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+--- Thread: Planning for Retirement (/showthread.php?tid=561)
Planning for Retirement - cannew - 05-18-2014
The following article is something to think about for younger investors:
Quote:
Retirement plans: It pays to be a little paranoid
Say you are 30 and you feel it’s time to think about retirement in three decades. There is a lot unpredictable about those 30 years.
You could have children. Your parents could need financial help. A business or a career can flop.
Yogi Berra, the great New York Yankees catcher and manager, gets credit for saying, “making predictions is hard, especially about the future.” If only he had tried planning a retirement.
What can go wrong is more than just the details of one’s personal life. Inflation could take off, as it did in the early 1980s when prices rose at double digit rates. Fixed income investments like bonds were devastated, for no one would pay much for an old bond with a 5% coupon when savings accounts at banks and trust companies paid two or three times that rate. Inflation’s long-term average since the end of World War II is about 3%, but that’s with a lot of variation.
In 2008 there was a whiff of deflation in the air. Major stock market averages around the world lost half their value. Short-term government bonds that were seen as having no risk at all were snapped up until, in the case of 30-day U.S. treasury bills, buyers sometimes paid more than they got back.
Today it’s the Eurodebt crisis. Sovereign bonds of Italy, Spain, Portugal and, of course, Greece – all payable in Euros, swoon in value as investors, terrified of losses, flee to U.S. treasuries that offer returns measured in fractions of 1%.
So in trying to create a retirement plan that will be goof-proof, it pays to be a little paranoid, says Benoit Poliquin, chief investment officer of Exponent Investment Management Inc. in Ottawa. “Paranoia pays because it is the opposite of overconfidence.”
He says there are two structural levels in any retirement plan: estimating your own life expectancy and that of a spouse and coping with inflation and market risk.
“If you are budgeting for life expectancies, the odds of at least one person living longer than expected goes up and that certainly increases the total cost of future living,” says Mr. Poliquin. “Inflation is correlated, for if someone lives longer, there will be more exposure to inflation.”
As a planning exercise, life span estimation is easier the older you are.
At age 70, age 90 is a reasonable horizon. At age 30, it could be much more, for life expectancies have increased remarkably over the last century. For example, according to Statistics Canada, a man born in 1922 could expect to live to 59, a woman to 61.
A male born in Canada 80 years later in 2002 can expect to live to 77, a female to 82. A 30-year-old can expect to live to 72 or 79, depending on gender.
So in the absence of knowing where markets and interest rates will be, it is essential to diversify. Consider life insurance, especially if you are under 30 and in good health. And never be too optimistic about your assumptions.
You can estimate future inflation at 3%, which is an historic average, but there are no guarantees.
And never assume that your expenses will go down in retirement, warns Caroline Nalbantoglu, head of CNal Financial Planning in Montreal. “You will have more time to spend money and you should assume that you will have a long time to do it.”
End Quote:
RE: Planning for Retirement - hendi_alex - 05-18-2014
Every decision/action carries risk. What more can a person do other the best that he/she can? Save to the max, hopefully in excess of 20% of gross. Employ a balanced investing approach that gives the best shot at solid total returns through various business cycles. Hedge and insure where practical to do so. Etc., etc....... And then be prepared to roll with the punches, because there will surely be several major ones to hit over the course of a 4-8 decade investing and withdrawal horizon. Due to circumstances that are mostly beyond one's control, some of these responsible savers will be able to retire at age 50 or less if they choose, others will hit the mid 60's only to be faced with the reality of having to work another ten years or longer. There is always the crap shot component, no matter how much we would like to think otherwise.
RE: Planning for Retirement - Be Here Now - 05-18-2014
Do not make the mistake of thinking you can easily extend your working years if you hit retirement age and do not have enough saved. Your physical and/or mental health could prevent you from holding any job, and employment opportunities could be scarce or non-existent. Cognitive and physical decline with aging is inescapable.
Long term employment trends are for fewer full time jobs and more part time and temporary work in the USA; I assume Canada is no different. Automation and software are usurping more and more types of work, and employers are increasingly unwilling to hire full time workers. As our population grows, competition for those jobs will become more and more fierce, and if you are older you are less likely to win that competition.
The advice at the start of this thread is excellent, the one non-sequiter aside (did anyone besides me spot it?). To that, I add the advice to be lucky if you can. Although we all want to believe that we are in charge of our lives, in reality we are all subject to random chance over which we have no control.