Working longer is not the only answer – The Globe and Mail

RRSP Report 2010

Working longer is not the only answer

Investment professionals say that often pre-retirement boomers are far too pessimistic about their portfolios

Paul Brent

Special to Globe and Mail Update

The stock market’s swoon has many baby boomers on the cusp of retirement thinking they will have to remain in the work force longer than planned. But investment professionals say that often pre-retirement boomers are far too pessimistic about their portfolios.

“A lot of people are telling themselves that they can’t retire, but they are doing it without any information,” said Frank Wiginton, a certified financial planner with TriDelta Financial Partners of Toronto. In his experience, clients have a targeted nest egg, say $1.2-million, that they say they need to have to retire comfortably.

To illustrate his point, Mr. Wiginton relates the story of a retired Ottawa man, 62, who called for help to revamp his retirement portfolio in the midst of the market meltdown. “He was saying, ‘I have to go back to work’ because he watched his and his wife’s portfolio go from $1.3-million to about $980,000. He said he had to have $1.2-million in order to survive.”

When challenged, the man could not say how he arrived at the figure he felt was needed to support the couple in retirement. The couple’s portfolio eventually bottomed along with the markets at about $780,000. “He was invested like he was 35 to 40 years old,” the planner said. “He was 75 per cent equities and I think had 20 per cent in fixed income,” with the rest in cash and GICs.

A lot of people are telling themselves that they can’t retire, but they are doing it without any information. — Frank Wiginton, a CFP with TriDelta Financial

At the low point of the market and his portfolio, the Ottawa man did return to the work force, taking a job at his old company while his planner tackled his investments. “I showed him at $800,000, based on a five-per-cent rate of return with a much more conservative mix of fixed income and dividend-based shares, you can live another 30 years with over $1-million in assets.”

Not only did the man not have to return to work, “it was causing him to fly up in the tax bracket,” Mr. Wiginton said. The man did end up working last winter, eventually re-retiring as the weather got warmer to play golf and spend time with his grandchildren. “I gave him back his retirement just by doing a plan and using conservative [growth projections].”

Wade Walters, a certified financial planner based in Victoria, B.C., said that none of his clients as yet have put off retirement plans or returned to the work force as a result of the market crash and more recent rebound. “I do think that people are seriously looking at it,” he said. For many, the market’s resurgence has reduced the urgency of making such a decision.

From Mr. Walters’s perspective, the market’s recent roller coaster has forced at least some to take a hard look at retirement plans. “It is making the baby boomers be more realistic, but in terms of the 30-somethings? No.”

Simply put, money is an emotional, hot-button topic for investors. In the dark days of the downturn financial advisers worked to convince many investors looking at double-digit declines in their portfolios not to dump investments and “lock in” those losses.

More on retirement and pensions:

The idea that older boomers will have to delay retirement or un-retire comes from that same mindset, said Lee Anne Davies, head of retirement strategies with Royal Bank of Canada. “It is something that we have heard in the last couple of years as more of an emotional response to what had happened in the market.”

Ms. Davies said that most investors become less anxious about their retirement situation when they sit down and go over their financial plan with an adviser.

“That is the benefit of a financial planner who can sit down with you, take the emotion out of it and say, ‘Here is the reality of what this means and on the day you retire you don’t use all your money. The markets will return, your investments will increase and your nest egg will continue to grow.’ So it is not as dire as it appeared 18 months ago.”

Ms. Davies, a gerontologist, said it is the health of Canadians that is the determining factor for those who keep working as well as for those who may retire early. Boomers are delaying retirement because they are healthier than previous generations, a trend that is now supported by the elimination of mandatory retirement in much of the country, as well as because employers are more willing to allow flexible work arrangements in order to retain valued employees.

An RBC survey conducted last year also found that health was the No. 1 reason given by those who retired. The bank found that it is not just the individual’s health that prompted the decision to leave the work force but the health of elderly parents as well as spouses.

“Health causes the decision often, to not be able to work in retirement and certainly better health is causing more and more Canadians to consider working in retirement,” Ms. Davies said.

Posted via web from Toronto Real Estate News | Blog

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One Response to Working longer is not the only answer – The Globe and Mail

  1. Hi, Very interesting article. I am quite impressed and just wanted to let you know that you did a fine job on this article. However, I do have some unanswered questions that I would like to ask you. I will contact you via email so that you can clear some of these things up for me. Again, very well written article. Keep up the good work.

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