Retirement these days isn’t easy but here’s how to get on track

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In these turbulent times, staying the course can help get you back on track to retire

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In an ongoing series, the Financial Post explores personal finance questions tied to life’s big milestones, from getting married to retirement.

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Some may still remember the Freedom 55 advertising slogan introduced by London Life Insurance in the 1980s that suggested it was feasible to retire well at a reasonably young age, but many people today believe they’re not on track to retire at 65, never mind a decade earlier.

Almost half of baby boomers (49 per cent) expect to work past the age of retirement or don’t plan to retire at all, according to an October 2022 survey by TransAmerica Center for Retirement Studies. Only 22 per cent of gen-Xers (who are now between 40 and 60) say they’re “very confident” they’ll be able to fully retire one day, and 57 per cent of workers across all generations plan to continue working after they retire, too.

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Things don’t look any brighter on this side of the border: 63 per cent said they will be forced to push out their retirement date if inflation continues to rise, according to the 2022 Canadian Retirement Survey by the Healthcare of Ontario Pension Plan.

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“I really can’t see a lot of people retiring early given what’s gone on in the last year or two,” said Douglas Hoyes, co-founder of Hoyes, Michalos & Associates Inc. and host of the Debt Free in 30 podcast. “If the stock market is down 25 per cent and inflation is up, that means your retirement fund is lower and your expenses are higher. I suspect there will be more people actually working longer if they’re able.”

Besides current market volatility wreaking havoc on retirement investments, experts say there are other factors at play that are pushing retirement goals further into the future.

“Freedom 55 comes from a time when people had defined-benefit pension plans with long-term careers they’d started in their 20s,” Rob Eby, a certified financial planner at Rob Eby & Associates and IG Private Wealth Management based in Winnipeg, said. “Now they’re starting their careers in their 30s, so their peak earning years are delayed and they probably don’t have the benefit of a pension plan.”

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But working past retirement doesn’t have to be all bad, Eby said, especially since people are living longer and aging well. Given current labor shortages, older employees nearing retirement age have the upper hand at the negotiating table and should take full advantage of that.

“I see quite a few people slowing down between 60-65 and then doing only aspects of their jobs that they love,” he said, pointing to employers who make accommodations for seasoned employees to retain their expertise. “I’m speaking to a client today who is 70 and an IT consultant who has never been more in demand.”

In the meantime, those hoping to claim their freedom from work sooner rather than later should be focusing on eliminating debt before they retire.

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“The focus is generally on how much money do I need to retire, but equally important are expenses and the biggest expense is debt,” Hoyes said. “In the five years leading up to retirement, my spending has to drop to generate cash while I’m working to reduce debt.”

Eliminating all your debt before retirement may not be realistic, but targeting things such as high-interest credit cards and car loans is critical.

“The math is pretty compelling even with a low-interest line of credit at 10 per cent,” Hoyes said. “Tell me what investments you have where you’re earning more than 10 per cent after tax. Certainly not the stock market these days.”

Ensuring you can live a reasonably good life in your golden years also means making a plan that’s properly allocated for risks, and then sticking to it even in turbulent times such as these.

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In the five-year transition to retirement, Eby said he always takes a client’s portfolio and splits it in two: one part continues to focus on long-term growth and the other is the “safety bucket” aimed at income needs during the golden years .

“If someone is coming into retirement today, with inflation and the market downturn, I would already have five years of their income protected in something insulated from that market,” he said. “That may look like a year or two of money sitting in cash and another three or four in conservative investments not affected by where the markets are.”

Eby said he’ll top up the growth side of the bucket when the market is back to a point where it isn’t hurting investments.

“That’s the kind of income-protection planning I do to prepare clients for the exact situation we’re in right now,” he said.

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Eby cites an example from the financial crisis of 2008 when his clients were aggressively invested in the market and down $450,000 by retirement age. They needed to hold off retiring for another two years to recover their losses and, fortunately, had the flexibility to do that.

“Now they’ve learned their lesson with respect to having proper diversification and allocation,” he said.

For those in their 50s and beyond, retirement planning needs to go beyond maximizing returns to look at security and protection against unexpected health issues and life-changing events.

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For the younger set, staying the course with a financial plan that considers risk tolerance and capacity — using investment diversity and having a long-term view — is the best way forward to a reasonably aged retirement, said Elke Rubach, financial adviser and founder/ president of Rubach Wealth in Toronto.

“Don’t try to time the market, but build disciplined investments into your monthly cash flow,” she said. “Also, stay slow and steady and don’t chase ambulances. The market will bounce back.”

Tax efficiency is another key aspect of protecting retirement investments in the long term, Rubach added.

“You can be making 20-per-cent returns, but if you’re giving 10 per cent to the CRA (Canada Revenue Agency), you’re taking crazy risks for little reward,” she said.

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