Heading to Retirement
As you start thinking about retirement, the natural question to ask is how much am I going to need to retire comfortably. We have an entire section to answer this question <click here>, but the short version is that your “number” is unique to you and based on all of the following factors:
Expected payments from Canada Pension Plan (CPP) and Old Age Security (OAS)
Planned Retirement Age.
Number of years of retirement (how many years will you need to take annual disbursements)
Expected return on your assets, depending on your risk tolerance
Amount you wish to leave for your children or other inheritors
Annual desired income (typically as a % of your pre-retirement income)
As you get close to retirement, it is important to determine your “number” and then work hard to either gather the assets necessary to meet that numbers and/or reduce your lifestyle appropriately to match the number that you can achieve.
Hopefully you’ve been well coached by a financial advisor and have been adjusting your asset portfolio to be less risky as your investment horizon gets shorter (read more about investment horizon and risk/return here). If not, then you should consider a realignment of your portfolio with the goal of putting more of your assets in less risky investments – more cash and bonds, and less equity. While, over the very long term, stocks have proven to be the investment with the highest average return, everyone who has lived through the financial crises of 2001 and 2008 know that there can be large corrections that can seriously damage a portfolio. So, without a 20 or 30 year investment horizon to make up those losses, a comfortable retirement can be at risk. Therefore, most investment advisors recommend a slow move from equity to other, less risky, investments around the age of 50. By the age of 70, your portfolio should be more fixed income instruments, much more likely to return a stable income.