5 strategies to ease your fears of running out of money in retirement

Plan on needing more personal savings to reach your retirement goals.

Angela Iermieri | Financial Planner | Desjardins Group

In Canada, life expectancy is around 85.  That's good news! But you still need enough income to fully enjoy it. Being financially prepared for the unexpected, being able to maintain your lifestyle and enjoying good health--these are big concerns for retirees. 

Here are 5 fears I often hear, along with some strategies to alleviate them.

1. Longevity: In financial language, you increase your longevity risk once you retire. That may seem strange, but it's real; the statistics back up the fact that we're generally living longer. So, as of now, your objective will be to maximize your retirement income.   

Strategy: Develop a proper income withdrawal plan by preparing for a longer life expectancy so that your income lasts as long as possible. There are now more and more centenarians. You might be one of them, so plan accordingly!

2. Inflation: This is the rise in the cost of living, the continued increase in prices. If your retirement income is indexed, you can maintain this buying power. For example, government pensions and some employer pension fund annuities are indexed, while others aren't. Non-indexation can have a major impact on your future income.

Strategy: Plan on needing more personal savings to reach your retirement goals and grow your investments at a higher rate than inflation (ideally).

3. Health: "Will I be in good health and enjoy the retirement I want?" I get this question a lot. Although no one can say for sure, by taking care of your health before you retire, you increase your chances of staying healthy in retirement.  

Strategy: Maintain an adequate lifestyle and plan for the unexpected by taking out health and critical illness insurance. If your group insurance doesn't continue after you retire, you'll keep from dipping into your savings and reducing your future income. You'll enjoy greater peace of mind, which will also have a positive effect on your health. 

4. Withdrawals: How much should you take out of your investments so you don't run out of money later on? How to find the balance between not taking out too much at the beginning and being too cautious by not spending the money on things you want to do? The nature of your expenses will change throughout retirement, but their overall level might not decrease--as leisure-related expenses decrease, healthcare expenses will definitely increase. 

Strategy: Manage the sequence of withdrawals. Start with reasonable amounts and adapt. You need the flexibility to make adjustments according to your needs. You might also consider investment products that offer the stability of monthly income.

5. Asset allocation: Do you stop investing once you've retired? No, you shouldn't see retirement as the end of investing. The accumulation period may have ended, but since the portfolio won't be withdrawn all at once, you should keep growing it. 

Strategy: Diversify your investments without spreading yourself too thin by consolidating them with the one financial institution to get an overview of your portfolio. You'll make your life easier and keep from duplicating your investments and finding yourself with an inadequate portfolio allocation.

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