With retirement variables changing, such as, longevity, interest rates and taxes, new investing concerns are popping up that need to be considered in your financial plan.
Longevity: With the average Canadian’s potential time in retirement now measured in decades, the ‘will I have enough?’ question has taken on a new meaning. Designing investment solutions needs to account for this.
Income: With GICs today producing only 10% of the income they did in 1980, generating sufficient clients’retirement income requires a change in thinking about the type and mix of investments used. In today’s low-yield environment, locking funds in so-called “safe” income investments exposes you to risks you may have not even considered. GICs currently don’t produce enough return to even keep up to inflation, especially after tax is figured in.
Volatility: Market volatility is a normal part of investing, and shows that markets are working as they are supposed to. But considering that today’s markets are twice as volatile as they used to be, the ups and downs can take a tough emotional toll if a sound plan isn’t in place. Strategies that help you manage both volatility and your emotions will help keep you on track. It requires developing an investment mix that stays the course when the going gets tough, but possibly more importantly, determining realistic margins that your portfolio can vary within without sending you into a panic attack. Not listening to the talking heads on the news also helps the nerves!
Estate: Your estate plan needs to do one thing really well, and that is to reflect your wishes for the disposition of your eventual legacy. Building an estate plan that matches your legacy ambitions requires addressing a complex range of financial considerations and engaging the help of a team of experts to help implement the best plan.
Inflation: Staying ahead of inflation means developing a smart growth strategy, as even relatively low levels of inflation can significantly affect your investments over time. So while inflation may not be your top concern today, you should be thinking about how to counter its erosive impact on tomorrow’s retirement nest egg.
Taxes: “How can I reduce taxes?” is a common question. Minimizing taxes is a team effort. Taxes typically can eat away close to half of one’s gross income, which includes taxes on different types of investment income. Controlling the negative impact of taxes on your portfolio requires specialized investment strategies and the help of different experts.
I am continually surprised at how little people understand about tax, especially the tax liability that is building in their final estate. This is further exaggerated by the capital gains associated with increasing values on land, recreation property and commercial real estate, along with recapture on assets.
Starting sooner rather than later into your retirement and estate planning process keeps the door open to a wider range of options. Waiting until forced into decisions closes the door on many options and entails significantly higher costs.
Just like climbing a mountain requires taking the first step, starting into a financial planning process requires sitting down with an experienced professional who has referrals to other tax and legal experts. Someone who can keep the process moving along and help you work through the tough emotional issues that hold many families back. Then finally, help develop the mechanics of your plan, which is usually the simpler part of the whole process.
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