Making money last for early retirement

Dear

Money Lady Readers,

People who plan for early retirement, actually prepare better than those who retire at 65, the age that society teaches us is the “right” time to retire. Once you retire, it will be hard to consider going back to work as a fall-back alternative to running out of money, so you must make sure your plan has some built-in safeguards. Whatever your age in retirement, it is always necessary to protect yourself against any unpredictable financial challenges that may come your way.

Retirees generally want to keep their money safe and often choose savings accounts or GICs. I know, for those of you that love these products this will be hard to hear, but they are actually the most dangerous savings tools in the long run. You see, GICs and savings accounts cannot grow enough to protect your future purchasing power. Investments that seem to have more risk such as securities, because they fluctuate in value, actually are the most likely to protect you in the long run because they have the greatest potential to increase in value. I agree that you have to protect yourself against investments that carry volatility risk by holding stable assets (such as bonds) but, you still don’t want to invest so conservatively that you miss out on the growth you need to make your money last for your full retirement.

It is always best to have a professional advisor review your personal situation, but for those of you who would like a general conservative investment strategy, this plan will allow you to get more accustomed to the feeling of holding securities while still providing a very controlled asset allocation. This is what I used to advise clients to do on their own while they were building up their savings towards future goals. You would invest in tandem as follows.

33% into cash products, GICs, saving accounts, short-term bonds.

33% into bonds and/or debentures.

34% into securities (stocks, ETFs, MFs, SMAs, etc.)

Ultimately, there is no answer that is best for everyone universally, but the general age-based guidelines are also helpful to ensure you don’t go too far in either direction to reach your goals. The old standard allocation advice was to subtract your age from

100 to determine the percentage of your invested assets that you should have in stocks. So, if you are 40 years of age, you would have 60% in stock or securities and 40% in bonds. If you were 70 years of age, you would have 30% in securities and 70% in bonds and money-market accounts. Once you’re ready to retire and you have decided how much you can safely spend each year, don’t stop planning. You must continually stay current on the latest trends and market conditions. Here are some ideas for you to keep in mind as you modify your plan through the years to mitigate change.

• Determine your asset allocation for both long-term growth and risk management.

• Decide on a withdrawal strategy to use day-to-day, as well as a bare-bones budget and determine how you’ll cut expenses if you need to.

• What are your sources of capital if needed in an emergency.

• Create an estate plan (Will, POAs, insurance).

• Determine how you will handle divorce, splits, or a death of your partner.

Early retirement or later, whatever it looks like to you, make sure you never stop planning so that you always have the life you deserve and with everything you dreamed it could be.

Christine Ibbotson is a radio host and author of the Canadian best-selling book “How to Retire Debt Free & Wealthy” Send your questions through her website at askthemoneylady.ca

This column originally appeared in June 2022