D. Smith: Retirement concerns for the baby boomers

We now live longer so we will collect these pensions over a longer period of time than previous generations.

At the recent Canadian Institute of Financial Planners conference in Ottawa, the vice-president of Fidelity Investments discussed retirement realities facing baby boomers in Canada.

The message was Certified Financial Planners can help baby boomers understand the key risks to retirement.

Canadians over the age of 60 and 65 now receive the government pensions they contributed to over their working years. We now live longer so we will collect these pensions over a longer period of time than previous generations.

There is a 50 per cent chance that at least one member of a couple both age 65 will live to age 90, and a one in four chance that at least one member will live to age 94.

The good news is there is indexing of these government pensions. The not so good news is that living 25 to 30 years in retirement will cost a lot of money.

Inflation can be a positive and a negative.

Pensions are indexed to keep purchasing power positive, but inflation can erode our purchasing power.

Inflation at two per cent over a span of a 25 year retirement can erode a retiree’s purchasing power by 40 per cent.

Increased inflation means more dollars out of your pocket to buy groceries, pay for utilities, travel and to pay for every day costs.  Inflation is a threat to retirement plans.

We have an excellent medical system in Canada, probably one of the best in the world.

The rich, the poor and all those in between receive medical care.

Canadians need to understand what is covered with government health care plans, and if they need to purchase additional coverage.

Personal health care costs may increase in the future as baby boomers pay for health care expenses. Health care is a concern for many Canadians.

Due to the low interest rate environment, many Canadians are outliving their retirement income when investing in GIC’s and other low paying interest investments.

With a one year GIC paying two per cent or less, and the annual mandatory RRIF withdrawal at age 72 of 7.48 per cent, the simple math will tell us, you will spend your principal quickly if you invest in GICs.

Historically equities have provided long-term growth to provide needed income in retirement. A diversified portfolio that includes some growth, guaranteed income and cash will provide a hedge against inflation.

Many people continue to work past the defined normal retirement age, opting to work part-time for a few years after what is considered the normal retirement age.

Some people work for the social interaction with other people, while others need the income to supplement retirement pensions.

How long will your retirement income last? You may need to carefully choose a sustainable withdrawal rate from your investments on a monthly or annual basis to ensure your income lasts as long as your retirement.

Retirement of many decades planning for your future.

According to Fidelity Canada, which has done comprehensive research on retirement in Canada, individuals who work with a certified financial planner are more financially and mentally prepared for retirement.

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