What's your 25-year plan?
As we approach or enter our golden years of retirement bliss, we should be looking to the future. If inflation averages 3.5 per cent to 4 per cent per year over the next 25 years, your $50,000 retirement income today will need to grow to approximately $132,400 by the year 2045. Guess how much your Starbucks Latte will be at that time? A whopping $13.65!
Are you prepared? Is your pension indexed against inflation? Do you feel you have saved enough?
Life expectancies have been steadily improving over the last 50 years and many more people today will exceed the age of 90 years old; much more than in past generations. According to Statistics Canada, a 65-yearold man can expect to live an additional 18.2 years to age 83, while a 65-year-old woman today can expect to live an additional 21.4 years and celebrate her 86th birthday. It has always been the magic question: How long will I live? How many years should I plan to save for? No one really knows how long they will need to rely on their retirement savings, however we now know it is much longer than most would anticipate. Add to this the wild card of long-term care as you age, many may find they should alter their retirement plan or perhaps resign themselves to living with less when they finally make their hard stop to working.
Health-care expenses in Canada are rising more rapidly than inflation and there is a general trend of services now that are being excluded over time by public and private sector healthcare insurance providers. As more Canadians live longer into retirement, the need for longterm care facilities and services will grow exponentially and it is likely that the costs will grow, too.
So, what should you do? Consider directing a portion of your savings into investments that offer a guaranteed lifetime income.
Make sure to start the retirement planning process at least 10 years before your retirement date so that you can implement the correct income planning strategies and reposition your portfolio for planned drawdowns in retirement.
Talk to your adviser and choose investments that will deliver returns above inflation — not GICS. Choose products that will provide inflation adjusted incomes. If you can, set aside a portion of your savings to budget for health-care costs or longterm care in the future. Let's face it, everyone has spent years of working and can't wait to finally retire. To secure the retirement lifestyle you are dreaming of, make sure you consider the future risks of inflation and longevity.
Aging is an inescapable process, one you owe yourself to consciously do well.