Starting late with your financial plan?
Now that you’re in your 50s you’ve probably asked yourself this question a number of times:
How much do I need to retire?
The answer to that question depends very much on the lifestyle you envision in retirement.
Perhaps you want to travel the world or trade your expensive house in the city for a smaller one in the country, and just enjoy yourself. But no matter what your goals are in retirement, financial planning at this stage forces you to admit that your retirement is almost here and you have to make some critical decisions. For example, have you considered gradually moving to a more conservative portfolio. An independent financial advisor can walk you through a new strategy and introduce you to ideas that fit with this period of your life.
For a complete analysis of investing in your 50s click here.
Your retirement checklist
Here are some questions to ask as you move closer to retirement.
- How many years before I retire?
- How much money will I need on a monthly basis?
- What are my guaranteed sources of income in retirement?
- How much money do I have in investment assets?
- How much money will I need to generate from my investment assets?
- How much more money do I need to save?
- How can I invest to reach my ultimate savings goal?
Developing your retirement strategy
It’s important to sit down with your financial advisor and develop a plan of action that answers a number of questions, including: how much time is left before you retire, how much money you’ll need and how comfortable you are with risk. Striking a balance between what’s ideal and what’s realistic is your challenge.
For example, on the one hand this is your last opportunity to build your assets through aggressive saving and investing. On the other hand, with retirement quickly approaching you may want to protect the wealth you’ve already accumulated.
Setting your course to retirement
To figure out the ideal proportion of investment growth versus income that you’ll need, you’ll have to decide when you want to retire, or more specifically, when you need to rely on your money (rather than work) to support you. The most difficult part of devising an investment strategy is being realistic about how much risk you want to take. Your advisor can help run some scenarios to see how you may react. The key is to be honest. Don’t take more risk than you can comfortably handle.
Building an investment portfolio in your 50s
Until recently, equity funds may have dominated your portfolio. That’s a good thing since historically equities have offered average annual returns of about 8%. The problem is, from one year to the next, you never know what will happen in the markets.
As you get closer to retirement, you need to be able to count on the money in your portfolio. You don’t have the luxury of time to recover from significant stock market losses. But swinging to an ultra-conservative stance could also backfire. A portfolio that’s 100% in fixed income and cash – while less volatile compared to equities – may not generate sufficient returns to fund a rewarding retirement.
For many of us, the best strategy is the middle road: a mix of stocks and bonds to provide income and growth opportunities. In fact, many of the first mutual funds sold to investors took this balanced approach, and balanced funds remain popular to this day. Your financial advisor can help you determine the optimal asset allocation, after looking at your personal situation, your appetite for risk and the amount of time you have to invest.
Cash flow in retirement
A good way to get monthly income – rather than through a straight withdrawal – is through investment funds that make monthly payouts. These can be in the form of fixed or variable distributions. With a regular, monthly income stream, you can better plan your finances and support your lifestyle. Your financial advisor can recommend an appropriate income fund.
Creating your retirement investment portfolio
When you start seeing each of your investments in context of your investment strategy, the choice of what to actually invest in becomes easier. You’ll see how each element of your portfolio contributes something different toward your overall investment goals. Work with your financial advisor to develop a consolidated view of all your investments. Your asset allocation – the portions you will divide into equity, fixed income, cash and other assets such as gold and
commercial real estate – will depend on your investment strategy.
What if you’ve fallen behind in your retirement plan?
Studies show that many of us haven’t saved enough for retirement. If you’re in your early to mid-50s and have several years until retirement, here are some suggestions for catching up:
Boost your savings. Figure out where you can cut expenses to save more. You’d be surprised how the changes you make can translate into extra dollars for retirement.
Add to your RRSP or employee pension plan. Make catch-up contributions for those years you didn’t contribute. As well, be sure to contribute to any plan where your employer matches contributions – this is free money.
Raise your risk. If you’ve switched your portfolio into bonds, consider switching a portion back to equities to provide some growth. Be careful not to increase investment risk beyond your comfort level.
Get a second job. You or your spouse may be able to take on a second job to earn extra income. Alternatively, one of you may be able to make more money by switching jobs.
Push back your retirement date. Working an extra year or two may help you meet your retirement target. Alternatively, you may continue to work part-time or on a freelance basis during retirement.
Downsize your home. Moving into a less expensive home, or renting, can provide you with a lump sum to help finance your retirement.
Rethink your retirement lifestyle. If there seems to be no way that you’ll be able to retire in the manner you envision, you have no choice but to live a more modest lifestyle in retirement. Be sure to talk to your financial advisor to see if they can provide ideas to bridge the gap between what you’d like and what you have.
This article was prepared by Mackenzie Financial Corporation for Andray Domise, Independent Financial Advisor, who is an Investment Professional with International Capital Management, Inc.
© 2009 Mackenzie Financial Corporation. All rights reserved.
Tags: Investments, Mutual Funds, Retirement Planning, RRSP
This entry was posted on Monday, November 2nd, 2009 at 7:31 am and is filed under Investments, Mutual Funds, RRSP, Retirement Planning. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
