Are we there yet? - Retirement Planning
I spent my summer holidays this year doing something a little out of the ordinary - for our family - driving across Canada in a RV. The constant question from the kids while travelling from one destination to the next was, "are we there yet?" Returning home, having fully enjoyed the freedom of the trip, I couldn't help but daydream about enjoying that lifestyle more permanently - in retirement.
Words by Darren Trickett, Pension Sales & Relationship Manager, Island Heritage.
I spent my summer holidays this year doing something a little out of the ordinary - for our family - driving across Canada in a RV. The constant question from the kids while travelling from one destination to the next was, "are we there yet?"
Returning home, having fully enjoyed the freedom of the trip, I couldn't help but daydream about enjoying that lifestyle more permanently - in retirement.
Do you ask yourself when you’ll get there? When will you be ready for retirement? And what will your life look like once you do?
Outside of saving for a home, saving for retirement is the primary financial priority for many people. However, due to the long-term nature of retirement and all the variables that go into determining its potential success or failure, it is often the most difficult financial goal to plan for.
How do you balance your quality of life today with the quality of life you want in the future?
The four main factors that make retirement goals even more difficult to plan for are inflation, healthcare expenses, market volatility and longevity.
Inflation can be defined as an increase in prices over time, causing a reduction in the value of money. When we are working, inflation is often offset by an increased salary. In retirement, inflation reduces the purchasing power of our income drawn-down from our ‘nest egg’, as goods and services increase in price, hampering our ability to support our desired standard of living.
Healthcare is a major expense in retirement and is one of the most consequential, yet unpredictable, facets of retirement planning. It is not certain that healthcare costs will continue to rise faster than other costs in the future, but increasing our savings rate during our working years can go a long way to combat higher premiums and out-of-pocket expenses that may occur in retirement.
Market volatility is a key stimulus behind bad behaviour i.e. people buying high and selling low. Emotion and behaviour have a lot to do with how we make financial decisions. Research has found that asset allocation was responsible for 90 percent of a diversified portfolio’s returns over time. An appropriate asset allocation mix that offers exposure to several types of investments will help us meet our financial goals while keeping our investments in balance and on track through periods of market volatility.
Finally, no one can predict how long he or she will live. In fact, human beings have never lived as long as they are living today. This complicates retirement planning since as retirees we have to secure a sufficient stream of income for an unpredictable length of time. Good planning to address this concern starts with determining a realistic prediction of life expectancy and choosing an appropriate withdrawal rate from our portfolio to help ensure that our portfolio lasts our lifetime.
The good news is, retirement planning is all about developing a strategy. Trade-offs and tough decisions will be required but with a little guidance and the right strategy, your path will become clear and you can be confident about when you’ll get there.
To learn more about pensions planning, contact Island Heritage:
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