Knowledge is power

Learn about investing so you can make informed investment decisions to help you reach your retirement goals.

Don’t chase quick returns

Buy low, sell high. It sounds simple enough. But trying to time the stock market to buy when prices are low and then sell when prices are high can be harmful to your investments. Studies suggest investors who buy and hold — riding out the market ups and downs — will fare better in the long run than investors who jump in and out of the market. That’s because market gains are often the result of unpredictable, strong price surges that take place over short periods. To reap the full benefits of the market over the long term, you need to stay invested during all those surges. Leave market timing to the experts and focus on your personal financial goals.

Commit to regular reviews

Life is constantly changing, so it’s important to review your investment selections on a regular basis – at least once a year. Have you purchased a house? Is your child entering university? Is retirement approaching? When you experience major lifestyle changes like these, re-evaluate your investment objectives and your portfolio to see if you need to make changes.

When reviewing your investment portfolio, think about:

  • Asset mix fit. Does your asset mix still reflect your situation? Lifestyle changes can affect your investment personality. Retake the Investment personality questionnaire to determine if you’re still invested correctly.
  • Fund objectives. Are your investment selections meeting their objectives and producing suitable returns over the long term? Do you need to look at other opportunities offered by your plan?
  • Contribution amounts. Has your pay increased? Have other financial obligations lessened? Consider increasing your plan contributions.

How much will you need to retire?

As a general rule, many retirement planning experts say you need to replace about 50 to 70 per cent of your pre-retirement income. But you may need more or less than that. It depends on a number of factors, such as when you retire, your retirement lifestyle, life expectancy, inflation, and how much income your savings generate.

The good news is many of your current expenses will likely shrink once you stop working. You probably won’t be spending as much on commuting, lunches, work clothes, and union or professional dues. You also won’t need to save for retirement anymore, so your saving habits may also change.

At the same time, some new costs could surface. You may want to travel more or take up new hobbies. Healthcare and dental costs might go up as you get older. You may also need to hire people to look after some household chores – such as lawn care or painting. To plan ahead, draw up a detailed budget of what you think your post-retirement expenses will be.

Keep inflation in mind

What exactly is inflation? It’s simply the overall increase in the cost of living caused by a rise in prices.

Over the past two decades, we’ve experienced an average inflation rate of about 2.5 per cent a year.* Assuming the same average inflation rate, in 20 years, your current dollar’s buying power will be decreased by about 40 per cent. To achieve your retirement dreams, your savings must grow faster than inflation. Your investments must earn higher returns than the annual inflation rate.

For more information on:

Income tax: Call the CRA’s Tax Information Phone Service (TIPS) line at 1-800-267-6999, or visit http://www.cra-arc.gc.ca.

Government income plans: For information on the Canada pension plan and old age security, contact Service Canada at 1-800-277-9914 or http://www.servicecanada.gc.ca. For details on the Quebec pension plan contact the Régie des rentes du Québec at 1-800-463-5185 or www.rrq.gouv.qc.ca.

* Bank of Canada’s Inflation Calculator at www.bankofcanada.ca.