How do I estimate what we will need to live on when we retire? What do we need to consider?
A: This is a perfect time for you to be able to calculate your expenses. Tally up all your expenses and income for 2008. This will give you a good snapshot of your fixed expenses during a year. Then, figure out which expenses will change and by how much if you were to retire. Deduct from your expected retirement income and see if you would have a deficit or surplus. Better still, take your figures to a financial planner to analyze. It is best to get a full financial plan to know where you stand before you officially retire.
Q: Dear Nancy, I have a RRIF which is invested in a managed account with a large Canadian investment firm. Currently, my RRIF is invested 55% in equities and 45% in bonds. Since September I have experienced a loss of approximately 25% in my equity portfolio and perhaps less than 5% in my bond portfolio. At this time would I be wise to change all RRIF investments into interest bearing material in order to protect my remaining investment or as suggested by my financial advisor, stick with it and it will come back “in time”. I’m inclined to stick with it but do find it somewhat stressful. My principal income is from various pensions and I am 73yrs. old. Your advice will be welcomed and appreciated.
A: No one really knows what the financial markets will do over the next couple of years. You ability to sleep peacefully and not worry or carry stress are good indicators of the asset mix of your portfolio. Selling all of your equity holdings now would be a drastic move. You need to reassess which have a better chance of recovery and sell those that don’t. You should also adjust your asset mix. The rule of thumb that I use is 100 less your age is your equity exposure. This is only a guideline and can be adjusted up or down according to your risk tolerance. The idea is that you have an increasing level of security with more fixed income products as you age.
Q: I have a defined benefit pension I have not contributed towards in 20 years, I can take it out as a lump sum or collect when I am 60 years old.
My financial advisor suggests I take it out as a lump sum and move to a guaranteed annuity. He states that the annuity is as safe as the insurance companies contribute to a fund that covers all annuities for up to $200, 000. He calculates I would get more per month with an annuity and I also would receive some cash which would be taxed. Even with the tax I would receive some to pay down my mortgage and contribute to my RRSP.
It sounds like a better idea to move the pension money to an annuity.
