Ditch GICS, focus on better strategies
To My Readers,
From many of your emails, I have noticed that a lot of you are invested in GICS, and I know this is something that you want to do to ensure you do not lose any money and maintain your capital. Because the rates of return are now so low, GICS no longer keep up with inflation and when you factor in the taxes, you are actually paying the banks to hold your investment.
Have you thought about where you will be in the next 25 years of retirement?
This is a question we should all be asking as we approach or enter our golden years of retirement bliss. If inflation averages 3.5 to four per cent each 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 latte will be? A whopping $13.65.
So, 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, much more than in past generations. According to Statistics Canada, a 65-year-old 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, and 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 health-care insurance providers. As more Canadians live longer into retirement, the need for long-term 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 retirement savings into investments that 1223RF 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. As well, make sure you have made plans and concessions for unpredictable market risks or unforeseen future expenditures.
Talk to your adviser and choose investments that will deliver returns above inflation. 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 long-term care.
Everyone has spent years 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. We want
to be comfortable and happy in retirement and not be stressing about money. It should be your goal to live longer, healthier, happier and more financially secure than ever before.
Remember that material things will not be as important as they were when you were young. Aging is an inescapable process, one that you owe yourself to consciously do well. Make sure you plan for the changes that are to come and plan to be happy and financially secure well into your 90s. We all should want to get there. Good luck and best wishes, Money Lady
Chris Ibbotson writes a financial advice column, regularly speaks at bank advice events and is a frequent guest speaker for client focused retirement seminars coordinated by local financial institutions. She provides personalized investment and lending advice to clients with a focus on wealth building, estate planning and tax minimization.