The Retirement Shift: Why Your Savings Strategy Needs a Refresh

Twenty years ago, retirement meant a pension and settling into a quiet lifestyle. Retiring in 2025 looks very different. This generation of retirees is living and working longer, as they redefine what it means to be retired and what aging entails. Between elder care, supporting adult children, and a market that swings faster than ever before, traditional retirement planning won’t cover modern retirees’ needs. This generation needs a dynamic approach to retirement planning–from versatile investment options to finding ways to make savings last longer.

Why traditional retirement strategies may fall short 

Statistics Canada projects that the number of Canadians aged 85 and older could triple to 2.5 million over the next 25 years. Add the rising cost of living, plus the ongoing pressures of the sandwich generation and many seniors’ savings will have to stretch further and cover more.

What’s more, this generation won’t be relying solely on pensions. “Over the past 20 years, especially following the 2008 financial crisis and the prolonged ultra-low-interest rate environment, defined benefit pension plans have largely disappeared,” explains Mark Lu, Wealth Planning Strategist at Canada Life. “This shift has transferred the responsibility and considerations of managing retirement income to individuals.”

The way we invest has also changed. “Markets are more volatile due to the vast amount of information available and the speed at which it impacts the market,” says Lu. As markets, lifestyles, and lifespans change, an advisor can help make sure you’re on track for retirement.

Refreshing your savings and investing strategy 

No pension? No problem. There are other ways to build a portfolio for retirement. Using a TFSA alongside your RRSP is a good place to start.

Within your registered and non-registered accounts, there are diverse investment options to consider, including annuities and segregated funds. “Guaranteed instruments such as annuities are great options to  cover fixed expenses, while you use market-based investments to manage more flexible expenses,” describes Lu. He points out that while this means you might have to scale down your lifestyle during leaner times, you won’t have to worry about having the funds to cover your basic needs. 

Segregated funds can also provide a guaranteed level of income; usually 75 per cent or 100 per cent of your initial investment is guaranteed at maturity or when you pass away. As retirement nears, you can adjust and rebalance your portfolio and regularly review your retirement plans to ensure it continues to meet your needs.

Making your savings last longer 

There are many ways to stretch retirement savings, including revising your budget, delaying CPP or pension withdrawals for higher future income, and minimizing your taxes by carefully planning out where to withdraw your funds from first (e.g., RRSPs before non-registered accounts). You could also model different income scenarios to make sure you’re ready for anything.

The amount and timing of withdrawals from your account can also affect your retirement savings. One way to help reduce the impact of taking money out is to use a cash wedge strategy. This means setting aside about two years’ worth of spending money in a savings account. You withdraw regularly from that account instead  of the market-based investments. Then, you replenish the savings only when the market is doing well. This helps avoid having to sell investments when markets are down.

Canada Life offers investment and retirement consultants to help group plan members plan for retirement, says Lu. Having expert advice can help reduce anxiety and provide some reassurance for the years ahead.

Expect the unexpected (and then plan for it)  

It’s important to have contingency plans for retirement in case the market shifts. “Canada Life retirement funds are designed to help protect savings from market fluctuations while allowing them to grow,” says Lu. “These funds bring together a mix of investment styles, strategies, and asset allocation to guard against inflation and help reduce the effects of market volatility.” You may also have to enter long-term care sooner than you think, your roof could spring a leak, or you could get injured, so it’s smart to build in a little extra wiggle room for life’s unexpected expenses.

With all the changes to modern retirement, we need new strategies to make the best of the golden years. No longer can retirees rely solely on a pension, and you can’t simply “set it and forget it” when it comes to managing retirement finances. It’s a dynamic process that you need to manage on an ongoing basis – checking in with your advisor and reviewing your accounts as you progress through life stages. Canada Life can help you at every stage, whether guiding you through your investment options or assisting you in recalibrating after a change in your financial situation. With the right approach, you can achieve the secure and fulfilling retirement you’ve always dreamed of.

To learn more about building your wealth, visit canadalife.com/retirement