Top 7 Retirement Myths

A happy retirement is the goal for most working people and one that is attainable with the right planning. There are numerous pitfalls that can derail your retirement dreams, many are based on misconceptions. We outline 7 of the most commonly held retirement myths that you may think might prevent you from a happy retirement.

1. You Don’t Make Enough Money To Save for Retirement. Many people don’t save for retirement because they think they don’t make enough money to make a difference. This is very often not the case. For example, putting aside $100 a month for 35 years with an average annual gain of 5% will compound to $115,000. Even though your total deposits would only amount to $36,000, the effects of compound interest more than triple the amount you put in. And the more you’re able to add, the greater your eventual savings will be. If you don’t think you can save $100 a month, try to think about anything you’re buying or paying for each month that you don’t actually need?  Whatever you spend today, you won’t have for your future. Can you reduce cable, coffee or cell phone charges? The more you’re able to save now, the sooner you’ll be able to retire and the more comfortable your retirement will be.
2. The Stock Market Is Too Risky. Since the 2008/2009 stock market collapse, many people are avoiding investing because they think the risk is too high. What they don’t realize is that leaving their money in a checking or savings account will lead to a guaranteed loss due to inflation. By taking their money out of the stock market when it hits bottom, they don’t make their money back when the market goes back up. In addition to losses from inflation, those who don’t invest their money miss out on the tremendous effect of compound interest over time.  Smart investing through diversification, asset allocation, and not attempting to time the market will mitigate the majority of market risks. The alternative to zero risk is loss.
3. You Can Rely on Guaranteed GIC Returns. The other side of the coin to market risk, is assuming guaranteed returns will be enough. Based on the past 10 years, GIC returns have unfortunately ended up being negative when you factor in inflation and tax. As life expectancy extends, people risk running out of cash if their investments aren’t at least keeping up with the rate of inflation. Consider corporate bonds and alternate fixed income options. If you invest wisely, you should see a good return over and above inflation in the long run.
4. You’ll Choose the Best Investments. The vast majority of investors do not beat market averages. Making money by frequently buying and selling is possible, but not likely in the long run,  especially without expert assistance. Choosing a diversified mix of investments,  including domestic, international, and emerging markets, along with commodities, real estate and a systematic plan, and you’ll be far more likely to retire with more.
5. You’ll Rely on CPP and OAS. While the average monthly CPP benefit is approximately $750 and OAS is approximately $615, this is not enough to survive on alone. With the current levels of government debt something has to give, and it will likely be changes to the OAS  and possibly CPP system at some point in the future. Most likely with delayed payments to age 70 instead of starting at 65. Make it your goal to save and invest enough that you don’t need to rely on OAS at all. Then, whatever you do get from it will be a bonus.
6. You’ll Rely on the Equity from Selling Your Home. While real estate prices in Canada have been soaring for the past two decades, your home should not be seen as the major source of retirement income. As you grow older, you may decide, that ‘aging in place’ is the preferable retirement option. So, for many people, their family home is a place to live in, not a place that will provide income. If you sell your home, and even though the sale brings in a substantial sum, you will still need a place to live – a downsized abode, rental accommodations, or a retirement home. Thus, a portion of the sale proceeds would be used to pay those expenses and they could be considerable, depending on your medical and other support needs.
7. You Won’t be Able to Pay the Bills in Retirement.  The news is full of stories about people who fail to save for retirement, making you think you may be destitute during your final years. Do you really need 70 % of your income to retire comfortably?  Probably not, the only way to know is to calculate your retirement expenses and you may find you may be able to live on as little as 35%  of your last working years gross income. By retirement, many of your expenses have disappeared and you can get by with less income.

If you need assistance please contact me for a complimentary 30-minute discussion and cash flow consultation. It’s never too late to start!