Dale Jackson

Personal Finance Columnist, Payback Time

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The old saying “with age comes wisdom” is being put to the test for people investing for and during retirement after the latest Statistics Canada 2021 census. 

The data revealed the number of Canadians aged 55 to 64 surpassed Canadians aged 15 to 24 for the first time in history.

It also showed the number of people over the age of 85 has more than doubled since the 2001 census, making that cohort the country’s fastest growing demographic, at 861,000 people as of 2021. That number is expected to triple over the next 25 years.

As the so-called grey wave approaches, record-high household debt levels, rising borrowing rates, inflation, and the prospect of longer life expectancies can create complications for retirees and demand for a more ‘mature’ response to investment strategies might be needed.

NO MORE CRYPTO FOR YOU

Another trend that doesn’t bode well for those in or nearing retirement is the decline in workplace pension plans over the past 50 years.  

Even those with company pension plans are having to cope with a long-term shift from professionally managed defined benefit pensions, where the benefit amount is pre-determined, to defined contribution pensions, where the benefit in retirement depends on how well the investments perform during the persons working years.

This structural shift has led many Canadians to take matters into their own hands by investing for their retirement through registered retirement savings plans (RRSP) and tax free savings accounts (TFSA), which has opened to door for casino-type trading platforms to push speculative investments like cryptocurrencies.

There’s nothing wrong with speculative investing if you’re younger or have extra ‘play money’ on hand, but the risk of losing everything and starting over in your fifties would be devastating.

Equity investments more suitable for older Canadians are those that generate, maintain, and grow earnings over time. Many successful retirements ride on the backs of companies with intrinsic value - companies that produce a product or provide a service, consistently expand their market share, and widen profit margins.

TIME FOR AN INCOME STRATEGY

Companies with consistent earnings often pay dividends, and companies with growing earnings, often grow those dividends. A dividend income stream is gold for older investors who need to meet day-to-day living expenses regardless of where markets are trading at the time.

The big Canadian banks, multinational corporations, and real estate investment trusts (REITs) tend to be among the most reliable dividend payers.

Rising interest rates are opening up opportunities for even more reliable income through guaranteed investment certificates (GICs), government bonds, and even investment grade corporate bonds.

Fixed-income investments also act as a good inflation hedge because yields tend to rise with interest rates, which tend to rise with inflation.

As a general rule of retirement investing, the portion of fixed income in any portfolio should increase as the investor gets closer to retirement.  

SEEK PROFESSIONAL HELP

The secret sauce for a stable retirement portfolio is diversification to prevent any particular stock, sector or asset class from having too much sway.

It’s not easy to determine the right mix for any individual’s specific situation and that’s where professional management can be worth the cost.

When we’re in our 20s, we think of an advisor as someone who merely picks stocks that should go up. However, vital offerings such as risk management, income generation, tax and estate planning, and education frequently go overlooked. 

High fees often keep investors away from advisors, but retirement-age investors might have more leverage than they think when it comes to finding a good advisor without having fees eat into returns.

Money managers are usually compensated each year with a predetermined percentage of the amount invested - sometimes as high as three per cent on a portfolio of mutual or segregated funds. Older investors with significant savings can often negotiate a much lower rate because the advisor can invest directly in the market or recommend low-fee exchange-traded funds.

Alternatively, fee-only advisors can set a fixed rate to initiate a portfolio strategy and review it each year as circumstances change.