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Retirement Planning

Assigning Jobs to Your Retirement Savings

June 29, 2010

With the current low interest rate environment and volatility in the markets, what is the best way to manage retirement savings?

Most retirees or soon-to-be retirees have more than one goal for their retirement savings and each goal likely comes with a different time horizon and tolerance for risk. A strategy to manage these retirement goals is to take each goal and assign jobs. There are generally three key jobs for retirement savings: day-to-day essentials, lifestyle and long-term care/legacy.

Job #1: Day-to-day essentials. Costs associated with putting food on the table, heating the home, providing for charities and paying taxes.

Solution: A portfolio required to provide certainty. Generally no-risk investments such as term deposits/Guaranteed Investment Certificates meet this need. For many retirees, government benefits such as Canada Pension Plan and Old Age Security and other pensions provide for some or all day-to-day essentials.

Job #2: Lifestyle. Money for winter trips down south, dining out regularly, presents for grandchildren, hobbies and activities.

Solution: A portfolio to accommodate discretionary spending. Taking on some risk to achieve a higher return may be appropriate depending on time horizon.

Job #3: Long-term care/legacy (i.e. estate). For the portion of retirement savings that is left over after taking care of job #1 day-to-day essentials and job #2 lifestyle. Time frame could be over 30 years depending on your age. This goal may be met by the eventual sale of your home.

Solution: A portfolio invested with the potential for higher returns. The increased risk can be offset by the time horizon.

Assigning jobs to your retirement savings and investing accordingly will help provide peace of mind and ensure that you have enough money to meet your financial goals in retirement.

Adapted from article written by Keith Pangretitisch “Assigning jobs to retirement portfolios” August 19, 2009

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