Feeling anxious about your retirement savings in today's uncertain economy? Three financial experts share their insights on safeguarding your wealth.
For many Canadians approaching retirement, the past few years have been financially stressful, with job insecurity, rising living costs, and recession fears taking a toll. Shamez Kassam, a chartered financial analyst in Calgary, reports an increase in client concerns about the economy's impact on their retirement plans.
"Equity market valuations are high," notes Kassam, a portfolio manager at Designed Wealth Management. "This is a critical period for pre-retirees and retirees."
High valuations heighten the risk of a market correction, which could reduce investment returns when retirement income is most needed. This concern is amplified by media warnings of an AI-driven equity market bubble and sluggish stock market growth over the next decade.
Despite these challenges, experts offer strategies to protect and grow retirement savings.
"While life is unpredictable, there are controllable factors," advises Kassam.
He identifies three areas for potential savings: spending, investment choices, and fees. These savings can significantly boost retirement funds.
"Investors often underestimate the impact of fees on returns over time," Kassam observes. He illustrates this with a scenario: a $1 million portfolio saving 1% annually on fees translates to $10,000 in annual savings, a substantial amount for retirement planning.
Kassam recommends that pre-retirees hold two to three years' worth of living expenses in easily accessible investments to navigate market downturns without disrupting their retirement plans.
"This allows the rest of your portfolio to recover," he explains.
Taking a long-term view is crucial, according to Kun Huo, an assistant professor of accounting at the Ivey Business School. He warns against panic selling during market slumps, as many investors miss out on subsequent gains.
"The stock market's biggest rises often follow its biggest drops," Huo notes. "Waiting for a correction can result in more losses than the correction itself."
Huo advocates for using accounting principles like balance sheets and depreciation schedules for long-term financial planning. Tracking expenses now helps project retirement needs.
Additional tips include renegotiating debt when interest rates drop and maintaining liquidity to earn interest on cash when rates rise.
Janea Dieno, a certified financial planner, highlights the impact of the widening gap between income growth and living costs on Canadians' savings. She advises clients considering new jobs with higher salaries to factor in pension implications.
"When approaching retirement, compare total compensation, not just salary, and determine when the pension starts at the new job," Dieno advises. "Pensions often take effect three months, six months, or a year after starting a new role."
For instance, if a former employer matched pension contributions at 5% of pre-tax salary, Dieno suggests contributing 10% until the pension begins, then scaling back to 5% afterward. This strategy can potentially extend retirement years, allowing for earlier retirement at 58 instead of 60.
