Could you outlive your retirement assets?
For anyone nearing or already in retirement, two of the greatest risks today are longevity and inflation risk. Many investors are hesitant to invest in equities after the recent financial crisis, especially with the fear mongering and hyped-up media play over potential debt issues in the U.S. and Europe. Yet that is exactly what they need to do to ensure they don't outlive their retirement portfolio.
With 10-year Canada bonds currently yielding 2.3% (even less for U.S. bonds), 5-year GICs paying 2.0% and inflation (in Ontario) currently running at 3.0%*, investors are facing a conundrum: Should they lock in their capital at guaranteed low returns or take a deep breath and invest in the market?
Before we provide guidance, let's take a closer look at the two risks.
Longevity - People are living longer and retiring earlier. As a result, today's retirees need their savings to fund longer retirements. Seniors turning age 65 in 2006 could expect to live nearly 20 additional years, according to Statistics Canada, at a time when retirement age has fallen to 62 on average.
Inflation - The other perpetual issue is inflation. Consider this:
| 2% (GIC return) - 3% (current inflation rate) = -1% real return |
What this equation shows is that anyone investing in GICs today are actually losing 1% in the purchasing power of their capital each year. Getting your money back is not enough to maintain your retirement lifestyle: Investors need to preserve their spending dollars by earning more than the rate of inflation.
The solution? Equity investments are critical to achieving the growth you need to stay ahead of inflation and protect your buying power over longer retirements. Fortunately, with a professionally diversified mix of equities, fixed income and other investments in a portfolio, retirees can earn stronger returns with lower volatility from year to year. Our team can show you how.
Call our office for an appointment to learn how to inflation-proof your income and help ensure you don't outlive your retirement assets.
* Figures as of August 23, 2011
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This Report is written by Investment Planning Counsel, a fully integrated Wealth Management Company. Mutual funds available through IPC Investment Corporation and IPC Securities Corporation. Securities available through IPC Securities Corporation, a member of CIPF. Insurance products available through IPC Estate Services Inc. Mortgage broker services provided by IPC Save Inc. (ON Lic. #10227).
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