Canadians are leading longer and healthier lives, which means they need to plan for a retirement lasting 20 or 30 years or even longer.
Retirees need investment portfolios capable of keeping up with inflation. The fiscal and monetary stimulus used to fight the recession has provoked concerns about higher inflation. Even if the modest 2% inflation average of the past 20 years continues, it could erode the purchasing power of retirement income for y 40% over 25-year retirement.
The 2008-2009 crisis heightened anxiety about the stock market. But historically equities have provided long-term growth that is critical to a retirement plan. A diversified portfolio that includes stocks, bonds and cash helps provide growth and protection against market volatility.
Increased market volatility highlights the need for conservative withdrawal rates. Research indicates that retirees who make annual inflation-adjusted withdrawals of more than 4-5% of the original value of their portfolio at retirement run the risk of running out of money.
In a 2010 retirement survey, retirees listed health concerns as the one of the top reasons they retired. Individuals need to understand what health care costs are and are not covered by government health care programs and with their own needs could be and plan accordingly.