because our bodies are living longer doesn't mean that our brains are lasting as long. A Texas Tech and Michigan University study shows that our cognitive abilities and ability to handle basic financial questions decline by 1% each year after 60. That's the norm. There are many other factors and health risks which can accelerate that. Put simply, we don't know how long we'll be able to keep making the best financial decisions or will be able to make financial decisions for ourselves and heirs at all. It's essential to plan for this. Trusts, appointing legal representatives, laying our investment criteria and choosing the right investments to account for this is all important for success.
These are key questions every Canadian should be asking and answering as they plan for retirement and beyond. Have realistic goals, plan longer than you think you might need, watch out for taxes, and select the best investments for your needs.