Retirement – do you know the risks?

Two decades ago, government retirement benefits such as the Canada and Quebec Pension Plans and Old Age Security provided benefits equivalent to nearly 60% of the average Canadian wage in retirement. Today, CPP/QPP and OAS benefits only provide about 40% of the average.

For many people, their personal savings will need to fill that gap in their retirement income. Typically, you will want your retirement income to equal 60% to 70% of your working income.

That’s why it’s critical for you to protect your savings and position your portfolio for continued growth in the years before and during retirement.

As you move into this stage of your life, you will also face a new set of risks:

Longevity The longer you live, the greater your chance of outliving your money during retirement. Today, there is a one in three chance that a 65 year-old male will survive until he’s 85; for women, the odds are about one in two. For many, retirement income will need to last a minimum of 20 years.

Inflation Even at the currently low level of about 2%, inflation can have a severe effect on your income over time. Many people will face a retirement of at least 20 years, so it's important to keep your savings growing to help protect your purchasing power.

Market Risk and Market Cycle

A significant market downturn near, or during the early years of retirement can significantly reduce your retirement portfolio and the income it produces.

The sequence of investment returns early in retirement can have a major impact on how long the money will last. This table shows how short-term volatility in the early years can have a long-term effect on your retirement savings.

Both portfolios experienced the same 7.26% annual return over 30 years, but the money lasted longer for the portfolio with good returns at the beginning.

Retirement Risk Zone

The retirement risk zone is the five to 10 years just before and after retirement. It’s the critical time when short-term losses can have negative long-term effects because there’s no time for their investments to recover.

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